Pricing by Performance: It’s time to stop the race to the bottom

Chris from Chris Turton Ecommerce is an ecommerce and marketplace consultant passionate about understanding how online businesses tick. He writes from experience and tries to answer questions from sellers to improve and share his knowledge. Today, Chris shares his experience of pricing by performance to maximise margins.

Pricing by Performance

So, your competitor is beating you on price, your immediate reaction is to match or even undercut them. That may not always be the best strategy and Pricing by performance is a better strategy

A common practise with marketplaces is to achieve sales velocity and position by being the cheapest in the results page and this is where the faithful repricer tool makes its appearance. This is not always the best strategy; Countless SKUs have shown that on eBay, products with the best match rank are ones which return the best for eBay. Many opinions by marketplace experts show that eBays’ “Cassini” and search ranking algorithm include product and buyer feedback, shipping, historical sales volume and conversion rate.

This structure is also the same in Amazon and other marketplaces. Price is one of the highest factors for acquiring the buy box on Amazon but is not the only one. The buy box does rotate on many items. expert opinions agree that shipping methods such as FBA (fulfilment by Amazon) or SFP (Seller fulfilled prime), seller rating and shipping time have a major influence on ranking.

One of my clients has a product that has sold over 2,000 units in the last 12 months and is 25% more expensive than competitive identical SKUs – some from bigger retailers, yet its sales velocity and rank remain extremely strong and within the parameters of what we want to achieve.

Being cheaper is not always the best strategy!

So, what is pricing by performance?

Essentially, It’s the principle of pricing your products in relation to how they sell in a single marketplace. If your product sells 5 a week for a few weeks and then starts selling 20 a week consistently and you don’t adjust your price, your losing out on margin and overworking your team and supply chain.

On the flip side, if your products performance is not optimal and your stock value is high, you can quickly analyse if a products margin requires dropping.

It helps you quickly see if a competitor runs out of stock or stops selling a line.

Pricing by performance assists with stock planning and forecasting. It gives a clear snapshot of good and poor product performance.

Repricing tools are a great idea for certain products and to improve sales, they are superb for new items and poor performing products, where your key goal is to shift dead or slow-moving stock.

Repricing tools work typically on machine-based rules and tend to focus on the “race to the bottom”. Repricing technology also means that they are stronger in performance on Amazon as multiple prices fall under the same ASIN, but as there can be 1000’s of identical products on eBay, only a small handful of tools such as Streetpricer can analyse AI image definitions.

How to price by performance

Review your products sales by week over a period of 8 to 12 weeks, look for recent sustained increases or decreases to make pricing decisions, do not make knee jerk decisions based on performance over a one week, sales performance can fluctuate based on many factors including competitors being out of stock or seasonal changes, I only review price changes once every 2 to 3 weeks.

Here is an example showing the 4 months of a products performance. The red line shows that your supply chain is forecasting 15 sales per week. Your pricing strategy is to get to that red line as closely as possible.

Only make small pricing changes. Large adjustments are likely to trigger changes in best match on eBay.

If you can’t clear margin on a product and your competitors are still selling cheaper than you – reassess the product altogether with your supply team or get rid of it from your marketplace offerings!