WHAT’S YOUR E-COMMERCE PRICING STRATEGY?

What’s Your E-commerce Pricing Strategy?

David Bauders

David Bauders
CEO, SPARXiQ

Greg Preuer

Greg Preuer
VP, Strategic Accounts & Initiatives

As in the larger economy, disruption has rewarded distributors who have invested in e-commerce and revealed weaknesses in those who have neglected the commitment necessary for success. Jonathan Bein, of Real Results Marketing, estimates that fewer than 10 percent of distributors have achieved e-commerce success (which he broadly defines as e-commerce providing 20 percent or more of revenue). While there are many factors that drive e-commerce adoption, one key factor that needs special attention is pricing. Beyond its impact on sales and profitability, pricing is a company’s narrative on its carefully cultivated value story.

Achieve Critical Mass in E-commerce Adoption

To build a competent pricing strategy (e-commerce and beyond), each distributor needs to identify and clarify their value proposition and competitive positioning. Each distributor needs to identify:

  • Who the distributor seeks to serve (its ideal customer profile(s))
  • What value drivers they will provide
  • How they will serve that customer
  • How they will differentiate from their competitors, and
  • How much customers are willing to pay for the distinctive value they provide

These are the foundational questions in developing a pricing strategy, and without answering these questions, e-commerce is unhinged from the company’s mission and identity. With proper grounding on the answers to these questions, distributors can turn their attention to more focused e-commerce pricing decisions.

Beyond its impact on sales and profitability, pricing is a company’s narrative on its carefully cultivated value story.

If your company has yet to achieve critical mass in e-commerce adoption, a primary question is, whom do you seek to serve via e-commerce? If you view e-commerce as primarily an efficient, customer-centric platform for helping existing customers, then most of your pricing challenges will be linked directly to your standard sales pricing architecture – which may or may not be in proper working condition. If you hope to leverage e-commerce as a primary gateway to new-customer acquisition, you will have additional pricing questions to answer.

Keep in mind that with e-commerce your offline pricing inconsistencies, overrides, and other Wild-West pricing behaviors will likely become apparent to your existing customers – and a barrier to adding new customers. If you lack field pricing discipline and consistent execution, your existing customers will find your e-commerce positions frustrating and contradictory, and it will be difficult to attract new customers without alienating existing customers.

In addition, the sales team may resist helping drive e-commerce adoption for either reasons of pricing or incentives or both. Again, to achieve the service and efficiency benefits of e-commerce, you have to connect to the broader sales and commercial processes.

Attract New Customers with a Competitive Pricing Strategy

Many distributors are surprised to learn that their e-commerce site can be a primary platform for new-customer acquisition – if they get the pricing right and integrate and enable the field sales teams into a rigorous, timely post-sale account-conversion process.

To get new-customer pricing right, many distributors will find that they need to sharpen their front-of-login pricing on core products to meet competitive market pricing requirements. To avoid channel conflict with existing customers, careful analysis is necessary to identify which products to promote and how pricing levels should relate to post-login pricing.

Think about every person that logs onto your website as a potential new customer, not a random consumer. If your e-commerce price levels are not competitive, then you eliminate the potential to earn a new customer. Internet pricing does not have to be your lowest price levels, but it needs to be competitive – especially on core products. When new customers arrive on your website, you can’t expect them to create an account in order to receive pricing or place an order.

It is critical to have the analytical insights to provide price profiles for key e-commerce business segments. These profiles provide a price for core stock products that key new customer buyer personas would likely purchase. Remember, potential customers will not call in for a price; they will select another supplier instead. Make it incredibly easy for customers to place an e-commerce order with the fewest clicks possible, so there’s no hassle and no questions. Later, we’ll explore a few factors to include in your pricing strategy.

In short, you need to have in place a robust, holistic, data-driven pricing architecture addressing both pre- and post-login pricing to set the stage for e-commerce consistency and growth. In our experience, half-baked, DIY pricing matrices are usually riddled with inconsistencies and errors that frustrate customers and inhibit e-commerce adoption. As with poor user experience or in-stock availability, poor e-commerce pricing strategy and execution is a leading cause of poor adoption.

