Our Price tracking software doesn’t miss a trick. So, when Amazon UK lowered the price of one of their 50 inch LD Televisions from £549.99 to £209.99 on Cyber Monday this year, we all wanted to get our credit cards out and take advantage of such a dramatic promotional reprice.
This promotional repricing from Amazon repriced this product creating a massive £340 discount from the product price we tracked a few days earlier. We only price track this product on Amazon for demonstration purposes. We also price track a few other websites such as Ebuyer, who had a minor repricing from £682 to £669.99.
Checkout the graph below to see what happened to this product price on Cyber Monday 2013. This graph and the data in it was generated by our price tracking software and highlighted a serious price drop.
Cost Plus Pricing Explained
Cost Plus Pricing is a basic repricing strategy and dynamic pricing formula used by businesses to cover costs and ensure a healthy cash flow. Cost plus pricing covers all outgoing expenditures from production costs to sales related costs. This method pretty much guarantees profits while still remaining competitive. Thankfully, the price optimisation formula used for cost plus repricing is really very simple, with little information required.
Cost Plus Pricing Formula
Basically, for dynamic price updating using the cost plus pricing method, you simply need to follow three simple steps:
- Work out your total costs involved for each individual product. This includes everything from production costs, fuel costs, marketing expenditures, packaging costs, marketing costs, staff salaries and raw materials. One you know your total expenditure on a batch of products, you can then divide this amount by the number of units. This gives your unit cost. (Total Costs / Number of Products = Unit Cost)
- Decide on your desired profit margin amount. This amount varies from business to business, but is usually around a 40% to 70% markup. Typically, you might want to reprice your products to allow wholesale customers a lower price with a 40% profit margin, and retail customers a higher price with a 70% profit margin to cover costs. Or, you may want to use our automatic price updating service to adjust your profit margin accordingly depending on competition prices. This is also know as percentage allocation.
- Optimise the price of your final product. Basically, you just need to take your unit cost value and add on your desired percentage allocation from step 1 and 2. For example, if the total costs per toaster that you sell is $10 and your profit margin is 50%, you will need to reprice your end product at $15. (Unit Cost + Profit Margin %)
Using the correct pricing strategy or method to price your product is one of the most crucial parts of starting a business. There are various price optimization methods to suit all different types of services. Additionally, there are a number of different repricing methods to keep your prices up to date after you’ve laid down a solid pricing foundation.
Which Pricing Strategy is Right for You?
Cost Plus Pricing
This is the most common and basic way to price products. Cost plus pricing takes into account all of your costs (production, marketing, wages) and then adds a profit percentage on to this figure to give your final retail price. Cost Plus Pricing ensures that your product will set at a profit.
Value Based Pricing
This is mainly used for innovative or unique products and services. Prices are set according to the demand of your product. When used properly, this method can increase profits considerably without affecting sales. Setting high prices according to demand may even make your product appear more desirable to customers – Sometimes a low price gives the impression of low quality.
Target Based Pricing
This pricing method is used to make a target return on investment. It’s best to have a prediction of expected sales in mind first. Once you have an idea of expected sales, you can price your product accordingly to make back part or all of your investment.
Keep up to date with your pricing! Once you have a basic price figured out for your service, you can use automatic price updating and repricing to adapt to current affairs, changing demands or competition.
It’s important to know what your competition is doing. Maybe you want to follow their prices and copy them yourself, price higher for a stronger brand image or, most commonly, price lower to attract more customers. You can use automatic price updating and dynamic repricing with The Repricing Company price tracking service to stay on top of what’s going on with your competitors.
There are a couple of methods you can use to tempt customers that extra little bit more to tip them over the edge into buying. Setting prices fractionally lower – such as £5 to £4.99 – can make a product appear much better value at a glance. Obviously some customers love a cheap bargain, however other types of customers may actually find higher prices more appealing, perhaps more fashionable or more professional. Setting prices according to the type of customer you wish to attract is very important.
What is Predatory Pricing?
Predatory Pricing is the act of temporarily lowering product prices in order to eliminate existing or potential competition. This might involve giving away freebies or setting prices at a loss – you could think of it as temporary business suicide, only a typical business that commits predatory pricing will have the means to easily survive the losses with little after effects. After driving out the competition, the surviving will then increase their prices again – in some cases even higher than before – to make up for their losses.
Predatory pricing is regarded as anti-competitive and is illegal in many countries. Unfortunately, predatory pricing cases can be difficult to prove and are often thwarted far too late for many of the victims of the competitor. Predatory pricing results in much fewer competitors or even monopoly effects.
Predatory pricing cases
One of the most famous offenders of predatory pricing is Wal-Mart. This mammoth chain of superstores has had clashes with the law on multiple occasions due to it’s aggressive pricing strategies. In Germany, Wal-Mart has been ordered by the government to increase it’s prices, while in America, it was forced to increase the price of contraception pills from $9 to $26.88. Another example: Online giant Amazon.com has been ordered to stop offering free shipping on products in France. Interestingly, Amazon have refused to adhere to the French laws, and have instead stubbornly opted to pay a daily 1000 Euro fine to the government instead.
Is price tracking related repricing regarded as predatory?
Tracking prices online with The Repricing Company is all part of a healthy competitive pricing strategy. Staying on top of the latest pricing trends and repricing products accordingly all helps to stay in the game and keep one step ahead of your competition. Competitive repricing only becomes illegal and aggressive when you are setting prices to damage others rather than simply benefit your own online business.