Figuring out a price for your product or service is not dissimilar to walking on a tightrope. On the one hand, you could purposefully overprice your product to increase profits and place your product as high-end, however, you may be placing the price too high, which would alienate you from the market. On the other hand, you could lower your price to make more sales, but this may result in slow profit growth and a cheaper reputation in the market. As said above, it’s a complex and technical tightrope that can sometimes result in many wasted hours spent on pricing updates and ultimately failed products and businesses.
Out of all the P’s that make up the skeleton of a successful brand or retailer (product, place, promotion and price), pricing has become more and more vital to that success. Before the internet and e-commerce radically changed the way people shop, retailers could comfortably rely on this formula for financial growth. However, as e-commerce takes over physical stores and traditional shopping methods and habits, it is the pricing element of the four P’s that is showing brands the way to increased profits and scalable growth. Omnia looks at pricing as the new commander of the 4 P’s and why a particular pricing strategy - Dynamic Pricing - should be the top choice for brands and retailers.
Price: The new leader of the 4 P’s
Small but significant price changes have shown to be the most useful in achieving financial growth. According to a study conducted by McKinsey & Company, pricing improvements can significantly impact margins in a positive way, ranging from 2.5% to 9%, depending on the type of product and company. For omnichannel retailers, the boost was 3%. The study also found that it was pricing improvements over a reduction in fixed or variable costs that resulted in larger margin profits. This data can give brands and retailers hope that the fears or obstacles associated with price improvements, such as the risk of a competitor’s response or the risk of customers choosing not to buy, can be overcome.
Despite this, many brands and retailers are still not prepared in making pricing improvements a central factor for margin boosts in the future. Going forward, only 6% of the study said that they were “very prepared” to capture the pricing opportunity and 55% said they were “somewhat prepared”. So, if brands and retailers are struggling to focus this vital element, what can they do to prioritise pricing while simultaneously learning, growing and profiting?
Dynamic pricing as a solution
For the average brand or retailer, both off and online, it is difficult to teach or learn dynamic pricing without a professional SaaS (software as a service) company doing the teaching and implementing. Unlike marketing, management or sales, it isn’t exactly a subject learnt at school or at any tertiary institution and there is very little reading material on it. This may explain why retailers have largely been so slow in prioritising pricing as a solution to boost profits.
Dynamic pricing, as opposed to other pricing strategies, uses multiple prices for a product at various times, which are all dependent on market trends, supply and demand, a competitor’s prices, customer behaviour and internal company costs and even seasonal or weather changes. These numerous price changes are not chosen at random - in fact, it’s quite the opposite. Direct data scraping from competitors paired with third-party data from customers makes up an advanced and information-packed strategy to automate price changes, prioritise time within the business, and increase profits.
How our pricing software is executed at Omnia Retail
Although Omnia’s pricing software is at the helm of our unique enterprise offering, it is also our customer success division that comes part-in-parcel that sets us apart from other providers. Implementing our dynamic pricing software isn’t a rushed job that ends with our technical team leaving you, never to be seen again. In fact, we spend approximately 68 hours spread over 8-12 weeks teaching and applying our software, sharing knowledge with your team members and getting all the necessary parts of the machine well-oiled.
Our customer success approach is divided into two parts: Preparation and action. “Preparation”, which amounts to approximately 20% of the process, involves the Omnia team and the client coming to share knowledge and vital information. This includes reading shared content from Omnia including the onboarding playbook and process deck; a technical setup guide; providing us with the needed information such as product lists; and any info that came from competitor direct scraping.
“Action” takes up 80% of the process and involves a more hands-on approach in getting the ball rolling. It involves processes such as defining the various roles within the project and involving all members from the technical to the creative. Other processes include portal setup, data mapping, goal planning, implementing pricing strategies, education on the software and raw data, technical management, reporting and more.
Thereafter, the client goes live and their relationship with Omnia continues as they may need it.
Case study: Automating and optimizing pricing for Plein.nl
Plein, a Dutch online marketplace for a range of toiletries, beauty, baby, and pet products, sells their stock via their own website and on other marketplaces such as Bol.com and Amazon. The Plein team needed a pricing solution to automate and optimize their prices on their website as well as on the products being sold on marketplaces, all of which have different rules and regulations. Multiple pricing strategies were needed for both their website and third-party sites that needed to run efficiently and parallel to one another.
Plein’s goal is to become the number one online marketplace for personal care, and more so, their aim is to be viewed as the least expensive option in the Netherlands. With all this in mind, Omnia took on the exciting challenge ahead. Today, Plein uses Omnia’s products to receive market insights, automate its pricing strategies and to automatically calculate change prices across the market.
Using both Dynamic Pricing and Price Watch, Plein was able to receive pricing data from their competitors to better inform themselves, and all pricing across multiple platforms became automated, meaning hours spent doing manual updates was spent elsewhere. We also provided insights into the tradeoff between Plein’s margins and sales.
The leaders of retail pricing solutions across Europe
Price optimization has a large impact on whether profits grow or not and whether retailers can thrive. For customers, it is also vital that they receive a competitive price for a product and are not swindled. The best way to balance oneself on this slim beam is to employ the smarts of dynamic pricing.