In an industry that is hot and constantly evolving – E-Commerce, it is not surprising to see a completely new word invented by a professional and adapted by e-commerce audience. E-commerce involvers start to reshape the existing words and give new meanings to them. So, it is not that easy to quickly get familiar with these tech-based wordings for a newcomer.
This continuous re-invention is happening in almost every aspect of e-commerce and in Prisync, as we are highly focusing on the “pricing” area of e-commerce, we thought it is the time to craft a e-commerce pricing glossary that makes e-commerce involvers’ life a little easier when setting up a new pricing strategy. This glossary might help you gain better insight which/how pricing strategies are implemented to e-commerce companies or at least you can use this guide as a quick reference.
How we can eliminate the risk of MAP violation and strengthen our brand position? Should we deploy dynamic pricing to our e-commerce store? Is it possible to increase our margins by using competitive intelligence?
Don’t let these tech-based words make your pricing processes complicated!
Here, 39 most important pricing-related terms that every e-commerce store owner/manager should know;
Automated Pricing Strategy
Automated pricing approach is a practice to monitor competitors’ prices automatically with competitor price tracking tools. By implementing this strategy, e-commerce companies can decrease the daily time-consuming works, set a fine-tuned dynamic pricing strategy and have a clear visibility on market.
Best Price Guarantee
Best Price Guarantee is a commitment made by online retailers which offers the best price to online shoppers in a specific product category.
With bundle pricing, online stores sell multiple products from one transaction for a lower rate than online shopper would face if they purchase them separately. It is a great practice to sell unsold products and decrease inventory costs. It can also improve consumer loyalty as stores are giving some free or discounted products.
Competitive Price Intelligence
Competitive price intelligence refers to identify, compare and analyze pricing and other revenue-impacting data for an e-commerce company. E-commerce companies can benefit from competitive price intelligence by acquiring competitor price tracking tools. With comparisons on products and services, it is possible to have clear visibility to volumes of pricing data.
Competitive Price Tracking Tools
Competitor price tracking tools enable e-commerce companies to track and display price changes and stock availabilities of competitors’ products automatically.
This e-commerce pricing approach requires the company to be able write down its unit product costs for each of its products in its portfolio, and then set a target profit margin for each of those products and price the products as the sum of the unit costs and the target margin.
Customer-Oriented pricing is a strategy in which the online retailer should always consider the customer reference points during the purchase. It is mostly about the value of the product or service from the consumer’s perspective. In order to enhance the customer-oriented pricing efforts, it is a must to know perfectly these two questions; What is my shop’s unique selling proposition? Who are my customers?
Special offerings on special products from e-commerce stores to visitors in order to convert them to real customers. Online shoppers face with discounts on special days or on special products (generally they are hard to sell). They can also get discounts by subscribing to e-mail list or signing ups.
Discount Code(Coupon Code)
A series of numbers or letters that online shoppers can enter at checkout to give them access to special offers or discounts.
Dynamic pricing also called real-time pricing, is a way for setting the cost for a product and service that is highly flexible. By using dynamic pricing strategy e-commerce companies adjust their prices in response to market demands and competitors prices. This strategy can be set and sustained easily by implementing competitive intelligence tools.
The e-commerce companies which target to attract the most price-conscious customers can deploy economy pricing as a pricing strategy. This type of pricing takes a very low-cost approach. Examples of online retailers appyling this type of strategy include Walmart, Target, online groceries.
The reward made from e-commerce companies to motivate online shoppers to make more sales by offering coupons, free shipping,…
A landed cost is the total price of a product once it has arrived at consumer. The landed cost covers the original price of the product, all transportation costs, duties, taxes, insurance, currency conversion, creating, handling and payment fees.
Loss leader pricing is an aggressive pricing strategy in which an online store sells its certain products below cost in order to attract customers. The other major purpose lying under the idea of this strategy is the chance of selling other products at list price while gathering online shoppers to store by offering products below costs. E-commerce companies expect to compensate the loss from losses by boosting the retail-priced products. Think about deals in Black Friday or special days.
In market-oriented pricing, the e-commerce company set its pricing strategy based on the similar products on the market. Also known competitive pricing strategy, evaluating competitors’ prices and market demand is prioritized. In a world where consumers care heavily about the online prices and compare the prices versus competitors, market-oriented pricing strategy becomes a crucial issue that e-commerce companies should consider.
Manufacturer’s Suggested Retail Price (MSRP)
MSRP is the selling price of a product suggested by the manufacturers to e-commerce companies.
Minimum Advertised Price (MAP)
MAP is the lowest price a retailer can advertise the product for sale. It is imposed by manufacturers to re-sellers in order to maintain their brand positioning in terms of price. For example, if a sunglass manufacturer sets a MAP price of $200 for one of its sunglass, it means that online retailers must advertise this product at $200 or more, if not it means retailer violates MAP policy.
