Once upon a time, factoring retail pricing was as easy as choosing a fixed margin, adding it to your cost of production and printing out the price tag. “Cost plus” pricing is still a popular strategy for many retailers and manufacturers, but the dawn of e-commerce has once again complicated things. Your customer now has all the tools at their disposal to price compare within seconds. There are even apps that let consumers check to see if they’re getting the best price. So what are manufacturers to do? How do you price effectively and keep your brand and bottom line in tact?
One strategy is to use value-based pricing. This model factors price based on the value you offer the customer, not necessarily a fixed profit margin. The trick to value-based pricing, is calculating that value. For most brands, you’ll need to do extensive market research and demographic studies to learn about your customers and what holds value to them.
Ironbridge Software has found that one of the best ways to keep tabs on your customers and their values is to leverage your own data and cross reference demographic data. You can purchase demographic data from providers like Nielson and use it to gain insights on your customers. Your own data can reveal what is selling and how often. Use this information along with insights on your customers (such as age, income, location and much more) and you’re well on your way to drilling down on that value question. Ironbridge’s suite of programs can help you integrate all of these findings and even display them in dashboards that make sense to your team.
One brand that is pricing based on value is the clothier Everlane. Everlane provides pricing right on their website. They actually give customers a chart for select items that details production cost, labor, etc., and a calculated “true cost.” They call this “radical transparency” and then compare their prices to traditional retailers. So customers see that they’re paying as much as a 50% markup, but they also see what a traditional retailer may charge (i.e. much more). For Everlane customers, the transparency and ethical element of the brand holds enough value to pay the markup.
So what happens when you sell on a third-party site such as Amazon or Walmart? This is when your data and that of your competition is imperative. You need to monitor your sales in real-time to catch the moment a product starts to slip. If a competitor drops their price, they may see a surge of Amazon traffic or even be chosen as “Amazon’s Choice.” This could really hurt your sales, so having that information available immediately is key. Ironbridge’s NetBench will help you see these trends so your team can adjust prices to compete within a specific site’s search results.
Furthermore, Ironbridge’s software tools can search customer reviews on third-party sites. Ever notice how customer reviews talk about price? A customer might say “this is really great quality for the low price.” Or, in contrast, a customer might comment “this felt cheaper than I’d expected and wasn’t worth the price.” Gathering this customer feedback is imperative to your brand’s strength and can also help inform price adjustments. Ironbridge’s software suite can analyze this type of review data and deliver valuable insights for your team.
Pricing is a tricky business, but it doesn’t have to be daunting. Using your own customer data and a value-based approach, you can successfully compete in today’s high-speed online market.
Are you ready to take your pricing strategy to the next level? Contact Ironbridge today to learn more about our suite of products.
Written by Kim Kelly Consulting