 

e-commerce strategy for distributors

Tips to Keep in Mind When Targeting New B2B Customers

With a rigorous, data-driven pricing architecture and field pricing disciplines in place (make sure they really are there!), you can focus on more tactical challenges to drive new-customer acquisition. As you work through the online pricing specifics, it may be helpful to keep in mind the following tips:

  • For many distributors, the primary e-commerce goals are to attract new customers, convert qualified first-time shoppers into ongoing customers, and efficiently serve existing customers
  • User navigation and experience, and in-stock availability, are often the key drivers in winning business
  • Pre-login, each order stands on its own for price competitiveness and conversion
  • Shipping, handling, payment terms, and size-of-order incentives can be keys to generate customer acquisition and build to larger orders
  • Understand the true cost to serve of both your online and offline service models
  • Providing better price levels based on increased order quantity purchased for a unique order can help build pre-login positioning. The slope of these discounts should relate appropriately to your offline pricing slopes.
  • For EDLP pricing of pre-login users, shop your main competitors’ web pricing on a regular basis
    • Basket of high-volume products
    • Weekly or monthly
    • Determine the correct price premium percent or discount percent based on the inventory and service positioning of your business
  • Research shows that most buyers will not engage past the top three search results, so be realistic about where you are and what’s needed to change that dynamic. No amount of low pricing will consistently drive traffic for a low-visibility distributor. Buyer content/resources, breadth of product and in-stock availability are better paths to success.

The key to success is understanding the various buyer scenarios (new visitor vs. existing account, etc.), and leveraging analytics to strategically align each pricing layer.

Tips to Keep in Mind When Targeting B2C Consumers

In some distribution markets, there may be a significant consumer segment – or a commercial segment, like small contractors that has consumer-like buying dynamics. With these consumer-like buyers, here are a few tips that may be helpful:

  • Prices online are rarely the lowest price, but consumers think they are
  • The online buyer experience, ease of doing business, and speed to process an order are key drivers of customer conversion, often more important than price
  • Measure and analyze customers’ online activities to qualify for conversion to a blended sales coverage model

Existing Customers: Leverage Your Existing Pricing Strategy to Drive Share of Wallet and Cost-to-Serve Efficiency

E-commerce provides value added services to sell more to your existing customers – while also potentially lowering cost-to-serve by 10, 20 or even 30 percent. In developing an operational strategy for e-commerce pricing, new tools leveraging AI and other analytics to offer replenishment, cross-sell and complementary-product suggestions can improve the user experience and revenue growth.

Leverage channel-specific pricing with the web as a portal to it. Again, an optimized, data-driven, consistent pricing architecture with proper field adoption is a pre-condition for success. Customer profiling should answer key questions for segmentation, to personalize online offerings and pricing. Segmentation is crucial when executing the pricing strategy.

customer segmentation for e-commerce pricing strategy

Tips to Keep in Mind When Targeting Existing B2B Customers

With existing accounts, your goal is growing share of wallet, improving product mix, and driving greater cost-to-serve efficiency. Here are a few tips that may be helpful:

  • Account pricing driven by analytics reflecting key segmentation attributes
    • Business segments (eg, OEM, C&I, MRO, etc.)
    • Size or cost-to-serve of customer
    • Size or cost-to-serve of transaction
    • Competitiveness of product family
  • Post-login internet prices should be aligned to established offline pricing architecture
  • Consider offering a reward program or other incentives versus offline pricing, reflecting the operational efficiencies
    • Determine e-commerce order cost efficiencies for your company X vs. offline ordering
    • Provide an X percent price incentive on all e-commerce orders, for 12 months
    • E-commerce incentives can be off-invoice, or a rebate, or product-credit on the backside.

These are just a few examples of the practical steps you can deploy to improve share of wallet and lower operational costs.

Focus Efforts to Drive Margin Growth

Depending on the market segment, certain micro-segments of customers may be primarily convenience- or secondarily price-driven consumers. It’s important to capture user engagement to identify behavioral traits that signal preferences and allow for pricing segmentation. Micro-segmentation allows you to capture higher prices for the right opportunities, such as low-availability products, convenience or highest cost-to-serve customers, small growth-potential buyers, or least price-sensitive vertical segments.

When it comes to price or terms negotiation, don’t do so electronically with customers but rather – prompt them to engage with your team to get a win-win deal. Prepare your inside sales team for negotiating with e-commerce customers and ensure they stick to the pricing strategy and know how to build order value in exchange for pricing concessions.

Improve Profitability Online for your Business

Beyond serving the modern buyer in the ways that they prefer, e-commerce is about acquiring new and smaller customers, serving existing customers more effectively and efficiently, and improving profitability. Your e-commerce platform can be a great platform for profitable growth, but it needs to be tied to your larger value proposition, go-to-market strategy, and ultimately your pricing strategy.

Looking for guidance on driving better e-commerce adoption and profitability? Wondering if your pricing architecture is helping or hindering your success? Reach out to us with any questions. We’d be happy to chat.