Pricing Benchmarks: Where Do You Stand?

Let’s start off with the basic definition – what are pricing benchmarks? It’s the process of comparing your prices to the prices of the competition in a specific market segment. Why, one might ask, blissful in ignorance. The answer is very simple – because understanding your pricing and your position among your competition is of critical importance to a thriving business. This is especially pertinent to pricing managers and analysts who are trying to stay on pace with persistent fluctuations in the e-commerce ecosystem. Armed with this knowledge, a business is effectively positioning itself in the marketplace so that the target audience is thus willing to choose and pay for its products.

That is certainly not an easy feat to achieve. This post will explain the nuances of price benchmarks and provide a more detailed look into the inside machinations of the process.

When do you use pricing benchmarks?

The need for pricing benchmarks arises, for the most part, when a business opts for the competitive pricing strategy. Just by observing other businesses in terms of their popularity and the quality of their offerings, a business is able to utilize pricing benchmarks to set a price for their own products, all the while keeping in mind the market position as related to its competition.

Of course, using pricing benchmarks while balancing competitive pricing with profit margins is only one way to facilitate it into your business operations. A smart business will use it to analyze and identify both new and existing ways to improve its pricing methods, as well as implement processes that help scale and grow the brand’s presence.

How to use it?

Now we get to the interesting part. Clearly, price benchmarking is a rather valuable tool in determining prices to achieve greater value. It also enables to assess the competitiveness of market rivals, identify any performance gaps in their operations and accentuate their strengths and weaknesses. But while the language here is quite pleasing and exciting, how is the whole process actually achieved? We have two words for you – competitive intelligence.

general pricing benchmarks

The end goal of price benchmarking is to closely follow the pricing policy and strategy a business sets. From a competitive standpoint, it aims to be in line competitors in the industry, especially those considered to be leaders. This is a huge feat to accomplish and requires large amounts of time and effort to identify the actual pricing used by those competitors and the reasons why they use those prices. That being said, it’s clear that competitive intelligence is an enormous vast field of information that takes lots of time to convert it into usable insights. As time is short and precious in today’s fast-developing business market, competitive intelligence tools assert themselves as the best option by far. There are a few reasons why:

  1. Real-time data

As previously mentioned, rapid developments in the business world create quick changes that can make all the difference in the end. That is why real-time insights are so important – they provide a current view of the state of the market so that you are always aware of what your competition is doing, thus providing you a highly sought-for competitive advantage. Real-time data also effectively addresses the question of accuracy as it reflects actual prices across the marketplace with constant updates.

  1. Competitive market and competitor data

The data provided with competitive intelligence tools is highly relevant and detailed. When we say detailed, let’s just say that we are talking about millions of products on the web. That way, you are able to monitor competitor prices real time and, with a wide coverage like that, map and compare similar products in your competition to optimize your prices.

  1. Automation

What good would this data be if you had to manually set and sift through it? Very little, we say,  which is why high levels of automation are necessary for successful operations in these matters. Competitive intelligence tools can completely automate competitor benchmarking, allowing you to save time you can use for other matters.

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An example of Intelligence Node’s competitive intelligence tool

Add in the myriad of other things like data comparability, easy integration, multilingual support (any decent software will cover as many languages as possible to allow price benchmarking across different markets irrespective of the catalog display language) and so on – you get a complete picture why competitive intelligence tools are not only a credible and valuable option but must-have today.

The benefits of pricing benchmarks

  1. Determine ideal pricing

Pricing benchmarks validate the pricing strategy and policy a business chooses, compared to market best practices and other pricing models. It also identifies all the reasons for the given price such as costs and other expenses incurred by the competition.

  1. Enter a new market with appropriate pricing

Entering a new market with price benchmarking ensures the operation is feasible in the first place. As it includes cost estimates of operating in specific locations, price benchmarking provides an overview of the financial viability of such undertaking.

  1. Helps with price optimization

Because the process reflects actual prices, it makes sure you are competitively priced at all time – not underpriced or overpriced (coupled with an intelligent competitor price software, you’ll be able to seize on the customer demand to fully optimize your revenue).

  1. Save time

The simplest facet of pricing benchmarks, the time-saving aspect cannot be underlined enough. It gives you more time for other important processes in your business operations, not to mention that with pricing benchmarks through pricing intelligence, there is no need for detailed research on your own to establish what customers are paying for.

Conclusion

Pricing benchmarks help determine what your audience is willing to pay for the products and services you offer, as well as monitor what your competitors within the industry are able to charge. For a business looking through a competitive lens, there is no better way to gradually adapt and improving their offerings. However, the process can take time which is why a company should consider choosing a software solution that basically does the work for you.

