Holiday Tips Part 1 : What Should Your Pricing Strategy Be for the Holidays?

This is Part 1 in our new series on ways to prepare your business for the Holidays. 

It’s practically tradition for the holiday season to mean great deals, starting with Black Friday through to the classic after-Christmas and New Year’s clearance sales. According to Deloitte’s 2017 holiday survey, these sales have become so reliable that 44% of participants said that they wait for holiday sales to make big-ticket purchases, and 42% said that they only purchase sale items when holiday shopping because they know that their desired items will eventually go on sale.

These holiday promotions can often be a win-win for businesses and their customers, helping to clear out old inventory and generate spikes in revenue as the year comes to a close. On the other hand, they can also put businesses in a risky “race to the bottom” to beat out their competitors and win over customers, ultimately resulting in low profit margins that small businesses may not be able to afford.

Before choosing a holiday pricing strategy, it’s important to take a 360-degree view of the business and the competitive landscape, in addition to evaluating some strategies that can help to preserve profit margins.

 

Calculate Your Minimum Price

Before considering any promotional strategies, businesses should have a solid grasp on their costs and how they may fluctuate during the season, including:

  • Purchasing and production costs: Does the holiday surge change costs for raw materials or agreements with your suppliers?
  • Staff salary: Will you need to pay overtime hours or hire seasonal staff to keep up with demand?
  • Partner fees: If you’re selling or dropshipping from a marketplace or other partner, are prices fluctuating?
  • Shipping costs: Are backed up orders and a busier marketplace causing a spike in delivery costs?
  • Marketing and advertising: Are you paying extra for promotions, like buying ads and running digital marketing campaigns?

In addition to operational costs, do some research to see if any of your suppliers are offering special deals on bulk purchases, which can help give you some padding on promotions without eating into your bottom line.

 

Do Your Own Market Research

It’s hard to tell whether you really need to offer a certain discount or promotion to land the sale, or if the customer was going to purchase from you regardless.

One of the best ways to gauge which offers are truly effective is to check your analytics performance. Look at key metrics from last year’s holiday season, like:

  • Which time periods brought the biggest spikes?
  • What were the most popular items sold?
  • What was the average order value?
  • How did your previous holiday pricing strategies perform?
  • Which strategies brought the highest ratio of profit margin? The lowest?

Keep in mind that just because a strategy brought higher sales volume, it doesn’t necessarily mean that it increased your margins.

 

Proactively Gauge Demand

To see how many customers were actively searching for deals before the holidays, Pendleton had a brilliant idea to encourage shoppers to sign up for early notification of holiday sales. This way, the company could gauge their interest of their shoppers while keeping these more price-conscious shoppers engaged.

                              source : Juno

 

Competitor Research

You’ll also want to tap into what your competitors are doing. You can do this manually by periodically going to your competitors’ websites and recording this information, or you can solicit the help of a specialized tool that will do all the dirty work for you.

If you’re interested in having competitive research handed to you on a silver e-platter, look at a competitor price tracker like Prisync or Import.io that automatically scrape this information and deliver it through on-demand reporting.

                                  Image credit: Import.io

 

Statistics Say Free Shipping Is King

There are a handful of classic strategies that ecommerce companies rely on for the holidays, but key 2017 surveys are showing that this is the year of free shipping. In Deloitte’s holiday survey, 72% of participants said that they plan to take advantage of it, followed by 44% who plan to take advantage of easy returns and 42% for price matching.

                       Image : Deliotte

 

The same survey also said that the top three reasons participants chose to shop online over in-store were convenience, saving time, and free shipping. To confirm this sentiment, a 2017 holiday survey by BDO showed that 21% of consumers claimed free shipping will have the biggest influence on their holiday shopping decisions.

It’s safe to say that people really love free shipping. And that’s no surprise, since it offers plenty of benefits like increased sales revenue and order value, and overall happier customers.

