eCommerce: Pricing vs Profit, Winning the Price War
So how do you make profits in eCommerce when your competition is selling the same product at or below acceptable profit margins? Many etailers sell products manufactured by third parties and are faced with a difficult dilemma when it comes to product pricing: How do we generate profits when other etailers are selling the same product cheaper.
Being the low cost provider is often a direct route to going out of business. Only the larger companies with deeper pockets can compete with lower prices as they can afford to drive the massive traffic required for massive sales at low margins. You may be asking, how can we compete against these forces? Or how do we price our products appropriately and make a fair profit?
Let's take a look at Zappos.com. If you are not familiar with Zappos, they sell shoes online and often at higher prices than other etailers. According to cnnmoney.com, they have also been the largest online shoe etailer in the world. So how do they do it?
When Zappos was a young company they realized that selling shoes online is a hard sell (pun-intended.) Shoes all fit differently even in the same sizes. So, Zappos offered free return shipping, negating the frustration and risk of buying a product that may not fit. Zappos realized that to steal customers from bricks and mortar shoe stores they also must provide the convenience of online shopping. At the same time Zappos needed to provide a greater value than your local store. So how did they do this?
Visit Zappos.com and you will see it all comes down to the experience. Almost every product on Zappos has multiple professional photos, detailed descriptions. Usually included as well is a video describing the shoe, its uses, benefits, features and fit. Additionally, you will find customer reviews, ratings from your peers and the ability to share this information with your social networks. To put it simply, Zappos created an experience that no other shoe etailer had done before nor has anyone done better since.
Creating Your Own “Zappos” Experience on a Limited Budget
Ok, so you may not have Zappos money, but Zappos didn't have "Zappos money" either at the beginning. There are ways for you to create an experience for your organization that will set you apart from all of your competitors while allowing you to differentiate your business and set fair profit margins.
Think about your customers
Create detailed personas for each of your customers. Define what questions or needs they have about each of your products. What are their concerns and how can you fulfill their vision of what it is like to own that product. Help them to envision your product as the ONLY solution to fill their needs.
Example: What if you are a specialty store that only sells saw blades? Saw blades are pretty boring. Some people might get jazzed up by saw blades but my guess is that many do not. With so many etailers and retailers selling saw blades how do you stand apart?
Look at your competitors and think about the experience of their customers when visiting their website or store. There are no videos of a diamond cutting blade slipping through a piece of granite like butter on the isles of Home Depot. My guess is that most etailers selling saw blades don't give it much thought either. So, do whatever you can to make the experience on your site unique.
Look at your competitors
After your personas are created, ask yourself, what is lacking from their experience? It is not necessarily about adding more features and functions but about your policies, product descriptions, photos and layout of your website. Order products from your competitors and evaluate the delivery and overall experience. Strive to create a relationship with your customers before you ever sell a single item. Think of this as the warm greeting you get when you walk into your local clothing store that is still competing against Walmart. Next implement your ideas into your website. Throw in a hand written thank you note or a priceless gift like tips and tricks or alternative uses for the product.
Create an experience beyond your eCommerce website
Scrutinize every aspect of your customer experience outside of your website, such as shipping, packaging, return policies and customer support. Do you correspond with your customers after purchase? Have you ever called them to ask if they have any questions or how the product is working? Is their only correspondence from you an email soliciting more sales?
I know a guy that drove two hours to deliver a product to a customer because the customer could not wait 24 hours for shipping. That customer was in a bind and now that etailer has a customer for life.
Find alternative value
What if your product is ho hum and is simply a commodity where everyone buys based on best price? If you are in this business you may look at finding an alternative value that you can offer in combination with that product to your customers to offer more value than your competitors. An example of this is the etailer that sells a critical but relatively boring component of your lawn mower, the lawn mower air filter. How do you attract all of the lawn maintenance companies in America to buy air filters from your estore.
One idea is to provide these lawn maintenance companies with a free tool that allows them to enter the model and year of all of their lawn mowers. Then when routine maintenance is suggested, the site sends out alerts with maintenance instructions and links to the products your equipment needs.
Running an eCommerce business is getting easier and easier but differentiating your eBusiness is getting harder and harder. Providing a unique experience for your customers online is critical for all websites and the return on investment is well worth it. Think outside of the box and consider your customers not just as customers but as people. Make them happy and make their lives better for having done business with you and watch the profits come rolling in.
In the comments below, tell us the one thing that you think must be included in an eCommerce user experience to help keep PROFIT MARGINS healthy
Another post by Chris Peer on eCommerce or Lead Generation: Magento Imagine 2013: What's New in eCommerce