Competitive intelligence tools provide data about both the competition and the market, while simultaneously saving you money and time with minimum risk. Price benchmarking is an ongoing process as prices regularly change. In order to be successful, a business needs to reflect the shifts in consumer preferences with their own prices, which is all the more reason why competitive intelligence tools with real-time data are the way to go.

 

Pricing Your Product: Part Art & Part Science

Pricing. It’s that enigmatic element of any business that’s sure to keep executives up at night and constantly second-guessing themselves. Fire up a Google search or read any business advice book, and you’re bound to come across a bazillion different pricing strategies, all of which are purported to be an instant shot in the arm to your profitability. Continue reading “Pricing Your Product: Part Art & Part Science”

How to Price a Product at a Rate That Flies Off the Shelf

People can be extremely picky about prices. Most American consumers are looking for the highest quality item for the lowest price. This can make things challenging for those hoping to make a profit in return for providing the product. The treasured secret to a successful business is having the right system to price products properly. With the right price, you can make all of the money you put into the business back and then nurture the company as it grows. Continue reading “How to Price a Product at a Rate That Flies Off the Shelf”

Setting Retail Prices Right — Everything You Need To Know

One of the daunting tasks being in retail is setting the price and setting it right. Pricing isn’t easy when you’re in the retail scenario—you set the price low and you lose out on profits—you set the price high and you lose out on customers.

It’s completely up to you to decide whether you want to sell a lower volume and charge a higher price or high volumes and lower prices. It’s for you to decide the direction which will enable you to make profits.

However, when you have a range of products to see, you can take the risk of lowering the prices of few products sometimes, as long you can keep the prices of other products marked up higher.

Continue reading “Setting Retail Prices Right — Everything You Need To Know”

How to Succeed with Your Skimming Pricing Strategy

Let’s assume you have a product you’re ready to launch. You’ve weighed all the possible pricing strategies that are out there, and you’ve opted to go with a skimming pricing strategy where your price is set high based on the value to maximize profits, and then lowered over time to attract your the more frugal shoppers.

Great, but now what? What are your best methods for success? If you are asking yourself these same questions, you’re in luck because below you’ll find some ideas on how to succeed with your skimming pricing strategy. Continue reading “How to Succeed with Your Skimming Pricing Strategy”

Is There Such Thing as ‘The Right Price’ for Your Products?

What is it that makes the average shopper transition into a customer? The trouble for many store owners lies in trying to determine the best price for their products. Retailers understand they need to make a profit to stay in business, but what is that sweet spot that will keep the customers happy, and keep your numbers in the black? Here’s a quick guide to setting the right product price:

The First Part of the Equation

  1. Your costs of acquisition How much are you paying to get the product into your inventory? You likely already know that retail price less wholesale price is the generally accepted formula for determining profit, but it’s only a piece of this puzzle.
  1. Costs to maintain inventory, promote, and distribute the product – Storage, marketing, and shipping of the product can have a serious impact on a product’s profit margin.

Finding the Sweet Spot for Pricing

After determining the baseline profit from the factors above, now it’s time to find the happy medium between maximized profits, and customers that will buy, and keeping them coming back for more.

  1. Start with the Manufacturer Suggested Retail Price (MSRP) Just like it sounds, this is the price the manufacturer suggests you sell the product at.
  1. Look at your top competitors that are selling the same or a similar product – Although you may be unable to tell if anyone is actually buying at this price, you will at least know where your competition stands in terms of pricing.

**Insider tip: IntelligenceNode’s software will help you systematize your competitive pricing process and automatically price your goods above or below the competition.

  1. Consider psychology in pricing – For example, if you have a product you are considering selling for $10, sell it for $9.99 because the mind can justify a purchase more if it’s less than the larger dollar amount. Yes, it’s just a penny, but because it’s less than $10 our brains see it as more of a deal. A price ending in the number 9 also yields more demand, as was found in a study published in Quantitative Marketing and Economics.
  1. Don’t over price, but don’t under price either – When a product feels “too cheap,” customers consider it to be lower quality. Yet, overpricing leaves customers feeling duped. This is why keeping an eye on competitor pricing is so important. You want to be slightly cheaper, but not too much cheaper because then you’re giving the impression of cutting corners. Even if you are simply taking less profit, the perception is key. If you’re pricing higher than your competition, it should be justified with something like free shipping, or fast delivery to avoid losing the sale.
  1. Know your target audience – Consider who is buying your product? For example, college students are usually strapped for cash which could cause them not to buy. However, an elderly customer may be just as strapped for cash if they are saving for retirement. Who is your ideal customer or persona? Are they flush with cash? Are they looking for a great deal? What are their top priorities? What makes them need the product you’re selling? Honing in on your perfect shopper could help you determine the best price.
  1. Keep up with market trends – If there is a surge in demand or a sudden standstill to your sales, you should already have some insight as to why. Keeping up with market trends will help you to determine if you should be raising or lowering your prices. Your competitors are also likely watching the market, making it that much more important to stay up to date.
  1. Consider split testing – Split testing could be your quickest way to determine the right price for your products if you’re struggling to decide. This is especially helpful if there aren’t many competitors for the product in question. Create two landing pages with two product prices, and run ads to both. Which ever one gets the highest conversion is likely the best price.

