The New Normal in eCommerce Pricing & Trade Promotion Management
Mar 1 2023 2 min read
Have you ever wondered why some of your products sell super and others don’t? Well, it probably has a lot to do with your pricing.
Pricing is a balancing act. Set prices too high, and you miss out on sales; set them too low, and you might get sales, but those sales won’t turn into healthy profits. Not to mention the competitors who will always try to undercut you in some way or another!
eCommerce Paced Pricing
Players in eCommerce, the internet, and in digital commerce move much faster than in the old brick-and-mortar world. Prices, discounts, and offerings can change almost in real-time displaying a huge transparency between all of your competitors’ digital commerce actions. Take price comparison portals, blogs, comments and news that can update within a matter of minutes reaching hundreds of thousands of potential customers. Consequently, this can lead to consumer behavior changing overnight - or even faster.
Executing just local promotions (e.g. for a single store), is becoming a thing of the past. In digital and eCommerce you have the opportunity to target addressable customer segments and even individual customers at scale.
Pricing is potentially the biggest and most important profit lever for managers. And even more so in digital and eCommerce. As such, it seems surprising that we don’t observe more systematic pricing activities in digital and eCommerce. Perhaps the eCommerce windfall profits of the COVID19 pandemic have made Consumer Goods and Retail companies ‘lazy’ as prices only seemed to only have gone up in the last two years? But this might be coming to an end soon.
Thus, a systematic and comprehensive pricing approach is needed now more than ever for eCommerce pricing. With various pricing approaches available – such as, competitor-based, value-based, cost plus, or dynamic pricing. Selecting the right one for both your business and situation is paramount.
In addition to pricing, trade promotions play a crucial role, especially in new product introduction and innovations. They help to generate more revenues by increasing the sales volume of the promoted ‘standard’ products, and can also differentiate your products and services from your competitors. Not only can this lead to driving more traffic to your eCommerce website - but they may also increase traffic to your bricks and mortar stores too!
Trade promotions must be managed systematically as studies from Deloitte, McKinsey, PwC, and others, suggest that only 20-40% of all promotions generate a return on investment. This management of promotions is often called TPM (Trade Promotion Management) or TPO (Trade Promotion Optimization) and is a must-do in today’s commercial operations of Consumer Goods and Retail companies.
But unfortunately, many companies do not employ state-of-the-art tools and processes, but work with legacy systems and organizations sometimes even still based on .xls-spreadsheets.
Perhaps the most important success factor in Consumer Goods and Retail companies are effective internal organizations and efficient processes. But, in many Consumer Goods and Retail companies, functional silos are still prevalent especially between sales, marketing, trade, controlling, service, and supply chain. Effective TPM based on an integrated IT system and software must aim to overcome this hurdle by forming a high-performing commercial organization.
To delve deeper into the world of Promotions and Pricing, take a look at the trailers for in our lesson library.
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