Value-based repricing explained
Value based repricing is a pricing method formulated depending on how much an end product is worth to customers. This is based on the sheer value and worth of the end product to customers as opposed to to the costs involved. Obviously, this price optimisation method will only be feasible for certain types of business. Ultimately, the business will be able to sell their product with significantly increased profit than if they used a standard cost plus pricing method.
When do we use value based repricing?
Value based price optimisation is only used if it will increase profit without impacting on sales. In other words, we don’t want the higher price to deter customers from buying the product, only to maximize the potential profit increase that can be made on each individual product or service. When used for the right business, value based repricing is a highly efficient repricing method to increase profit.
A typical business that uses value based repricing might sell:
- An invaluable service that will, for example, save the user £1000′s in the future such as an invaluable software plugin
- In demand and highly sought after fashion accessories and clothing
- A rare, niche product or service
- Shortage items, for example food and drink at a closed off festival
- Fundamental add-ons such as camera lenses and printer cartridges
Increase profits with value based repricing
When considering using value based pricing for your business, it’s important to have a good understanding of your customer’s perception of your service – how highly they regard it and exactly how much it benefits them. One way to research this, is to carry out surveys on existing customers. If you have a product that you currently sell for £50, but it turns out to be saving customers £500 a year, you might increase profit by raising your price to £150.
Of course, it’s important to be careful not to get carried away and charge too much. If your prices are clearly considerably higher than your costs to customers, then you run the risk of losing sales and giving the impression of exploitation (see Psychological Repricing). If optimising prices at a balance though, you can drastically increase profits without affecting sales.
Combine value based pricing with automatic price tracking and dynamic price updating to stay one step ahead of competition with The Repricing Company.
Psychological Pricing Explained
Psychological Repricing is a dynamic price updating method typically used to adapt a pre-established ballpark figure for your final selling price. In other words, to adjust prices after you have worked out your costs and required profit margins (using cost plus pricing, for example). Psychological pricing goes a little deeper, delving further into customer habits and perceptions.
Price optimisation with psychological repricing
The most common, everyday use of psychological automatic price updating in business today, is the dropping of prices so that they end in 99 or 95 pence or cents. This gives customers the impression that the product is cheaper and so a little more guilt free and assuring to purchase. After all, £19.95 seems much more appealing to spend than £20.
Many customers have a tendency to notice the left most digits more so than the right digits. Therefore, £19.99 seems much closer to £19.00 than it does to £20. Furthermore, numbers in their twenties seem much larger than those in their tens, even if it is just by a few pennies. This is known as the left digit effect.
Benefits of psychological repricing
At just a small cost of literally pennies to your business, optimising prices using this method is a highly successful way to increase sales. You can continue price tracking competitors and use automatic price updating with the Repricing Company to keep your prices even more ‘psychologically’ desirable for customers. An easy way to increase sales!
Target Return Pricing Explained
Target return pricing is a price opimisation method normally used by big companies, market leaders and monopolists in the industry. Unlike other pricing strategies used by businesses, target return pricing works in reverse – working out product prices backwards based on desired sales targets and estimated demand. Basically, you set your product prices based on achieving your target rate of return.
This particular dynamic repricing strategy is rather complicated and risky, hence rarely used for price optimisation by average businesses.
How To Work Out Prices Based On Target Return Pricing
To reprice according to target return, you need to have a rate of return objective in mind. This could be either the full amount, or a percentage of estimated sales revenue to cover a return of your investment. Let’s break the pricing formula down:
- Firstly, work out your Target Return Objective. This can be calculated either as the total amount of money invested, or as money invested plus profit.
- Work out the time period that you want to make back your target return within. Obviously it will be much more difficult to make a high return over a shorter period of time.
- Next, you need to have an accurate estimate in mind of your expected sales volume within this time frame. This depends greatly on public demand and competition.
- Divide your target return on investment amount by your expected sales volume amount and you have your required profit value for each unit. So, let’s say each unit costs £50 in production costs etc – if you have invested £10,000 into your business and you expect to sell 1000 units, you will need to make £10 profit back on each unit. You will therefore need to price your product at £60 per unit.
Target return price = Unit cost + (Target return/ estimated sales volume)
You can read more about pricing strategies and dynamic repricing methods here.
For online businesses, setting the right price for your product is one of the most important decisions involved when increasing sales. One of the biggest factors involved in setting product prices is the prices offered by your competitors.
