The choice of competitive pricing strategy in e-commerce
Before developing a pricing strategy, the company must analyze all external factors, that influence the final decision and look at the pricing strategy examples. The problem lies in the fact that, on the one hand, the price should be high enough to motivate the production unit that could sell this product in the domestic market, through a traditional sales network; on the other hand, the price should be low enough for the enterprise to be competitive in a particular market. In the process of development of the pricing policy must be taken into account the following points:
- Where does the price take place among the means of competition in each market on which does the company operate?
- Which method of calculation in the premium pricing strategy should be chosen for new product pricing strategies?
- Will the company survive the price war?
- How to choose a competitive pricing strategy, taking into account new products?
- How can the price change, depending on the product life cycle?
- Are there any restrictions on the level of prices, profits and freedom of price changes?
Many other problematic pricing issues, visible in the pricing strategy examples, must be also taken into account. While choosing the price strategy, the management of the organization consciously expands its functional areas of activity and conducts comprehensive analytical work to identify the target market. At the same time, special attention is paid to the analysis of the reasons and motives for entering specific markets, studying the factors of the external and internal environment, studying the system of state regulation of economic activity in the country, developing strategic and tactical price programs and so on.
Nowadays, for each competitive pricing strategy on the Internet can be found traditional new product pricing strategies in marketing.
Let’s look at the main premium pricing strategies:
1) The “cherry-pick” strategy is focused on the fact that a market entity, using powerful advertising, achieves high financial results by selling its goods at relatively high prices, which are significantly higher than production prices. As it is visible in the pricing strategy examples, it is the sale of new products at high prices in order to attract the most innovative part of users, which on the Internet is the majority. The pricing policy here has the advantage that the company gets the opportunity to repay its marketing costs in the short term and, if possible, in the future, can be used the price reduction mechanism to deliberately stimulate the sale of its products to partners (customers);
2) The competitive pricing strategy of “penetration policy” implies the company entering the market with the goods at relatively low prices in order to seize a large market share in a relatively short period of time. This premium pricing strategy is sometimes called the “breakthrough” strategy. It is typical for consumer goods and industrial-technological products of simple technology. After a breakthrough, in such kind of new product pricing strategies, the market usually rises to a normal level;
3) The strategy of “crowding out” is often used by market participants and implies the use of extremely low prices, which practically exclude the possibility of the appearance of similar goods of other sellers. The pricing strategy examples show, that such a price strategy can be solved by large industrial companies, companies that are trying to implement a modified mass-produced goods and of sufficiently high quality. In its original form, this product is usually close to completing the life cycle on the market;
4) The competitive pricing strategy of the price leader uses the pricing mechanism of the leading company, the manufacturer, that is, this strategy implies the establishment of the lowest price for the goods in this category. This is one of the most attractive new product pricing strategies for the well-known, frequently visited sites of Internet companies since by assigning prices for goods below the market, they replenish their income through advertising;
5) The competitive pricing strategy of “differentiated prices”. This premium pricing strategy allows you to stimulate or restrain the sale of various goods in different parts of the market at different prices. This strategy involves setting prices for a given segment, a given locality or a given product and is attractive in that it can take into account the peculiarities of selling so-called digitized goods and is easily realized in Internet trading. As it is visible in the pricing strategy examples, software manufacturers use this strategy when selling their goods to educational institutions. Thus they oppose “piracy” and create loyalty to their products from future specialists. Companies that sell their goods, both through traditional outlets and through electronic stores, use this strategy, assigning different prices to them;
6) Promotion pricing. This competitive pricing strategy aims to stimulate the first purchase, encourage repeat purchases or purchases during the sale. The studies have shown that using this premium pricing strategy from the Internet new product pricing strategies has its advantages. The promotion can be clearly targeted at a specific segment of consumers, they are, on the one hand, more receptive to innovations, and on the other – more loyal than traditional buyers in the real market. They are ready to continue buying from a trusted seller than providing information about their credit cards to a new seller;
7) Contract a competitive pricing strategy. In many countries, you can bargain not only in the markets but also in stores. As in the pricing strategy examples, Internet auctions provide buyers with an excellent opportunity to bargain. In the B2B market, contractual prices and auction trading make it possible to get rid of surplus goods at a market price;
8) Dynamic pricing. XML and other technologies make dynamic Web page service possible. Marketers can quickly update databases as new products appear, improve or price changes. This one from the new product pricing strategies means, that users get new pricing information for each request. This information may vary depending on the time of the request or the username. For example, some transport companies vary the prices of their services depending on the volume of transportation, so each user gets his price for his individual request;
9) Mixed competitive premium pricing strategy, or the appointment of a chain to a set of products and subscription. As in the pricing strategy examples, the price for sets is the purpose of a single price for several different goods packed together. The kit components can be sold separately from the kit. This strategy is called mixed.
Conclusion: the competitive pricing strategy in e-commerce
In the conditions of modern globalization and open space, market participants pay special attention to the tasks of effectively combining marketing strategy and tactics with the flexible use of pricing elements. Modern competitive pricing strategy is the practical implementation of the company’s mission under the influence of geo-economic and geopolitical factors of the business environment, taking into account the study of the needs and the behavioral reaction of buyers.
As it is visible in pricing strategy examples, the prices quite often vary throughout the life cycle of the product. Nowadays, premium pricing strategy takes into account the level of customer’s satisfaction, basing on the price. The assortment groups of goods with different price categories attract certain segments of market consumers. New product pricing strategies must take into account the price differentiation. The price factor of all components of marketing is the most responsible for the company’s revenues, so the effectiveness of the company’s performance depends on the correctness of its level. So, the competitive pricing strategy can be realized as a result of excellent knowledge of market conditions, high qualification of decision-makers, creativity and intuition.