Penetration pricing is a competitive pricing strategy, particularly effective in attracting new customers and increasing ecommerce sales.
The simple aim of a penetration pricing strategy is to set a very low initial entry price in order to tempt potential customers into switching from the competition’s services. This is a particularly useful pricing strategy for new ecommerce products entering a saturated and competitive market. If a product has minimal differentiation from your competition, then offering a substantially lower price can be your best strategy for standing out.
One of the most common examples of penetration pricing is when you see special ‘introductory’ offers. This competitive method of pricing is great for increasing your market share and pulling in a large amount of new customers for brand awareness. Once you have made an impact in the market, the price can be raised to a more profitable amount.
Pros and Cons
Penetration pricing is brilliant for catching the competition by surprise. Offering such low prices to begin with will also encourage good product promotion through customer word-of-mouth.
However, while ecommerce sales may greatly increase, profits are likely to be negatively affected in the short-term. In addition, the low initial pricing may simply attract ‘bargain hunter’ customers as opposed to loyal long-term customers.
Introducing a loyalty program to your e-commerce store is a great way to attract repeat customers and stay ahead of your competition. In fact, a massive 55% of the world’s top retailers have a loyalty scheme in place and it has proved to be a perfect strategy for increasing e-commerce sales.
Benefits of introducing a loyalty programme in ecommerce
On average, retailers that have a loyalty program earn around an 88% higher profit, with customers visiting twice as often and spending 4 times as much money than normal. Attracting a new customer to your website is only the first step to running a successful ecommerce store, as 48% of consumers surveyed have revealed that their first-time shopping experience is the most crucial time for deciding their loyalty.
How to set up a loyalty programme
A loyalty scheme could be anything from a physical card to an online store account. Most e-commerce software includes a loyalty program feature – if they don’t already have one, then you are sure to find an e-commerce extension for it.
- Make sure to link customer accounts with a phone number or email address. This will make it easier for your customers to shop both online and in-store.
- To help increase brand awareness and website traffic, introduce rewards not only for purchases, but for non-purchases such as shares on Facebook and retweets.
- Use your loyalty program to collect and analyse customer data. You can use this information to offer targeted discounts and rewards, unique to your customers.
- Having a tiered system will give customers incentives to spend more money and reach the next level for even better rewards.
Is a loyalty programme right for my shop?
Remember, it costs retailers up to 10 times more money to get new customers in comparison to keeping old customers. However, certain e-commerce stores with narrow profit margins may not be able to afford to be so flexible with their prices. In this case – although a great way to increase ecommerce sales – you may find this strategy too damaging for your profits.
As our main focus at the Repricing Co is dynamic pricing and tracking, we do tend to bang on about the importance of developing a dynamic pricing strategy. Our no.1 tip for staying ahead of your competition is to monitor your competitor’s prices and make sure that you are always on top in Google Products. If you can undercut your competitors, consumers are much more likely to find your products online in search results.
However, we understand that that’s not all there is to e-commerce competition, and furthermore, not all businesses can afford to take this approach…
Here’s our top tips for staying ahead of competition:
- Step up your marketing and differentiate yourself from the competition. This doesn’t have to be expensive – this can be as simple as window posters and leaflet drops, all the way to advertising campaigns in mainstream media. If you can’t rival your competitor’s prices, step it up and make sure it’s clear what makes you different, whether it’s your ethical business conduct or your first class customer service.
- Don’t let your competitive fight for new customers distract you. Take care of your existing customers and listen to their feedback – value their feedback! Remember, 1 in 4 potential buyers rely on customer reviews before they buy a product, and furthermore, it takes 12 positive customer reviews to make up for 1 negative review! By keeping your existing customers happy, you already have a great advantage for attracting new ones.
- Don’t be a one trick pony. Make sure that you and your staff are continuously learning and improving with the times. Times change and consumers change with it, so you will need to make sure you have all the necessary skills to keep up with the latest changes and customer needs.
- One important thing to remember when you’re trying to stay ahead of the competition, is not to obsess! Obsessing over your competition can be bad practice and divert your attention from your own success – the things that make your business unique. Studying your competitors can be a great way not only to stand out, but to learn what works and what doesn’t. Just go easy!