Hello everyone, Guillaume Le Tual here, host of the E-commerce Wizards Podcast where I feature top leaders in business and e-commerce. Today’s guest is Burc Tanir from Prisync, he’s the CEO and co-founder. Today we’ll be talking about pricing for e-commerce, we all know how pricing is critical. If the price is too high, obviously we feel losing sales if the price is too low, well we’ll make a business to be not profitable. And so how do you strike that balance? And can you afford to raise prices? Or can you afford not to and if the competitors are dropping prices on something should you price match, especially for e-commerce? All kinds of questions that we’ll be talking about today.
Before we get started, our sponsorship message this episode is brought to you by MageMontreal. If a business wants a powerful e-commerce online store that will increase their sales, or to move piled up dormant inventory to free up cash reserves, or to automate business processes to gain efficiency and reduce human processing errors, our company MageMontreal can do that. We’ve been helping e-commerce stores for over a decade. Here’s the catch. We are specialized and only work on the Adobe Magento e-commerce platform. We do everything Magento related. If you know someone who needs support, design, maintenance, debugging, we got their back. Email our team [email protected] or go to magemontreal.com. All right. Burc, it’s nice having you here with me today.
Burc: Thank you. It’s great to be here.
Guillaume: Yeah, so your whole professional life is about the pricing and pricing automation and all this. We’re very interested with the wisdom you want to share with us today for the strategies and tactics. Do you want to tell us just a quick introduction in a few moments about what your company does?
Burc: Sure. First of all, thanks a lot for inviting me. And thanks a lot for having me for this session. And like as you as you already introduced me, I am the CEO and co-founder of Prisync, which is essentially a competitor price tracking for e-commerce companies. So, we basically have those e-commerce companies out there to automatically monitor all their competitors product prices. And in addition to that, we actually provide them with a dynamic pricing engine where they can incorporate all those competitor prices into an equation.
And they can actually reprice against their competitors by setting up, let’s say, target pricing positions. Or they can say I want to be 5% cheaper than the cheapest of my competitors. But I still also want to, let’s say $10 or 10% profitability. According to those rules, they set up in our dashboard, we don’t recalculate their, let’s say, optimum prices in mind. Those rules, we actually adjust them on the fly. And we have for example, integration with Shopify and Magento, your domain. I like to tell it this way, we help those ecommerce companies of all sizes through price like Amazon, because Amazon has this, army of developers who built their, let’s say, advanced pricing capability. But we kind of try to level the playing field, and mainly help e-commerce small and medium sized businesses to kind of have that capability.
Guillaume: Alright, because if you have a very large catalog, officiant of large varies, but let’s say you have 40,000 products to manage here, obviously, setting prices manually for all this is tedious. Or when you do it, you sort of do a one batch update of your pricing, and then it tends to not be very dynamic compared to the market. So there’s a lot of missed opportunities if we don’t do proper price tracking, competition tracking, and then we decide how do we position ourselves, do we give discounts or not the kind of brand we are, what kind of margin we want? And you were talking about having a price based on if it’s a low-price brand, based on the company with the lowest price and then still also having a rule about what’s the minimum margin or markup that you want to have on the product to stay profitable, obviously, and you automate all that stuff. Now, tell me, we’re always interested, when can you raise your prices? Especially, when can you find a window of opportunity to say “I could actually sell this for a higher amount and I’m not really going to lose in sales, or the few says I would lose, I would actually make more money with a higher price”.
Burc: Great question to begin with because oftentimes, I am always consulted about potential discounts, promotions and stuff, and people really think about asking how we can really increase the prices so a great initiative there. Thanks a lot for that. I can name like two specific, let’s say competitive cases where e-commerce companies can find sweet price increase opportunities. The first one is actually if they regard is to follow a cost-based pricing approach where for example the relationships with their suppliers and they have a long-lasting relationship with them. They actually supply the products to this merchant at a relatively low cost, for example. And if you set up a static profit margin on top of a cost and ignore the competition, you can actually either underprice your products or overprice your products. In the beginning are underpricing their products, because they follow only their cost but not the competition and they kind of launch those prices and they kind of offered those prices to the market, they noticed that they’re already leaving a lot of profit margin on the table.
