Repricing Scenarios to Increase the Turnover of an Online Store

[White Paper] Repricing Scenarios
to Increase the Turnover of an Online Store

Repricing Scenarios

In this whitepaper, you will get a clear roadmap for pricing scenarios usage:

Using the repricing algorithms from this white paper with your business data and goals allows for an improvement of your online store’s turnover.

Setting the Price at the Smallest Value Among Your Competitors Scenario

Description:

This scenario helps maintain the value of products at a minimal level, while not selling at a loss.

keep the price at the minimum
level among your competitors
until
the difference with the current
price changes is less than 25%
then
do not reprice the product
automatically, instead notify the manager
Benefits:

If the goal of the retailer is to sell as many goods as possible, then this scenario is one of the best ways to do so. However, as in any scenario, it has one significant drawback.

Disadvantages:

The rule of setting prices at a minimum value among competitors is very simple to implement, but it does not let the retailer make more revenue.

The Minimum KVI-positions Price Scenario

Description:

It helps maintain the lowest possible price on the market by following the key competitor with the lowest price. However, the price should not be lower than the minimum markup.

if
the product is in the list
of KVI-positions
then
reprice it to 5% percent below
the competitor’s minimum price
and
it needs to withstand the minimum
markup of 3% of the cost price
Benefits:

This scenario helps retailers achieve two goals simultaneously: increase turnover and take some of your competitor’s customers due to the minimum cost of KVI-products.

Disadvantages:

Attracting buyers who are looking for the minimum price of a product rarely works in the long run. These customers are always in search of the minimum price, which means that during the next purchase, they’ll look for the cheapest option on the market.

The Dynamics of Sales and Stock Scenario

Description:

This scenario is created for those retailers who work with their warehouse. It helps carry out the plan for turnover, without selling the entire stock.

use the “Minimum Margin”
scenario
while
the number of sales is less
than the number of products
in the warehouse
else
use the “Plan for Turnover”
scenario
Benefits:

This scenario helps synchronize the dynamics of sales with the rest of the warehouse and prepare storage space for the newly purchased batch of goods. A category manager can purchase products several months in advance.

Disadvantages:

It’s difficult to calculate the dynamics of sales and the correlation with what is left over in the warehouse by taking into account seasonal sales surges. To work effectively with this scenario, you may need the statistics from the last couple of years.

Repricing Considering the Promotional Activities of Competitors Scenario

Description:

This scenario is created for those retailers who track the promotional activities of competitors and want to react to them promptly.

if
the competitor has
a promotion on their products
(either a discount or gift)
then
set the price of the product
5% lower than competitor
and
hold onto a minimum
3% markup
Benefits:

This scenario helps retailers deal with the implicit dumping of competitors, bonuses and road markers, by offering a more favorable price for the product. This makes it possible to entice some of your competitor’s buyers who compare prices on marketplaces.

Disadvantages:

Like some other scenarios aimed at increasing turnover, this approach does not allow the retailer to earn more, and the competitor who launched the promotion may be in a better position, since the costs of conducting promotional activities are often taken on by the supplier.

Stock Reducing Scenario

Description:

This scenario is similar to the “Dynamics of sales and stock balances”, but takes into account the age of the stock. The task of many category managers, and often one of the KPIs, is not to exceed the “old stock” share above a certain value.

if
the product is kept at stock more than N days
then
set its price at the level of the purchase price +1-3% regardless of the pricing of the competitor
else
use a different repricing scenario like, for example, the market price
Benefits:

By monitoring the “health” of the stock, retailers won’t have outdated products overflowing in their warehouses. This lets them avoid the subsequent sale of such products by selling at a loss as a forced measure. In addition, the sale of products with a low markup, without looking at competitors, allows you to quickly increase sales and execute the plan for the reporting period.

Disadvantages:

1) It’s useless for new products that just became a part of the inventory. In this case, you need to apply other scenarios.
2) Not all ERP-systems take into account the age of the stock and they only process quantitative indicators.

Market Positioning Monitoring Scenario

Description:

This a scenario for combating the dumping of competitors should a certain manufacturer establish a minimum market positioning.

if
there are one or more violations
of MRP by competitors
then
notify the manufacturer
of the violation
and
set the price at the level of the competitor
that made the violation
Benefits:

At a high frequency of monitoring competitors’ prices, this scenario promptly records the violation of the MRP and increases the sale of products that correspond with MRP.

Disadvantages:

If you don’t reach an agreement with the supplier about this kind of scenario in advance, there’s a risk that you’ll spoil the business relationship with the supplier. At the same time, the monitoring frequency should be high enough to secure the violation of MRP fairly quickly and respond faster than the other competitors.

As you can see now:

Each of these scenarios requires the retailer set particular values which is why we did not quote specific figures in the examples. The data that is used is an important component for working with scenarios.

Necessary Data

For effective scripts usage, the retailer needs a high-quality, actual and correct data. It needs to be collected without errors on marketplaces and the competitor’s websites at the time pricing need to be done.

The retailer needs to have the following information to work effectively with pricing scripts:

By integrating this data into the scenario and analyzing a performance of the latest, the retailer can understand how the product’s price affects its sales, what is the influence of the key competitors on sales; create a Price Index report to track the effectiveness of retailer’s pricing and the impact of its competitors more effectively.

Pricing Scenarios Tools

The simplest pricing scenarios tool is an Excel spreadsheet. But, since this tool has more flaws than advantages, it is much more effective to use special pricing services.

The Price Management product, a part of the Competera Pricing Platform:

To calculate the ROI of such tool for your business, do not hesitate to contact our pricing experts.

Useful resources

If you want to know which of the above pricing rules will be effective for your online store, chat with our pricing experts—they will answer all your questions.

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