Penetration Pricing is most appropriate when an e-commerce company enters a new market or introduce a new product to attract new customers, increase market share and build customer loyalty. It is mostly applied by setting an initial price much lower than the standard price. Setting low prices discourages competitors from entering the market. But, before making a penetration pricing decision, a proper market and competitor research must be conducted. Without a complete preparation, it may cause to lose money and may increase competition rather than decrease it.
Perceived value is mainly related with customer-oriented pricing strategy. It refers what product image comes in customer mind and what the customer is ready to pay for it.
The evaluation of consumer responses to different pricing strategies deployed by e-commerce companies. By defining proper metrics and events and choosing right analytic tool, e-commerce companies can make more accurate forecasts.
Price anchoring is an effective practice that affects the decision-making of online shopper. During decision-making, anchoring occurs when shoppers use an initial piece of information to make next judgements. As a simple example, think about; an online electronic retailer is selling two TVs- first one 34” TV for $500 and the second 36” TV for $800. Online shopper would consider to purchase 34” TV to pay $300 less just for 2 inches difference. In this case, online shopper anchored the first deal as it seemed a great bargain for him/her by comparing it with the more expensive deal.
Price Comparison Engines
Price comparison engines provide a platform where shoppers can compare each retailer’s price, shipping options, and service on a single page and choose the merchant that offers the best overall value. They collect product prices and other product information from retailers – including the link to the shop and then display the collective information on a single results page.
Price Discrimination is a pricing strategy that charges customers different prices for the same product or service. The purpose of this strategy is to capture the customers who are willingness to pay more or less than your fixed price. There are 3 sub-degrees of price discrimination strategy;
1st degree: This assumes that a seller knows the maximum price that every consumer is willing to pay.
2nd degree: Price varies depending on the quantity in demand. A common example of this is applied discounts for bulk purchases.
3rd degree: An online store charges a different price to different consumer groups. Price is charged differently according to different segments (geographic, demographic, psychographic, behavioral,…)
Price matching is a practice in which an online store promises to match another online store’s prices for certain products.
Price monitoring is an act of tracking and analyzing competitors’ prices on an online market.
Price optimization is a continuous decision-making process of prices in order to determine how consumers respond to different set of pricing applications. Specifically in an online area where price wars are fierce, it is a must to optimize prices in order to maximize profits.
Price skimming is a practice designed for e-commerce companies to boost sales and profits on new products. The practice starts with setting high prices during introduction stage to maximize the profit on early adopters and then continues with decreasing the prices gradually to catch price-sensitive segment.
Pricing at a Premium
Pricing at a Premium is a practice to keep the product prices at the highest level in order to put a premium product perception in consumer’s mind so customers think the product or service is more valuable than similar offerings.This strategy empowers the ability to target ideal market. High-end perfumes, jewellery, clothing are the best areas to implement pricing at a premium.
This value benchmarks your overall pricing performance vs. the market average out of 100. Arithmetically, it is calculated by finding an index value for each of your product prices vs. average price (again out of 100), and then finding the average index value for all the product price index values.
Profit Margin expressed as a percentage, displays how much profit a business is making for every pound of sales it earns. It is one of the most important profitability metrics of a business.
Special deals or discounts that are applied by online retailers for a specific time period, or on specific products to push online shoppers to buy.
Prices are the decisive factor of purchasing decision in an online market. E-commerce companies not only focus solely on customers’ logic but also address the psychological triggers. Psychological pricing is a pricing practice which can be translated into a small incentive that can make a huge impact psychologically on customers. As an example, online shoppers are more cheerful to purchase $4,99 than products costing $5.
Retail Price is a total price charged to online shoppers by e-commerce stores which includes manufacturer’s cost and retailers’ added value.
Single Price Policy
Single Price strategy is an application in which the same price is offered to every segment of customer. In other words, it means prices are fixed and non-negotiable.
Shopping Cart Rules
Price changes based on the items in a user’s cart. It is followed by certain rules. For example, if purchasing from “Cosmetics Category” or “Sports Category” offer “ %10 “ discount.
Stock Keeping Units(SKU)
An online store’s numeric identification code for each product.
Unit Product Cost
Unit product cost is a metric that affects your pricing applications. It is the total cost of production divided by the number of units produced.
Wholesale Prices refers to the selling of huge amounts of goods from manufacturers to the online retailers at a low price. As the purchase transactions are huge in terms of quantity, wholesale prices are lower than retail prices.
VAT is a consumption tax assessed on the value added to goods and services. It applies almost every product or services that are bought or sold to use in consumption.
We hope this e-commerce pricing glossary will be beneficial for you when you are trying to set a new pricing strategy. Please feel free to reach us to get more details about pricing. Excited to hear your feedback.