If you actually only follow cost-based pricing approach, where you add a certain markup or profit margin, just on your cost, and if you just ignore the competition, you cannot notice those opportunities. But for example, if you relatively have a good relationship with your suppliers, don’t just only stick with your costs, but also always monitor competitors, because I really see this quite often. Companies kind of think that “Okay, I have 10% profit margin so this price is really high”. But they notice that all the other competitors are only applying 5%. But due to their higher costs, they are actually pricing their products higher than the merchant. This is actually one of the price increase opportunities, if you are only following cost-based pricing, when you start monitoring the competitors, you will see some products value are still cheaper than the cheapest of your competitors. So, you can level up to their game because, you will still be kind of the cheapest in the market, but you will make additional profit margin on it from every sale, this is one case.
And then I would say more strategic and more actually exciting action is when you notice your competitors going out of stock, because in our in our technology, in our in our product, for example, we also help companies to monitor their competitors’ stock availability. Because prices basically don’t exist unless the product is in stock. So, if you’re selling a product at $9, but if you place this out of stock, on the website, this price is actually no longer relevant. So, if you, for example, continuously monitor stock availabilities of your competitors, or if you ever noticed that, for example, one of them, two of them just went out of stock for a high demand product, this is actually again, a sweet spot where you can slightly increase your price, because the consumers will no longer have the chance to buy this item from those out of stock competitors. They will probably visit your website more often. And you can actually translate that increased demand into an increased profit margin opportunity. So basically, these are the two cases where merchants should really focus on increasing their prices, not just decreasing the price or offering discounts.
Guillaume: Very good. And let’s say there can be criticism towards automation software that they might create a race to the bottom, how do you avoid that?
Burc: Actually, we always incorporate the idea of being profitable next to being competitive, so we don’t really try to tell people that they should be always cheapest, they should always match the cheapest competitor in the market. Because in case you just only follow the competition, you basically miss the single reason why you are doing this business, to become profitable, to make additional value and to run your family or run your business and whatever. If you incorporate your costs next to this competitive strategy, you will sometimes notice that, for example, there is a really competitive price in one of your competitors and you can’t even really match that even if you go below your cost.
In some cases, we see some companies rushing to discount to match those competitive prices even though they know that they will make a loss out of it, no profit out of it. In such cases, when I actually follow the merchant who doesn’t really discount their products, but instead focus on the cost, they really get results out of them. What I mean is that if you ever see a company and competitor selling a product below your cost, that should actually signal you that your purchase price for that item is really higher than the marketer. This should actually bring you down to your cost structure and essentially your supplier relationship for that particular product and actually for that particular brand. In most cases, I see and hear that this dialogue brings down the cost of those product for that brand, for that merchant dramatically so that they can eventually manage to maybe match those prices. But if you ignore the cost side of things, ignore the profitability and always race to the bottom, this will be failure guaranteed.
Guillaume: We certainly don’t want that. What would be your recommendation to a merchant, let’s take an example. The market is selling on Amazon and various websites, whatever product and you see the lowest prices is $100 and you see some people pricing $120, let’s say it goes all the way to $140. So, you can see the market is anywhere between $100 and $140, it’s a product that you have a lot of availability for and so on. What would be your advice to merchant? Where do you position yourself? It’s a random product or whatever, where do you put your price tag in this?
Burc: Yeah. Actually, like I said, you should always have your costs in mind, first of all. I’m not really saying that you should ignore the competition, this will be absolute right. You should first of all, figure out your costs, your target profit margins, and this should be a baseline for you. For example, let’s say your cost is $100. And you have all those competitive prices, like you mentioned, $100 $120 $140, you should actually say that, okay, for this product in order to sustain this product line, are you okay with this 10% profit margin, so you should have this $110 baseline in the hat. And then you should actually really try to handpick the competitors, or future kind of, like competing against.
Ecommerce companies shouldn’t only take Amazon as their competitors. Maybe they should never do that, I don’t know. But they should actually focus on competitors who are also attracting the same customer audience. For example, you can maybe typically find a Lego toy in the market across, I don’t know, 100 merchants or more than 100 merchants. But basically, price competition makes sense for the products, which are also, let’s say, searched more on search engines like Google, Amazon rather than actually products where shoppers are directly visiting your website and directly actually buying the product from your site. You should actually initially decide on the competitors against whom you will actually reprice your products.