Competitive pricing is a product pricing method based on the prices of competing businesses. This can involve repricing your products above, below or the same as your competition’s. However, usually, competitive pricing is associated with undercutting the product prices of your competitors. It’s important to choose the right method when repricing competitively – price too high and you’ll lose sales, price too low and you may end up losing money. Typically in competitive business sectors, it is the larger companies who tend to set a price leadership role that wise smaller business will follow.
Types of competitive pricing
- Below Competition Repricing - Repricing products to undercut competitors is usually used for ‘stealing’ customers from other businesses. If you are careful not to undercut so much so that you end up making a loss, then this is a great method for increasing sales. Apart from a larger customer base, another great benefit of higher sales is an increased market share. However, repricing below competition does have it’s disadvantages too. This kind of pricing strategy can create a hostile business environment with your competitors. In many cases, this will lead to price wars – not an ideal long term route for businesses involved.
- Above Competition Repricing - Online business that price above competitors are usually seen as the market leaders in their product sector. Higher pricing methods are typically used to increase reputation and brand image, or to give the impression of a premium product of higher quality and uniqueness.
- Parity Pricing - Parity pricing is one of the safest repricing methods where the business sets their product price to be the same as their competitors. When charging the same price as your competitors, it would be wise to make your business more appealing or convenient for customers in some other way. This can be the simplest thing such as a more user-friendly website design, free shipping or inviting refund policies.
When repricing competitively, it’s important not to be too aggressive in your pricing methods as this can be considered as Predatory Pricing. This involves lowering prices for the sole purpose of driving competitors out of business, which is actually illegal practise. However, offering lower prices than your competitor simply because you can afford to do so – this is a completely healthy form of competitive repricing.
A Good Returns Policy Makes Increases Sales
Returns are a tricky business. Online stores often shy away from offering returns. Some offer returns however using return policies that really do not favor the customer and just toe the line of statatory rights. Don’t take this the wrong way, we know some online stores offer awesome return policies. Great! And below, we will explain why some online shops do offer such good return policies to their customers.
There’s More to Sales than Advertising
It’s true that advertising is an essential aspect of running a successful online store. But advertising is only one factor in a vast number of practices that need to be followed to assure a good stream of sales on your website. Once you have attracted customers to your website, you need to work hard to keep those customers onsite. You need to work even harder to make sure that customer converts to a purchase on your online store. Offering a good returns policy is one way to convert more customers to sales.
Customers Look for Return Policies
Believe it or not, customers are actively looking for your returns policy. Make sure you have an easy to find link in either the header or the footer on your website, or even both. This way the customer can clearly see you are playing ball. Some customers just want to see the link and will never click it. Seeing a link to a returns policy instantly makes the customer relax a little about making a purchase from your store. There are a few ways to make your returns policy more user friendly and increase conversions. See our tips below for creating a successful returns policy on your online store.
- Keep it simple. Customers should not feel like returning a product will be a big hassle. The chances are, if a customer buys a product from your store, they bought it because they want the product. In the event they have to return it, it is because they are disappoint in some way or another. Don’t add to your customers disappointment by making it hard for the customer to return their product.
- Get casual. Don’t use too much legal terminology on your returns policy. Try to remain friendly and casual. The customer wants to be reassured they will be looked after if something goes wrong with the purchase, not like they face an exam if something is needs to be returned.
- Don’t be greedy. Sometimes it is going to cost you to help resolve an issue with a purchase or accept a return. Don’t get carried away with numbers. You may be out of pocket, look for ways to reduce returns rather than ways to save money on returns.
- It’s the Law. If your in the UK, Europe or the United States, changes are your going to be governed by law anyway. This means that you must offer a return policy for faulty or possibly unwanted products. Look into the law in your country or state to make sure you understand what you need to provide and what you do not.
Live Proof your Prices are the Cheapest Online
Customers will often contact websites to ask if they can beat a competitors price or match a price elsewhere, why not provide live automatic proof that you track prices and dynamically reprice products to remain the best value around?
Live Price Tracking Widget for your Website
The Repricing Co. provide a free widget that you can put on your website product pages that show how your prices are the best prices of all your competitors. Live proof you are tracking prices on your customers behalf. Two very important consequences of offering a live price tracking widget on your site are as follows.
1. Build trust with your customers.
2. Reduce the time spent responding to request for repricing by customers.
With a live guaranteed lowest price widget on your product pages, customers will be able to plainly see that your prices are actively tracked and repriced accordingly. This will result in customers not needing to call or email to ask for a better price.
