If you want to increase sales: is it more profitable to increase traffic by reducing price or by increasing your online marketing bids?
Pricing has a direct effect on margin and a strong impact on a product’s conversion rate, both of which are key factors in determining online marketing bids of that product.
For retailers that use Omnia's dynamic pricing software we typically see improvements of +20% in return on ad spend (ROAS), without changing anything in online marketing.
When determining optimal price points, one should consider all variable costs. This means purchase price (including all conditions), but also logistigs costs and marketing costs per product.
Pricing is the #1 factor impacting the online marketing results of product ads on channels such as Google Shopping. More competitive pricing typically increases the chance that customers click on your ad (higher clickthrough rate, or CTR) and the chance that customers actually buy the product (higher conversion rate), making the marketing campaigns more effective. How sensitive CTR and conversion rate are to price changes is determined by the price elasticity of products and differs highly between products and categories.
Besides the effect pricing has on the efficiency of the marketing campaign, it also decides the level of marketing budget that is available. Being priced more competitively will leave less margin to buy marketing impressions.
Finding the right balance between pricing aggressiveness and marketing spend is a big challenge and differs for each product. Find out for yourself how challenging this is, by changing the selling price, marketing budget and price elasticity in the widget below. Try to find the optimal turnover and profit for both low and high elastic products.