For an e-commerce that is just getting started, it is easy to think that the only valid pricing strategy is to offer a lower price than its competitors. This strategy, known as "penetration", seems to be justified by the fact that online competition is only a few clicks away. A situation that is also exacerbated by price comparators, which put e-commerce businesses from different countries in competition with each other.
However, the so-called "penetration" pricing strategy is one of the most difficult to make profitable. It is also complicated to maintain over the long term. It also risks maintaining a price war that would drive down the revenues of all the e-commerce businesses concerned. Other strategies are available to e-commerce, such as alignment or skimming. Staenk discusses the advantages and disadvantages of each of these strategies.
A short-term "penetration" pricing strategy
The penetration strategy consists of offering the cheapest prices on the market for a given product. This aggressive approach is necessarily accompanied by significant communication expenses. In the short term, these expenses may not be recovered through revenues. They are therefore just used to attract enough customers to be profitable in the medium term. When e-commerce has entered the market, he can then consider changing his strategy to sustain his revenues. At the risk, however, of losing customers used to low prices.
In reality, this pricing strategy is quite uncomfortable. It involves revenues that are often lower than expenses in the first instance. This preliminary period must therefore be properly evaluated so that e-commerce can support low margins until sufficient market share is gained. Prices should also be low, but not too far away from the competition. If this were the case, the e-merchant would risk triggering a price war that would disadvantage all market players.
There are a few contexts in which this strategy nevertheless remains relevant. If e-commerce has the means to offset the initial costs by producing large volumes, the penetration strategy often proves to be relevant. It is also relevant in a promotional context, where the brand sells at a low price a product whose price evolves over the long term. This is a strategy that is very familiar to mobile phone operators and Internet service providers.
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Focusing on the marketing mix for successful price alignment
The Price Alignment Strategy consists of match competitors' prices. It therefore implies differentiation on aspects other than price: product quality or service quality. Labelled products are well suited to this kind of strategy. E-commerce businesses that offer delivery or payment facilities can also get away with it.
In the majority of cases, however, this strategy is also quite difficult to maintain over the long term. It involves, on the one hand keep a daily watch on competitors' prices so we don't get left behind for lack of attention. There are, however, paying tools available to carry out this task. It only works, moreover, for businesses whose operating and production costs can compete with those of their competitors. In this case, it is necessary to be able to produce more in order to amortize higher fixed costs than the competition.
As with the penetration strategy, the price alignment strategy carries the risk of locking the market around non-optimal prices, or levelling prices down. To make it attractive, it is necessary to Differentiate on other elements of the marketing mix. than the price. The e-merchant can, for example, choose to distinguish himself by the product, whether it be its labels or even its packaging. He can also rely on advertising and direct marketing to improve his sales. Playing on the terms of sale, such as delivery, guarantees, means of payment, points of sale, can also help to differentiate.
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A skimming price strategy for high value-added products
Offering a product at a so-called "skimming" price is a matter for the outperform the competition. In this case, the e-merchant bases himself on a product whose qualities he is able to prove. He must actually convince a target of " early adopters"People with strong purchasing power, capable of appreciating the competitive advantage of the product, which will enable them to achieve high margins right from the start of sales. For the skimming strategy to be viable, this advantage must also be difficult for competitors to replicate.
Commonly, the skimming strategy implies an evolutionary decrease in the starting priceThe early adopters buy it at a high price, then the price goes down and the product opens up to other potential customers with lower budgets. This is the strategy followed by Apple on its iPhone. The apple brand is offering ever higher introductory prices for its smartphones. Competitors such as Samsung and Huawei have also adopted this skimming strategy.
However, the price-skimming strategy is not reserved for established brands. It can attract a niche of customers with high purchasing power, intrigued by the price difference and concerned about the quality of their purchases. Provided the product keeps its promise, this type of clientele easily becomes loyal. These early adopters also allow for a rapid improvement in sales margins and deal with fixed costs more comfortably.
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