How to use pricing and promotions to drive eCommerce conversion

COO Marcus Vallance.jpg

"Just being at the forefront of this intelligence will let me plan my
supply chain ahead which is what ultimately leads to a successful account;
the right data drives active portfolio management."

McKinsey’s report claimed that pricing solutions can help brands create a 1.5% margin uplift. As a FMCG specialist who has helped drive growth to over 500 clients such as Coca-Cola and Safeway, we spoke to COO Marcus, about sharing some focal points that a brand owner needs to be aware of when looking to attract more online shoppers.

1. Recently Marketing Week claimed that the era of promotions is over - Is there truth in this?

Generally brands are promoting less, but harder. So when they do promote it’s a deeper cut promotion with the attempt to drive price perception. Promotions are normally there to drive volume for the supplier and it can become a cycle of having to repeat promotions every year to grow business. So the the real question is; do you have to keep promoting? Especially as there is always going to be someone who will be willing to promote if you don’t with the added pressure of competing with the discounters. There’s a huge shift in the way consumers are shopping which is now shaping retail. I wouldn’t go as far to say promotions are over, but instead that there is a need for a new model to better suit the current shift which is what all our work is about. (For Marketing Week's full article, see here.)

2. Is there a difference between pricing strategies online and in-store?

Promotions are harder to communicate in eCommerce, there’s no denying that. There are multiple ways that your customer could have reached your product online in comparison to in-store; through taxonomy? Keywords? Banner advertising? Email? You have very little control over what they see and where they see it. This is why there is so much emphasis on the shopper’s journey; by creating a user journey you help direct and encourage your shoppers to see and interact with what you want. That’s essentially the main point of difference between clicks and bricks; how key sales factors like pricing and descriptions are incorporated into the customer journey, and as David rightly said when talking about what makes eCommerce teams successful, they both require different approaches which can only be defined by identifying the most important elements of a pricing strategy.

3. What are the most important elements of a pricing strategy?

You need to have a deep understanding of how pricing is connected to your business goals and what competitive pressures affect the market. The purpose of pricing and promotions is to essentially create a brand perception with an offering that adds value e.g. super cheap or super premium, so consumers have a choice. You have to understand your audience and the different segments within it. In the Omnichannel era, the size of transactions have drastically varied; the £200 monthly shop now additionally includes having regular visits to your local convenience store for a top up (or in many cases, lowering the monthly shop because of the weekly top up) giving further emphasis to the importance of market and competitor research. In this respect brands also need to start thinking broader around where their products are stocked and what touch points they’re monitoring. With pricing and promotions, there isn’t an end goal per se, it’s the well informed, yet disciplined, cyclical approach that leads to an increase in sales as it’s something that needs to be looked over regularly.

4. What does a successful pricing & promotion strategy look like?

It’s different for different brands but fundamentally it is about getting the basics right. That’s the number one priority. This includes having tools and parameters in place that help you track and optimise your offering, and clearly defined key value categories (KVCs) and key value items (KVIs). Second is mastering smart promotions which you can’t do without having data for your entire category, a service which unfortunately not every eCommerce analytics service provides. The purpose of this is to identify if when one product gets promoted, does it drive sales for that whole category or for just that product alone? Picking up these trends across your own and your competitor’s pricing History is what will give you a competitive edge. On average, you should have a History of calendars for the last two years (at least) and look into how deep your promotions are against your competition. It’s really important to incorporate a calendar approach into your analysis so you can make conscious decisions as to whether you want to be on promotion at the same time as other bands or not - timing is critical.

5. What is the single biggest challenge in pricing and promotion and how can brands overcome it?

Logistics and inventory management. This is where digitally native vertical brands (DNVB) have an advantage because they can react to price changes in as little as one hour, a luxury which a multichannel brand doesn’t have - yet! To even the playing field it’s important brands are focusing on the right insights. If I was selling ice cream, to ensure I can cater to the supply and demand I would need to know the History of my sales and the variables that are specific to my category such as the weather forecast and the social calendar. Just being at the forefront of this intelligence will let me plan my supply chain ahead which is what ultimately leads to a successful account; the right data drives active portfolio management.  Additionally, a successful pricing strategy will have a 'Price Elasticity model' which will address the logistics and inventory management issue. Whilst this details of this will also vary from brand to brand, the approach involves creating an internal process which allows you to make quick changes to your prices and promotions as and when you receive the right data. 

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Marcus Vallance, COO

Marcus founded SalesOut Ltd in 2003, a wholesale data management service for FMCG which was later bought by IRI Worldwide Inc. Previously he worked as a food technologist at John Lewis and several senior roles in Safeway and Coca-Cola Enterprises. He has helped over 500 international FMCG clients grow their business across several marketplaces including CCE, Unilever, P&G, Mars, GSK and Nestlé.