Jul 25, 2023
Debunking the Myth of the Perfect Price
Why you need an iterative testing strategy
At Intelligems, we often hear our customers express their desire to find the “right” price for a product. Their idea is we run a few tests, measure the profitability at different price points, and get to the “correct” answer. They can then switch to this price and leave it alone for a year or two. It’s a nice vision – and we almost always find a better pricing strategy that creates some more profit – but this idea of a “correct” or “right” price has always made us a bit uncomfortable. While we are able to find the “right” price for the moment, it may change completely next week, or next month.
Think about it like your ad creative. You may have an ad that’s been crushing it. You’re definitely going to keep squeezing it, but you’re also going to keep developing new creative, new copy, and new hooks alongside. That's because (a) you know that things could change and that great ad runs out of steam, (b) you think there could be an even better ad out there for you, and/or (c ) you think a slightly different ad could help you reach customers who aren’t buying yet.
It’s the same with pricing. Although your initial test may have found a better solution than your current one, it won’t be that way forever, and you can’t just set and forget. You need to keep testing your prices and adapting them accordingly. Why are we assuming there’s a "one-size-fits-all" for pricing when it’s not true for other parts of the business?
Pricing shouldn't be a static element of your business. Instead, it should be a constantly evolving component that requires ongoing attention and adaptation. Of course, there is the right price for the moment, but that moment can be fleeting. So let's debunk the myth of "perfect pricing" and talk about some of the underlying reasons why the "right" price for your business is constantly changing.
Your audience is shifting
The landscape of potential customers is never static for e-commerce businesses. Different marketing channels, such as Facebook and other platforms, attract a diverse set of customers with varying levels of price elasticity.
Because your customers are likely changing, their willingness to pay for your products changes accordingly. To optimize your pricing strategy, you have to be continuously assessing and adapting in order to ensure that your product will sell. Of course you want to continue making a profit, but you also want to make sure your customers are happy – pricing is about finding the perfect balance between these two factors.
Pricing is both cyclical and seasonal
Don’t disregard how much the nature of your products should influence your pricing strategy. Say you’re a ski goggle company, the “right” price for your product in the summer almost certainly isn’t the same as it is during peak ski season in the winter. On the flip side, if you sell swimsuits, your price shouldn't be the same in June as it is in November. Understanding the seasonality of your products is critical to maximize your profitability and keep your customers satisfied.
Economic conditions are always changing
If one thing is certain, the economic landscape is subject to constant fluctuations, and pricing must align with these changes. Let’s take a look at the last few years… When COVID stimulus checks came out, online shoppers had a much lower price elasticity and were willing to spend more money while shopping – meaning you likely could get away with higher prices for your products. But today, consumers have become more price-sensitive (which explains why people have become more receptive to discounts) – meaning you should probably think about whether lowering your prices makes sense for your company. Adapting your pricing strategy to match these economic shifts is essential to sustain sales and maintain customer loyalty.
The e-commerce market is competitive by nature
It's essential to keep in mind that the e-commerce market is a competitive one. Maybe you have new competitors popping up that didn't exist before, or maybe you are focused on your well-established competitors. Whichever it may be, to remain competitive and attract customers, you need to be changing your prices. Chances are your competitors are changing theirs more frequently than you think. Monitoring your competitors' prices and using them to inform your strategy allows you to maximize your profits while keeping your customers content.
While we understand the importance of changing prices, at Intelligems, we also know that relying on data to inform these changes is the best way to maximize your profits. We have run thousands of price tests and iterations to ensure that our customers can properly adapt to market conditions and can thrive in a competitive landscape all while maintaining customer satisfaction and profitability. Through AB tests that provide powerful data analytics, you can optimize your prices and continue to test throughout the year to ensure you are changing them as often as you need to be. Our experience has shown us time and time again that a proactive approach to pricing is the only way to ensure long-term success in the ever-changing e-commerce market.