Most retailers know that in order to stay competitive in today’s market, you need optimal prices for your products at all times. Rule-based pricing is becoming increasingly more useful for companies to price their products, but implementing pricing rules is not always simple. 

To do so manually, countless spreadsheets must be created and endless hours spent on calculations. Due to the likelihood of human error, this method is not only time-consuming, but also potentially leads to inaccurate results. In-house solutions may be viable for retail giants like Amazon, but can be far too costly for what it’s worth even for large retail enterprises. Considering these options, rule-based pricing may seem at a glance to be outdated and costly.

That’s why at Competera, we have created an all-encompassing platform that makes rule-based pricing fast, easy and affordable for retailers. Automated rule-based pricing takes away the hassles involved with implementing pricing rules for the countless products required to price, and can give your company the right prices when you need it most. But for retailers who have never implemented rule-based pricing before, or retailers who have not updated their pricing rules and strategy, it can be difficult to know where to start. That is why we have compiled a helpful list of important tips to help you create and maintain pricing rules that are perfect for your business objectives.

Understand What You’re Working With

Before you start pricing, it is important to set a solid foundation for your strategy. To do this, you need a plethora of information and understanding about your unique situation as a business, which will give you more context and help you determine which pricing rules are most relevant to your success.

  • Know your customers. There are many important questions to ask yourself when considering your customers, how they shop, and how they respond to different prices. When creating general profiles of customer types, think about what platforms they use to shop at your business (online, in-store), and try to gain a good perspective of what they expect from their shopping experience on these platforms. Understanding what customers expect and how they shop can give context to how they might react to price changes, and what prices they expect to see from your store.
  • Learn the ins and outs of your industry. Figuring out the best prices for your products and how often you should be changing your prices is dependent on your industry landscape. By covering the previous point regarding customer behavior and their buying cycle, consider a few other important questions about your industry. Are you selling essential products? How long is the buying cycle for most of your products? Is your market highly competitive, or are you selling more unique products? Once you answer these questions and are familiar with your industry, you’re one step closer to determining the best rules to calculate the best prices with.
  • Keep tabs on your competition. A huge component of understanding your industry stems from understanding your competition. The first step is understanding who your true competitors are in the first place (some may surprise you, so don’t underthink this point). Once you know which companies to focus on, try to establish some pricing rules that they may be implementing. This can be figured out by tracking their prices and detecting patterns within how they price and reprice their items. 
  • Outline your goals. How successful your pricing rules will be relies on what your definition of success is. Is your business looking to increase sales, or increase profit margins? Sometimes both can be achieved, but not always, and it’s important to determine your main objective. Be as specific as possible for your targets. By what percentage do you want sales for a product or category to increase, and within what timeframe? Having clear goals will help determine pricing factors like your lower limits and thresholds for prices.

Test

Test pricing rules to gain experience

Once you’ve gathered all the information you need and have a good idea of your market, you need to gather the know-how and experience of using difference pricing rules. Figuring out how various rules impact your business is the key to finding your optimal strategy, as well as your limits.

  • Experiment. Hands-on experience is key to establishing your own rules successfully. Determine a few products you can use to test out different strategies with. Pay attention to the responses you get to setting lower or higher prices. How did your customers respond? Did your sales increase or decrease? How did sales differ depending on the platform customers were using? Did your competitors respond by changing their prices as well? Though manually repricing your products can be somewhat scary, it is worth having the know-how to ensure success on a larger scale when creating your rules later on. 
  • Don’t know how to start testing? Consider the basics. Here are a few general pricing rules to consider if you aren’t sure where to begin. 
    • MAP (Minimum Advertised Pricing) and your lower limit: Set the price of a product or category based on its MAP. Depending on your profit margin, this strategy can be useful for products which are not unique, have a high sales volume, and are sold by many competitors. However, if you find that setting your prices based on MAP is detrimental to your profit, you now have a better understanding of your lower limits when pricing certain items and/or categories.
    • MAP (Minimum Advertised Pricing) and your lower limit: Set the price of a product or category based on its MAP. Depending on your profit margin, this strategy can be useful for products which are not unique, have a high sales volume, and are sold by many competitors. However, if you find that setting your prices based on MAP is detrimental to your profit, you now have a better understanding of your lower limits when pricing certain items and/or categories.
    • Your threshold: Alternatively, you can try to price items higher than usual to get a feel for what your upper limits are. At what point are sales impacted too greatly to justify the increase in profit margin? Knowing this will make sure that later on your products are never priced too high, which not only will help maintain sales but also can protect your brand image.

Automate your pricing process 

After getting hands-on experience with different pricing rules and methods, you may start to come to the conclusion that manually determining your prices is extremely difficult and time-consuming to do across multiple categories. If so, you are not alone; most retailers are turning to automated pricing to implement their pricing rules effectively for most or all of their products. Thankfully, there are a multitude of advanced pricing software available to retailers depending on their goals and needs. 

Most pricing software will give you suggestions for your prices based on changes in the market. Depending on the platform you use, it does so depending on competitor prices, promotions within your industry, and changes within your overall sales and revenue. Relying on software to determine your prices may sound scary at first, but the good news is that these recommendations are based on rules that you give it (e.g. not selling below or above a certain price). Because it considers your objectives along with an immense amount of information difficult to analyze by hand, an advanced pricing platform can provide you with very accurate pricing recommendations that are geared towards your sales and revenue targets.