Research shows that consumers are poised to spend more than ever on online retailers in 2016. According to the U.S. Online Retail Forecast, spending on e-retailers is forecasted at $380 billion in 2016. Considering that online customers spent $340 billion in 2015, that's a 12% increase. The increase in spending will spur competition in the e-commerce industry.
One way to keep pace with this evolving industry is to check that you're maximizing revenues and margin from your products. If you aren't using these three fixes to improve your e-commerce pricing strategy, then you are probably missing opportunities to improve sales and increase profits.
1. Set Your Prices with the Freshest Data
Many companies set prices for the current year by reviewing the previous year's metrics. While it's great that these companies use data to determine prices, they are using old information that is no longer accurate.
As Black Friday and Cyber Monday proved in 2014 and again in 2015, last year is a very questionable predictors of this years' performance. Instead, truly sophisticated ecommerce retailers–Amazon, for example–focus on consumer behaviors. What are people buying now, before the holidays, what is popular–not based on purchases, but on page views. This gives you a much more accurate, up-to-date understanding of demand. And if you look at recent promotions, only weeks or months ahead of the holidays, you will be working from more accurate predictions.
Price testing–which, if you have enough traffic, can be done rapidly–also can give you fresh data to work with. Unlike brick-and-mortar retailers, who would have to send armies of store clerks out to re-tag everything, online you can adjust your prices every day if you want to in order to understand the market. No matter what, if you're using last year's metrics, then there's a very good chance you could be wrong -- and that could hurt your bottom line.
2. Get More Money from Your Site's Visitors
According to our research, the median conversion rate for visitors to an ecommerce site is about 2.35 percent. So, if 10,000 people visit your site today, the chances are that only 235 of them will buy something.
That's pretty unremarkable. There are several ways that you can increase conversions, such as adding reviews and streamlining items for sale. But even so, many potential buyers still navigate away from the site at the last minute. Pricing is frequently the culprit.
You have presumably A/B tested much of your funnel, from the landing page to the product page and the shopping cart experience. But you know that price, and overall value (free shipping, returns policy, etc.) plays a huge part in converting visitors. But traditional A/B testing tools cannot handle prices–changing them simultaneously can run afoul of the law in many states, and can anger users if they see different prices on their mobile and laptop.
Instead, running sequential A/B tests, with a control group, and doing what's called a difference-in-differences analysis, can lead to the same confidence as an Optimizely-style A/B test–but runs no risk of upsetting users or Attorneys General. Experimenting with Perfect Price can quickly lead to major wins, as you improve that 2.35% median conersion rate sometimes by as much as 50% –or, you find ways to raise prices (and margin) without hurting conversion rate.
You may be thinking: I can't change my prices. Perhaps you can't change your base prices frequently. But, have you ever run a promotion? Think about what data you could have captured and used to make more out of the next promotion, if you had done a simple controlled experiment.
3. Find a Price that Boosts SalesMost retail professionals know that consumers are more likely to buy an item sold at $9,999 than $9,999.00. It's the same price, but people may interpret the longer form as a bigger loss. Consumers are also more motivated to buy items that end in the number nine. Putting a $40 item on sale for $39 could get you more sales than listing the price at $35. (The same paradox can hold true for discounts–60% off might convert worse than 45% off, because it seems too good of a deal).
Not all consumers, however, act the same. It's always a good idea to price test your strategies to make sure you aren't missing out on profits. Rather than going on gut, you can prove your hunch and know for sure you're not losing money. Perfect Price is a useful tool that enables you to test prices to improve conversions and gives you a greater understanding of where you're leaving money on the table. Since it uses data taken from your site, you can run an up-to-date pricing strategy that fits your unique customers and audience.
Data is key to setting prices that will encourage people to spend more money at your e-commerce site. It's vital to use that information to gather insights and create a plan of action. That's how you become a top ecommerce player.