Don’t forget about the trust aspect. A trusting relation between eCommerce merchants and their customers is important. There is so much choice online, building trust with your customers could never be more valuable. How do you build trust with your online customers? Be as transparent as you can. The more information you give your customers, the more your customers will trust your brand.
Reprice your Products Upwards
When we talk about repricing, we talk a lot about why you need to reprice to stay competitive. This means repricing our products so that they are cheaper than our competitors products. Updating prices of products to match or beat competitors is really important, and a great way to stand out from the crowed. Sometimes, however, we want to reprice products upwards.
Why Reprice Upwards
If you use The Repricing Co. to automatically track your competitors prices and update your own prices on your website, you will notice that sometimes we reprice your products upwards. Repricing is a complete process.
Competitors Price Goes Down -> Your Price Goes Down
Competitors Price Goes Up -> Your Price Goes Up
As your competitors prices return from promotions, your prices go up. This makes sure you are not selling your products at prices lower than you need to. This is what we call Repricing Upwards.
When you reprice your products with price increases, The Repricing Co. still follow the rules you have set in your account to make sure your prices increase, but remain competitive.
Lowest Price Guarantees on Websites
Many online websites, and also a small handful of physical retailers, will boast a lowest price guarantee. This is great for consumers but rather time consuming for retailers. Usually this involves a customer finding a cheaper price for a specific product elsewhere and then contacting the online shop asking them to beat the price of their competitor.
The store has to then manually check the price with their competitor. They also have to check if they can match that price, and then provide the consumer with an offer to match or better the competitors price. The offer itself can be time consuming as a coupon code may need to be generated by staff. Even more time consuming would be taking the order manually as the online store may not support coupon codes of this nature.
How to offer Automatic Price Guarantees
If you want to offer an automatic lowest price guarantee then The Repricing Co. may well be right for you. Add your products to your Repricing Co. account and create some rules as to how cheap you can sell your products for. Tell us your competitors and we will check their prices several times every day to see if you need to reprice your products to fall in line. Or better still, reprice your products to beat your competitor.
Fully Integrated Repricing
The Repricing Co. can integrate with many third party software packages, such as Magento, Brightpearl, Shopify and so forth. This integration allows products to be automatically repriced without any manual intervention from staff. Safety rules and thresholds can be added to prevent your products from being sold too cheap.
So why offer a manual price guarantee to your customers when you can always have the most competitive prices without having to spend time researching and repricing.
Why should your customers do your Price Tracking?
When customers make big purchases, and often even small purchases, usually they shop around. Even more so when shopping online. But why let you customers do the price tracking for you? Implementing dynamic repricing and price tracking means that your prices will always be up to date and priced at an optimal amount, keeping you competitive.
If your customers do not have to spend time checking your prices against your competitor prices, it leaves more time for customers to enjoy the service you offer. If a customer checks a product price on your online store and does a little shopping around, only to find that you are already offering a competitive price, trust is built between your store and the customer.
Dynamic price tracking can be fully automated so you do not need to manually reprice products. Set your repricing rules and integrate your Repricing Co. account with your online ecommerce package. This leaves you with more time to focus on other areas of your business.
The bottom line being: keep prices competitive and do it with as little work as possible and everyone benefits.
Why should I Reprice my Products?
To reprice a product is just to update the price of a product. Usually, retailers and websites will reprice products if they are having a sale, promotion or have end of line stock they want to clear. Savvy retailers are now also repricing products based on changes to their competitors prices. As a switched on retailer, you will know who your competitors are and you probably check your competitors prices from time to time. You check your competitors pricing to see if your prices are higher or lower and you may reprice your product based on your findings.
This is standard and sensible retail business practice, both online and offline. Repricing in this manual way can be time consuming and unreliable. You don’t want to miss a change in your competitors price and loss a days worth of sales.
How do I automatically Reprice my Products?
The Repricing Co. provides a service that allows you to add your products to your Repricing Co. account and add competitors URL’s that we will automatically track for you. We check several times a day the price of your products with your competitors. Based on the rules that you add, we can then automatically reprice products in your online ecommerce or accounting package. Or we can just send you an email digest of your competitors price changes and you can reprice on your own.
The Repricing Co. provides ultimate flexibility in product repricing and is available to everyone. We offer free accounts and premium accounts.
Our service is launching soon. Watch this space.