Pricing In a Supply Driven Economy

By Rob Horton on May 19, 2020

Pricing in a Supply Side Economy Blog Image

 

It shouldn’t be a surprise that ecommerce has changed dramatically in the last few months. Lockdown has significantly altered consumer behaviour as we’ve been forced to adjust our lives.

We’ve seen a change in what products we buy as we face the challenges of homeschooling and taking up new hobbies. The fact that we’re no longer able to shop in brick and mortar stores has forced us to shop online, leading to a surge in demand.

Merchants on the other hand are facing many challenges. Factories have temporarily shut down or social distancing amongst staff has limited output and reduced capacity for fulfilment. A lack of travel has meant that sourcing new lines is incredibly difficult.

 

How to Approach Pricing in a Supply Driven Economy?

It’s easy to see why the dynamics of ecommerce have changed. Demand now outstrips supply and this is likely to continue to be the case as the impact of restrictions on movement continues to be felt. For a large number of merchants pricing may not be at the forefront of their minds as they are forced to focus their attention elsewhere.

 

As Philip and I discussed in our recent webinar, having an automated solution running in the background can be a blessing especially for small and medium sized retailers where employees can wear multiple hats.

 

I’d argue that it’s actually a critical time for pricing as in the current environment there is a real opportunity to increase profit through well executed pricing decisions. 

 

When pricing products with limited stock the biggest risk is selling too cheaply and losing margin. If a merchant is slow to react to the market they could very easily sacrifice multiple thousands in margin on a single product.

 

In practice this will happen if you’re making pricing decisions based purely on competitor prices. This strategy only reacts when your competitors change a price, i.e. when your competitors spot a change in the market before you do. This makes you slow to react causing you to lose margin as you sell too early and too cheaply.

 

This is why it’s so important to use additional datasets to inform your pricing decisions, especially sales data to indicate demand and stock data to measure supply.

 

This allows you to be proactive in your pricing decisions, responding rapidly to any market changes and ensuring you maximise the margin you make on any given product.

 

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