One of the most challenging duties any e-commerce store’s marketing department has to face is defining a well-designed pricing strategy for its products. It is decisive to set prices that are not only attractive to the customers but also competitive inside the market, in particular inside the vertical where your store operates.

Defining a pricing plan for each product is going to be crucial and, also, it will help you improve several aspects of your e-commerce store, such as:

If you need to define an effective pricing strategy, it is important to focus on three indispensable metrics any digital store should care about; these are price index, margin and conversion rate.

1. 1. Price index (PI): it measures your level of competitiveness inside your vertical. Best would be if your PI were equal or higher than the reference figure. In case it was lower, you should try to reduce prices to increase your conversion rate.
   2. Margin: it indicates the difference between a product’s purchasing cost and final sale price, that means, the profit you will take out of it. The aim is to maintain as much as possible your profit margin, although depending on the other two metrics, you may need to adjust it to offer more competitive prices.
   3. Conversion rate: it shows the number of checkouts made in your e-commerce store. One of the principal goals of any e-commerce’s pricing strategy is to achieve a competent conversion rate as well as to maintain or broaden your profit margin.

Proper positioning in marketplaces like Google Shopping or Amazon will make customers see you as a competitive store with reasonable prices. If you already set an adequate pricing strategy, it will bring more traffic to your website, which will translate into more sales opportunities and a higher conversion rate.

One of the main factors you cannot forget at all is your competition. In digital stores, it is highly important to watch competitors’ prices and their changes to modify your plan according to the market movements. There is an essential tool to do so: pricing software.

Pricing software automatically monitors the products of your competition to suggest prices that match the real situation of the market. Besides, by watching competitors’ prices, you can extract relevant information for your e-commerce strategy:

• In the long term, you can detect if there exist any trend or pattern in your competitors’ pricing fluctuation. This would be convenient because
  1. 
     You can define better prices when you can anticipate and take profit of it.
  2. You can optimally administrate your stock availability. If you know how prices change in your vertical, you can take advantage of it by optimizing your purchasing to the distributor and have the proper volume of stock to supply the entering demand.
• Watch the real current situation of the market: how many competitors exist in your vertical? What is their situation, and how do they sell online? What type of product is top-selling? What product do customers search for? What is the average value for each product?

When it comes to brands, they can also benefit from using these pricing tools. One of its primary features helps brands to evaluate the assessment and opinion from buyers. By analyzing ratings and reviews, brands can have an extensive view of the positioning of their products inside the market and, thus, make better strategic decisions.

Another powerful feature is the possibility of tracking competitors’ prices over several distribution channels. This way, they can compare the state of their products to define a more competitive pricing strategy.