This actually brings us down to comparison engine. We really recommend companies to focus on, for example, comparison engines like Google Shopping. This is actually a primary strategy, because if you’re doing Google Shopping campaigns, your main competitors are actually not those major brands out there. But the companies that are actually pricing their products alongside your products on Google Shopping. So, this actually brings us down to maybe like 20% 25% of the market. So that you should maybe take the competitors, which are out of Google Shopping into consideration while you are repricing your products. But if you’re already doubling down on Google Shopping, you should focus on that segment, for example. And also, even though I’m basically the founder of a competitive price tracking company, I must admit that competitive price is just one part of pricing, that’s the optimization process. This is literally one bit of things though, the other part like I said is cost, you should have a cost-based approach, competition is one thing, but the other part where we are not really doing much about is the pricing elasticity.
You should actually also try to figure out whether discounts are really impacting your sales volume for particular product groups, brands, categories. In some cases, no one will really care about your 5% 10% discount, because they will buy the product from you at that price level before the discount, regardless of the discount. You should also measure what we call price elasticity of demand. If you, for example are dealing with high elasticity products, you should also focus more on competitor prices. But if the price elasticity is less for a certain category of products, you should honestly care less about competitor prices.
Guillaume: Again, that example here where the product is priced on the market anywhere between $100 and $140. You gave as your example, your price is $100 and you want to make at least 10% you said $110. Let’s imagine you have a better cost than this, your cost is lower is at the $90, you’re already at $100 making your premise 10% there. So, your percentage is already covered from a cost-plus approach here. Now, what would be your recommendation to the merchant would be to say well, I’ve already met my cost-plus approach and I’m meeting the lowest price, I’m not driving at race to the bottom, like the cheapest is $100. So, I’m going to also sell at $100 because I’m making my margins there, or would you tell them Well, try a little higher, try to grab a little more because what if you can actually sell that $110 then you will double your profit margin. Where would you tell the merchant to go in that range between $100 and $140, if at $100, you already are making your percentage?
Burc: This is actually essentially what I just mentioned, it’s price elasticity of demand. If you ever noticed that your sales volume kind of don’t decrease as much as the increase in your profit margin, you should definitely increase your prices further. Because like you said, at the end of the day, this also depends on the strategy of the e-commerce player. If they are after market share, they focus on the top line, which is essentially like sales volume, not the profit margin. But if we are talking about, let’s say business as we know it, which mainly tries to maximize the profit margin for the shareholders, stakeholders.
In that case, I think the kind of approach, the attitude of the ecommerce, let’s say, pricing manager should be always increasing their prices as much as they can, like I said. In most cases, people are always seeing pricing strategies as potential discounts, promotions, etc. But like you have been highlighting so far, price increases are as strategic as the discounts and stuff. In that case, it obviously depends on the resources of the company. If we are talking about a small business, they cannot obviously develop a sophisticated AI based price elasticity calculator. But even with a retrospective study, they can maybe price one product at one under 10 for a month, for a week, for a day, whatever you have, and then price the product at one under 20 in the other day. I’m considering that these two days will have a similar demand in the market and so on. And then they can basically measure how many products, how many units they have sold for these two different price points. And if the actual result is like you said, if they have sold more than the half of the price at one at a time, it translates into more profit margin. This is actually a very basic method to calculate the price elasticity of demand for a product. And if you implement this continuously, you will basically end up at optimum price where the sales volume multiplied by the eventual profit margin is the highest. So, this is basically the optimum price for e-commerce companies.
And like I said, this doesn’t only depend on the competitive prices, but also it depends on the demand structure. But for example, this demand structure will also dramatically change if one of your important competitors are decreasing the price. I think the difficult part of pricing is that there are a lot of moving parts in the market. E-commerce is literally by nature electronic, it’s really dynamic, so there are a lot of moving parts. And no merchant has the luxury to actually miss any of those changes in the market. One is your cost structure, the other one is the competition and the other one is necessity of the demand.
