Ecommerce Competitor Pricing Strategies to Maximize Profit and Customer Value

The Evolution of Retail Pricing Strategy

Most ecommerce businesses recognize the importance of pricing, but their capabilities are often limited due to lack of focus. Teams responsible for pricing frequently juggle multiple responsibilities including buying, vendor negotiation, promotion planning, and more.

A pricing strategy should evolve as a retail business matures. Thanks to new technological developments in the ecommerce space, businesses can now implement data-driven strategies that maximize both customer value perception and competitiveness, while also optimizing profit margins.

Digital Trends Reshaping Ecommerce Pricing Strategies

The Price-Comparing Modern Consumer

According to research by GE Capital Retail Bank, over 80% of consumers research products before making a purchase. Today's online shoppers have numerous tools at their fingertips to compare prices, read product reviews, and evaluate alternatives. This educated consumer base creates additional pressure on ecommerce retailers.

Price comparison is just one aspect of pre-purchase research, but by understanding this behavior, retailers can turn it into a competitive advantage. By strategically pricing key products to maximize customer value perception, businesses can position themselves favorably in this comparison-driven marketplace.

Big Data and Automation Enable Data-Driven Pricing

Recent advancements in cloud technology have democratized access to sophisticated pricing tools. Computing power and analytics capabilities once reserved for the world's largest retailers are now accessible and affordable for Small and Medium-Sized Businesses (SMBs).

With platforms like Grindbyte, ecommerce businesses can automatically collect data snapshots over time to build a comprehensive view of their history and understand how price changes drive demand. When combined with competitor price monitoring, this gives businesses the ability to:

• Accurately measure price elasticity for their products
• Strategically outprice competitors on products where it matters most
• Make data-driven pricing decisions rather than relying on instinct

Marketplace Competition Demands New Strategies

Amazon's dominance in fast delivery, wide assortment, and Prime membership benefits makes it challenging for retailers to compete on convenience or selection alone. This reality forces ecommerce businesses to find new ways to differentiate themselves and provide unique customer value.

Interestingly, Amazon often struggles to compete on price. Their convenience-focused model frequently comes with a trade-off in higher prices—sometimes 20% or more above specialized retailers. For example, at the time of writing, RIEDEL EXTREME CABERNET wine glasses cost £42.50 on RIEDEL's website but £45.95 on Amazon.

Implementing a strategic competitor-based pricing approach is one of the key ways retailers can differentiate themselves from Amazon and find opportunities to compete effectively.

Common Ecommerce Pricing Mistakes

Relying on Gut Feel and Simple Rules

While everyone understands that pricing is crucial to customer experience and business value, pricing is often implemented using simple margin rules or based solely on a manager's instinct rather than strategy or analytics.

A common approach is to apply blanket formulas like COST + 30% across an entire assortment with little consideration for:

• Product price sensitivity
• Whether consumers comparison shop for specific items
• The product's role within the category (traffic driver vs. profit generator)

When products don't sell well, managers often change prices based on "experience" or "feeling," hoping to increase demand. This instinct-based pricing leads to poor customer experiences and makes it difficult to replicate successes across the assortment.

Indiscriminate Competitor Matching

The next level of pricing strategy emerges when retailers recognize the need to be competitive against their rivals. However, implementation often involves applying price matching broadly across the assortment rather than using a targeted approach with strategic intent.

Many retailers conduct competitor research or use price monitoring tools, then decide to undercut competitors across their entire catalog. While this might seem logical initially, it significantly reduces gross profit margins compared to competitors, potentially threatening business sustainability over time.

Instead of always being cheaper than competitors, the key is to identify which areas of your assortment must be competitively priced and which areas allow for higher margins. This strategic approach enables you to have lower prices in areas that drive traffic and shape customer price perception, while maintaining higher margins in other areas to drive overall profitability.

Implementing a Targeted Competitor Price Strategy

A successful competitor-based pricing strategy for ecommerce depends on several key elements:

Data Foundation

An accurate understanding of how price changes affect product demand requires:

• Historical data collection and storage
• Sophisticated data models
• A modern data warehouse infrastructure

Without this foundation, pricing decisions lack the empirical basis needed for confidence and consistency.

Competitor Price Intelligence

Effective competitive pricing requires:

• Updated and accurate information on key competitors
• Product matching capabilities to identify equivalent items despite different names, images, or descriptions
• Regular monitoring to detect competitive price changes

This intelligence allows you to respond appropriately to market conditions and competitor moves.

Product and Category Role Definition

To target price investments effectively, you must define the business role of each product and category:

• Which products drive customer price perception?
• Which ones should generate profit?
• Which items are highly price-sensitive?
• Which products do consumers research extensively before purchasing?

These classifications guide where to invest in competitive pricing and where to optimize for margins.

Price Rules and Product Relationships

Strategic pricing requires understanding how products relate to each other:

• Is this a premium or value-tier product within your assortment?
• Will changing this product's price cannibalize or impact the perception of adjacent products?
• How should related products be priced relative to each other?

These relationships ensure pricing decisions maintain logical consistency across your assortment.

The Strategic Advantage

By implementing all these aspects of a comprehensive pricing strategy, you can create a granular approach differentiated throughout your assortment. This allows you to:

• Reduce prices on approximately 15% of your assortment that drives most customer value perception
• Finance those strategic price investments by optimizing margins on the other 85% of products
• Deliver an excellent shopping experience with competitively priced key items
• Maintain or improve overall profit margins

This sophisticated approach requires more effort than simpler models, which is why Grindbyte's pricing platform helps with all dimensions of this strategy, making it easier to implement and manage for the long term.