After crunching the numbers and doing some competitor research, consider this strategy for your own store. Keep in mind that it can be a great holiday offer, but paying these costs out-of-pocket can also eat into your margins. You’ll also want to ensure that you have the financial flexibility and software infrastructure to handle these requests.

If you’re hesitant to offer free shipping across the board, consider some variations like offering it:

  • With minimum purchase amounts, like orders over $100
  • For certain items only
  • During specific time periods, like three weeks before Christmas only
  • Only on returned items but not the original delivery

One way to make sure you don’t lose money is to include the shipping cost into the price of the item but offer “free shipping.” Modalyst now offers the ability to automatically add in the shipping costs when adding products to your store so you never have to worry about your margins.

Another option is offering flat-rate shipping, which can encourage larger purchases since customers will pay the same shipping rate regardless. To build loyalty in addition to offering free shipping, work it into a subscription or loyalty program like Amazon did with its Subscribe & Save program.

                                             Image credit: IgnitionDeck

 

Margin-Preserving Pricing Strategies

Instead of blasting out sales and discounting everything to bring in high volumes of customers at the expense of your profits, consider some alternative strategies that can help preserve your margins. These can be life-savers for businesses that simply can’t afford the race to the bottom in competition with big-name marketplaces like Amazon.

Step Discounts

Step discounts can help to encourage customers to spend a bigger slice of their holiday budget at your store, instead of spreading out smaller purchases across multiple stores. For example, depending on your product line and average sale totals, you can offer a 5% discount for purchases over $100, 10% for purchases over $250, and 15% off for purchases over $500.

Flash Sales

Keep in mind that flash sales should be around a specific product, to build a higher urgency to buy while ensuring that customers aren’t expecting a similar store-wide discount in the future. This could deter them from making future purchases, as they might feel that your inventory isn’t worth purchasing at full price if it will inevitably be on sale again soon.

Take for example Watches.com’s flash sale for the Xeriscope Squared automatic watch.

 

                       Image credit: Just Uno

 

Incentivize Low-Volume Sellers

It’s the natural ebb and flow of business for some products to naturally sell better than others. Instead of losing that revenue on unpurchased products, try incentivizing them to get them out the door. This way, you’re still offering customers a special deal without cutting into the revenue of your best-sellers.

You can do this by:

  • Simply slashing prices on these items or having flash sales for them
  • Including two or more of them in a discounted bundle
  • Adding one as a “bonus” for purchasing a higher-priced item, to help justify the price tag

Price Matching

More price-sensitive shoppers often hesitate to make purchases because they’re unsure of the best time to buy – is this the lowest price, or will this store or a competitor have a sale soon? To alleviate this uncertainty and reward cost-conscious shoppers for doing their research, consider a price guarantee for your own store as well as matching competitors. Of course, you’ll have to be committed to following through, so be sure that you have the technology or manpower to confirm pricing and adjust when needed.

 

Emphasize Value Year-Round

While it won’t necessarily help you with pricing for a holiday that’s right around the corner, it’s worth nothing that brands can avoid the disastrous race to the bottom by competing on value, not price. This is a long-term strategy, but it pays off for brands that do it right – they don’t find themselves freaking out about holiday sales every November.

To do this, offer your customers a stellar experience the whole year by:

  • Clearly and consistently communicating your value
  • Focusing on solving problems over selling features
  • Building a positive reputation for your brand
  • Offering exceptional customer service
  • Rewarding loyal customers and building a community
  • Creating awesome content to educate and engage

 

Finding the Sweet Spot

The holiday season can be stressful for many ecommerce entrepreneurs who aren’t quite sure how to keep up with high demand for promotions and how their competitors are meeting them. However, coming up with a pricing strategy doesn’t have to hurt your bottom line. With some thorough research and business analysis, coupled with some strategic short-term and long-term planning, your business can rack up holiday revenue while building strong, loyal customers throughout the entire year.

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