Guillaume: Okay, so basically you do testing and you see if it’s worth to price at a higher point, but you should definitely be increasing your price and see where the sales started to drop off, and then you leave it there or lower, and you do your math, what’s the best approach? Some product can be a little harder, because they may have a slower turnaround time to be sold. So somebody might need the longer test period but I see a point there.
Burc: Maybe you can also learn from the historical attractions. What I mean is that you should not only plan for a test for the next day, next week, etc. If you look at your historical data, for example, your discount periods, your promotions and stuff, and if you actually bring the actual sales volumes, during those days, you can actually read the historical data and kind of take a slice out of it as if that will happen in the future. Because if you, for example, discount the product in one day, and if you haven’t really seen the increased sales volume, or the discount, this also tells us that you could have actually kept the price at the same level rather than making the discount. We can also actually learn a lot from the historical promotions, historical discounts, etc, rather than just focusing on the future testing out stuff. The past actually presents us a lot of ignored experiments. That’s what I mean.
Guillaume: You’re bringing up a good point here that the maybe if there was not an additional amount of sales, even with a discount, you could have kept your price higher. It could also mean that there are other sections of the business to analyze, like, is the shipping costs too high? Or are there some bugs in the checkout the whenever we’re like, why aren’t more people buying if you give a discount? That is something to look into outside of the pricing aspect. But let’s see if we go back to price. What about flash sales? How do you track that? How do you decide what’s good idea? And again, you want to avoid that race to the bottom, people understand flashes, temporary or let’s say your company does a flash sale, how do you react to that?
Burc: To respond to the last bit, how to react to that is basically requiring your capability of being able to react to that. I’m not really trying to market our technology or whatsoever, but you should really have this capability of seeing what’s going on in the market, so that at least you can decide on acting or not acting rather than just actually not knowing what’s going on, you can actually see what’s going on and say, Okay, I’m not going to match this price, I’m not going to match that competitor. This should be a voluntary decision, rather than just actually a stop back.
If you look at historical prices of your competitors, if you are monitoring the prices, if you have a historical look of them, the pattern in the data can actually tell you than your competitors will apply flash sales plus discount on a particular product, on a particular product category or brand. So actually, instead of really just being notified about display sales just happening at the competitor, you can in some way predict, for example, your competitor x will again make this Saturday morning discount, or this particular brand x, because they have been doing this repeatedly in the last few weeks. Instead of just reacting right after they started to do marketing around it, you can actually be more proactive and maybe do something on Friday evening, this really happens a lot with our customers, so I really like to tell as well, you can simply steal the show. Because those guys will go to the discount on Saturday morning, they will send out email blasts, they will make these sales, dramatic discount and stuff. But if you actually be more proactive and apply your potentially reactive discount before this flash sales happening at the competitor, literally you can steal the show.
Guillaume: Okay, so you’re thinking about the sales that they would have had on the weekend, and you do a Friday sale or something like that?
Guillaume: So, all the prospects were actively looking hoping to get them before their flash sale?
Guillaume: Okay, that’s an interesting tactic on this one? And what about like minimum advertising prices? Like a lot of brands will have that as a requirement, you might see another brand or another vendor that’s not necessarily respecting this, how do you handle that, in general, to be sure the competition is fare?
Burc: This actually brings us to the online pricing strategies, not brands. Actually, not necessarily the merchants. But you know, those brands, manufacturing or distributing the products are also actually trying to get the maximum out of this game. So, they’re also after a decent profit margin. They actually also need to have a certain brand consistency across multiple e-commerce channels, and again pricing is just one bit of this consistency.
So, if you’re a brand, for example, and if you actually just distribute your products at various costs to your merchants and if you see that your products are sold at really high variance, let’s say price points, for example, in one store your product point is 90 dollars and the other one is like 180 dollars, for example. This is definitely not a consistent brand image. So, this is actually also the reason why brands also need this online pricing monitoring capability. I mean, they are not really pricing their products, they’re not really doing any dynamic pricing or something, but they require this information as an insight. And also, to make sure that they manage those prices consistently. So, this can translate into an action where this brand might need to have a chat with this merchant who is actually undercutting the competitors in a harsh way. Because this can also be noticed by the brand without even using the monitoring capability. I also hear this story quite often from merchants and from brands where a merchant is notifying the brand about this undercutting competitor in day one because they’re also monitoring the market. Let’s say you have merchant A, you have merchant B and you have brand X. Merchant A is obeying the minimum advertised price and merchant B is not doing that.