Other factors that can be used in setting the right product price include things like:

  • Wording of the sales page. For example, saying something like “a small $5 fee” vs. “a $5 fee,” triggers the brain to not think of the fee as a big deal.
  • Softening the blow with payment options. Paying $9 a month feels a lot less painful than $108 today.
  • Free shipping, or discounts for purchasing multiple products. When customers believe they are getting a bargain, it can change their buying habits.
  • Thank you emails and loyalty discounts. Customers are often willing to pay more, and then return to a retailer that they feel genuinely cares about them.

All things considered, your perfect product price today may not be the same next month, or even next week. Your best bet is to keep an eye on market trends, your competition, and your own customer data. With a little luck, the prices you set will make your customers happy, and keep them coming back for more.

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How to Use the Price Quality Matrix to Optimize Your Product Pricing

Product pricing is one of the biggest questions retailers face for a reason. The relationship between an item’s price and its quality — and perceived value to consumers — is oftentimes the deciding factor in shaping whether or not a purchase ever takes place.

In such an increasingly crowded marketplace, the concept of cash cow marketing has been called into question, leaving sellers in the eCommerce space and beyond to reevaluate how they approach their respective businesses. Fortunately, the Price Quality Matrix presents a simple way to leverage product value and address the pricing dilemma head-on.

What Is the Price Quality Matrix?

Designed by Philip Kotler, the Price Quality Matrix centers on the cross-section between the two metrics that lend the model its name. By determining the position of your products or services relative to the competition, retailers are able to use the price and quality of each item to identify where they stand in the market. Of course, this knowledge can then be incorporated directly into your decision-making process when it comes time to devise pricing strategy. Just think of it as another way to assess your relevance in today’s fast-paced and ever-changing business landscape.

 

price quality strategy model

How you price your products plays an integral role in how they’re perceived by consumers. So it’s important to ensure that the quality of your offer complements your price point accordingly. Based on Kotler’s nine-variable model, let’s take a closer look at the possibilities that result depending on how price and quality interact with each product or service.

  • Premium (high price/high quality): When a product’s high price is matched by its quality, this creates an image of a premium item that consumers consider a worthwhile investment, such as Apple products.
  • Over charging (high price/medium quality): Even if a product’s quality is sound, it can be tricky to elevate the price point beyond what the product offers. Tread carefully in this scenario.
  • Rip off (high price/low quality): In case the name of this category isn’t a dead giveaway, steer clear of this one at all costs, as selling a subpar product for such a high price point is a surefire way to stir bad word of mouth when consumers get wise.
  • High value (medium price/high quality): Conventional wisdom says that your price should surpass your product quality, since the implication is that your business will be able to turn a profit more easily. Yet, it may be worth it to offer a high-quality product at a slightly lower price upfront to build word of mouth.
  • Average (medium price/medium quality): As its name implies, these products are the very definition of “you get what you pay for.” Generally, consumers know that the value they receive from a given product is in line with the price point. It’s always a good idea to offer a lower priced alternative of premium products to encourage engagement.
  • False economy (medium price/low quality): The aforementioned danger in overpricing your products applies here as well, though to a lesser extent. You’re better off developing a better product or dropping the price to fall more closely in line with your product offering.
  • Superb value (low price/high quality): The best-case scenario for consumers, a high-quality product with a low price can be tricky to pull off and could end up getting into your bottom line.
  • Good value (low price/medium quality): Consumers are always on the lookout for an affordable, quality product. To foster long-term customer loyalty, it might be worth it to feature your medium-tier products at a slightly lower price point.
  • Economy (low price/low quality): There’s something to be said of economy options. In your business, this may simply be a free version of a product that offers fewer features. However, it’s an easy gateway to establish more profitable customer relationships down the line and well worth considering.

The Price Quality Matrix Revolution

In recent years, product pricing has become a bigger issue than ever before, thanks to the dynamic created by increased automation and the expansion of online retailers. However, by developing a better understanding of the connection between price and quality as described by Kotler’s model, you can use the psychological aspects of product pricing to create a trust with customers that will ultimately reap long-term rewards. Simply asking yourself where each of your product offerings fits within the above categories can shape a clearer vision of where you fit within the marketplace and the possibilities for growth that lie ahead of you.

For more details about how you can optimize your pricing and foster the success and reach of your business, check out our eBook, “A Comprehensive Guide to Competitive Online Retail Pricing Strategies.

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