The best way for the brand which is not the best but the way for the brand to learn about this is actually the phone call from merchant A. Because these guys will be pissed off due to this uncompetitive action, unethical action or whatever you call that and they will tell you that you should actually talk to this undercutting competitor to bring their prices to a minimum advertised price to make the competition more equal. So, in order to avoid these types of conversations with their merchants, brands also definitely need some online pricing capability, where they will actually monitor the market against the recommended prices. And again, they will not take any dynamic pricing action like merchants, because they are not really managing your prices measuring those prices themselves, but they need that information as an insight to act upon.
Guillaume: Alright, understood. And let’s see another topic again, back to specific examples. I mean, it’s part of the everyday job. If you’re running an e-commerce store, or if you are selling on Amazon, you’ve been selling successfully, a product at $80. All right, cool it’s moving well, you have it both on your site and on Amazon, you are syncing both together anything you have on Amazon and vice versa. And then a company comes in, he’s allowed to lower his price to $75. How do you react to that? Let’s say you still have a margin and so you just let it go and let’s hope I still get my share of sales. Would ignore the competitor’s move there as long as you’re still selling and keep it there, or would you price match?
Burc: Well, again this totally depends on the strategy of this, merchant. If they are definitely after the market share, and if they really want to retain that existing consumer base not just the profit margin, they shouldn’t really lose customers to that competitor’s slashing down the price. They should actually price match. But if they are actually in the long game, nobody can say that I don’t care about market shares, I’m only interested profit. But let’s say they are more inclined towards caring about their profit margins. They shouldn’t really care about that maybe a temporary price change in the market, because this is also one thing. I mean, you cannot really change your prices too often because of those maybe one day to day sales. So you can maybe keep your prices at the same level, not to actually disturb your shoppers as well. Because if somebody buys the product from you at $80 and the other day, they see $75, this is not the best feeling out of the world.
I mean, this is basically the essence of competitive pricing. If you are really interested in improving your top line, competitive pricing is actually the best way to go because, like I said, consumers are appealed by those competitive pricing because more than 60% of shoppers state that prices are the single most criteria. They pick the merchant that they will shop for. So, with that dramatic 60% information, no one can really ignore the competitive prices. But this is basically for driving the sales volume, driving the demand. This doesn’t really have much to do with the profit margins. But if they are interested in improving or maybe maintaining the profit margins they should actually keep their price at the same level. They should be okay with some lost sales to that competitor which slashed their price on that day. Then they will hope that that competitor will not sustain it at that level for too long so they will also bring up their price at that level and the game will go on. It depends on where you stand in the market, whether you are the leader whether you are a new penetrator, new entrant into the market. And you know what you really want out of your business in the next month, in the next year, or maybe in the in the longer term.
Guillaume: Right. And it’s very important to keep in mind something we touched on a little bit before that, you know, your net profit at the end of all, this will be quite different than sometimes just a little increase in the price can double, triple quadruple your net profit. Because, again, let’s say your merchant running at 20% profit or something like that, well, maybe you need 15 of those people to discover operational costs, salaries and all that then your true net profit after taxes is only 5%. So, if you raise the price by 10%, actually, you’re tripling your true net profit after taxes. So pricing is very, very critical. Just as an observation based on margin, do not forget that. For most people, I believe the strategy should be to raise prices as much as they can, while still getting sales for a lot of stuff cases. But there are other cases where if you’re truly a volume business, then you can go with the more aggressive for your market segment doesn’t mean cheap, just means that for that market segment can be a $500 product, but to go more aggressive and go for the volume. I remember Steve job quoting that, that when he’s going really for the masses that he tried all kinds of pricing approach and you’re sort of in the middle or three quarters of the market and whenever and finally he says no just like build a quality product and against those products that they compete. You go for the lower prices and mass volume. And we can look at the apple success with this. I don’t know if Apple’s still doing this but Steve job interview from back in the days.
Burc: Yeah, good point. Apple, for example needed to change that a bit to be honest, because of the pressure from all those Asian competitors, let’s say like Samsung Xiaomi. All those competitors are actually offering not always the same product, but a similar product, in a way affordable cost. So, this definitely created some price pressure on Apple. But just to add on what you said, I think it also depends on the product category that we are talking about. When you look at the merchants whole assortment, for example, this happens a lot with mom and baby merchants. They actually always focus on the competitive prices for the diapers, for example, because diapers are the products, which really brings parents into that merchants web shop. And if they actually frequently buy it from that merchant, because they know that their prices are really competitive for diapers, in one day, they can also make the decision of buying from that merchant for a really premium stroller or whatever, like high profit margin product. When you also focus on the profitability at that customer level, you will maybe make losses from the diapers. But if they ever make this premium purchase, that customer will become a profitable customer. So it also depends on the products within your assortment.
Guillaume: Yeah, the classic loss leader that they would put at the back of the store at the lowest price imaginable with a loss, actually, you have to walk through the whole store to get the back and hopefully buy something else on the way the cashier, that’s a good one. Are there any other pricing, tips, advice, tactics or strategies that you’d like to share?
Burc: Yeah, like I have been emphasizing, a more general tip for e-commerce companies is that, pricing is an important fac. But always, it’s not everything like you have highlighted before. Pricing can signal some issues, if you are actually not growing as fast as you want, if you’re not really improving your sales, but there can be also always other problems in your customer journey. They should regard pricing as one part of the equation. And if we break this down, companies should also consider competitor prices as one part of this pricing optimization journey. They shouldn’t only reward us to follow competitive price and always price match, they should keep in mind their costs. And they should always remind themselves that they are in the business for making profits, at least in the long term, they should always consider a cost, they should always consider competitive prices as one part of the equation. And like you like you have highlighted, they should also test, they should also need to find potential price increase experiments, opportunities to see whether at the end of the day with those increases, they might eventually make more net profit, like you said. These are not new tips but the quick wrap up of what I’ve been highlighting in the last 30 or so minutes.
Guillaume: And there’s also the different approaches for pricing like we’ve been talking about monitoring competitors, about cost plus, there’s also value based pricing, but to be able to do this, you need to differentiate. Either you have your own brand, instead of being a retailer that sells only other brands that can be found at other stores, or like Apple is doing right now. So even though that previous comment, I do believe that now they’re in that position, owning the ecosystem that they have, it’s a value-based pricing, that you’re not buying, how much CPU power or how much megapixel of camera that that phone has. You like the ecosystem, you like Mac OS, most likely you’re used to it. And now it’s value-based pricing, it gives them absolutely great margin.
If you’re able to go for value-based pricing, I believe you should rather than cost plus, but anything that’s value-based pricing is obviously also looking at the cost, but it tends to be able to go a lot higher on the percentage. And as long as you can sort of get away with it in the way on the marketplace. Well, you should, I believe so. And until this price pressure from the market that will lower the prices naturally because a lot of products will tend to have phases. And that’s what I’ve noticed that the they can come and be very expensive. I was thinking like, very strong system for offices that were selling online, and the price tend to be high. It’s high, but after a while, a year, two years, three years now the market pressure comes in and now the price goes down. So, if you can ride the wave while it is high, why not? Go for it. You know the margins are great this year. Go for it. It’s not going to be like that forever, eventually, they will become a refresher. So I believe in general to go for a higher price tag if you’re able to still have a sales volume out of it.
Burc: Yeah, basically, that’s the Nirvana of pricing. If you can actually implement, if you have the power, if you have the, privilege of applying value-based pricing, and nobody can stop you literally. And in case of, for example, product life cycles, in the case of Apple, they also always launch, create new product lines or new products in the product line, if they ever feel the pressure of decreasing the existing product. So if you trace their, for example, price credit strategy, they always only apply discounts for the existing product line, if they ever launch a new product version for that in case of iPhones. iPhones kind of get the discount only if and when the new iPhone comes up. If you can actually ride the wave in a product category or in an industry, you can sustain the value-based pricing throughout your company’s lifecycle, but not necessarily just for the product lifecycle. But again, I think this is basically a super superhero story in ecommerce to be honest. That’s why I’m not really emphasizing apply value-based pricing to merchants because this is the story of apple. But there are millions of small and medium sized businesses, who are not Apple, cold fact but that’s the fact. So that’s why today, I basically spared the majority of my time on competitive pricing, but obviously value based is the sexy part, the Nirvana part. If we faced reality of the market today, the majority of the market cannot really follow value-based pricing at least to that level.
Guillaume: No, I totally agree. Because you need the differentiating factor, like Apple owns the intellectual property to their stuff. It’s a closed ecosystem, we control all this closed community, closed system. So that’s why we’re saying if you create your own brand, instead of selling, it may be the same product that you’re sourcing as everybody else but you have your own brand on it, then maybe you package it differently, and you add a second bundle to it or something. I remember a customer on Magento store there that they’re selling luxury goods, but I was saying what it is and basically, their brands are controlling minimum advertising price and all that. And almost all the people selling those brands online are selling for roughly the same price. So what it comes down to is pretty much how much you’re willing to “bribe the customer” to buy from you instead of someone else in terms of giving them loyalty points, or whatever, four or 5%, or something like that the loyalty point at each person. And also like a free gift. If you buy this, there is a promotion free gift and there’s a little side something here. That’s also something think about in the pricing strategy. If you have the markups for it, this is luxury goods, the markup is pretty good. But then you can sometimes give incentive as to why to buy from you, rather than someone else who is selling exactly the same thing.
Burc: And this incentivizing doesn’t necessarily need to be loyalty points all the time. But for example, customer support can actually be the main value that merchants can add on top of the prices, I guess. Obviously, everyone cannot become Apple. But actually, if you follow the steps of Apple, one of the aspects is actually this customer experience. E-commerce companies can also focus on especially this is true or vertical commerce, if you are for example, selling only, let’s say bags, you can be a bag geek, for example. And you can even compete against Amazon bags, because Amazon is kind of like selling everything. So they don’t really have the expertise, I would say in one product category, because they’re like Amazon you can find everything. But if you can kind of become a geek of your product category, this can also help you to become a value-based pricing forward. You can maybe sell the same stuff with Amazon, the same branded item, but if you only sell a specific product category, and if you can actually build a branding around that category, you can justify some premium price.
Maybe we didn’t discuss it but in case of competitive pricing, you don’t also always need to monitor competitive prices just to match them but also in some cases, we have customers who monitor the competitor prices just to actually say for example, I want to be 5% higher than the market average because if you can really say that, okay, “I’m a premium brand, I provide additional services this and that. So, I should be always higher than the market”. But in order to say that in a scientific way or with some basis, you should also need to see the competitive prices. This doesn’t necessarily mean that you will always match them but you can actually at least make a meaningful premium on top of the market. This is also one of the cases we encountered.
Guillaume: Yeah, I’ve seen cases like that. And that’s a very interesting choice, it protects the business in many ways, if it’s applicable to the field that the company is in. They were selling engineering equipment but it’s also for a lot of people there, but there are Amazon boutiques, also selling that stuff, and so on. So it protects the store in the following way that like Amazon will sometimes start sourcing their own products, when there’s something that’s really successful, and then you end up competing against Amazon themselves, which is very annoying.
When you have expertise like this, you can have a consultation that they would engineer here, or to help you with that thing. Or you may have a consultation with the genealogist because jewelry stuff or whatever, then you’re not a commodity in the same way, because you’re offering that expertise, as you’re saying. So that can indeed be a model for success. It tends to be with products of higher price tags because then you’ll need the salary of an expert behind assuming that you want to scale the business and it’s not the owner who’s going to be providing that expertise that ideally right away or eventually if the business grows. That’s a good approach. Anything else to share regarding pricing?
Burc: Not really, like I said in the beginning, many thanks for having me. It was nice to chat with you. And I hope the audience will also enjoy whatever we have discussed.
Guillaume: Thanks for being here. I think we’ve covered the topic fairly well. Thank you.