The E-commerce Leader

[00:00:00] Jason: the number one pricing power tool that you have as a seller is location
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[00:01:12] Jason: Setting prices can be incredibly challenging. Sometimes you have to be a price taker and take what the market gives you. Other times you can be a price setter and you can do it with confidence. The reality is there are three big challenges.
[00:01:27] With setting prices that we want to talk about in today’s show, but we’re also gonna explain how you can be a pricing genius, not to be too hyperbolic in the intro here, how you can be a pricing genius in spite of these three challenges. So we’re gonna make this quick cuz Michael’s sick. and my cohost is, gonna limp through this here, I think.
[00:01:48] But Michael, I’m really excited to record this session with you. So gonna be able to hang in here with me. I
[00:01:54] Michael: think so. Yeah. I should just, mute myself and not splatter at people too much, but yeah, I like the idea of being a price maker, not a price taker. That’s something that, many Amazon or market based sellers can only dream of.
[00:02:05] Without going on a rabbit hole, tell me a little bit about the difference there. How you think you become one or the other?
[00:02:10] Jason: That’s a classic economics. Price taking price making. So the difference there is you have pricing power. If you can make the prices, what you want, and you don’t have pricing power, if you have to take what the market will give you.
[00:02:22] And so those are really classic economics, terms. And yeah, we will, obviously we want to be price makers. We wanna be able to say here’s our price point and it helps our business. And customers will pay for it. And so that’s the gist of the whole premise behind the pricing power book is how do you put yourself in the position to be a price maker, not a price taker.
[00:02:45] And but that’s challenging as we all know because there are, there are obstacles in our way. And so we wanna talk about three of those today. So
[00:03:03] Yeah.
[00:03:07] Yeah. The reality is according to psychological research and pricing research is done. There’s a guy named Ernest Weber. Who’s done a lot of research in this regard. There is no absolute price for any product. And I think we’ll know this. If we put our consumer hat on, but if we’re managing a business and trying to set prices, we want it to be, $17 and 99 cents as the perfect price.
[00:03:29] But the reality is for consumers, the economic economists have tested things and they’ve realized that what actually happens in the mind of the consumer is that there’s a range of prices. And there, the range of prices is, is what customers think about, in, in, in their mindset. Ooh, Michael, I think people are saying hello, but they’re also saying in, I think on stream yard, you were muted that last conversation.
[00:03:54] Yeah.
[00:03:54] Michael: I, you gave a beautiful answer, but, I was not muted on, on, call him. So you heard the question, but the people on stream didn’t hear the question. So the difference was I better ask you this question, cuz we can put it into the recording, which is now gonna be fun to edit. So while it’s the first of the three unfortunate facts, the answer is, there’s no perfect price.
[00:04:11] I think
[00:04:11] Jason: there is no perfect price. That is the, the first unfortunate reality psychologist and economist have figured out what a customer does is says in their mind, there’s a range of prices I’m willing to pay for something. And it doesn’t matter what it is, a cup of coffee or a, a car or new computer or phone.
[00:04:28] Lawn care service or the guy who’s gonna, put chlorine in your pool every week. There’s a range of prices that we say in our minds. Oh, that’s. And in that range, what happens is the buyer gets into a buyer frenzy. If they need it, they’ll buy it. Cuz it’s in that range. And it reduces their psychological kind of overwhelm and they don’t have to think about it.
[00:04:45] They just say, I need this it’s in the price range that my mind says is acceptable. I’m pulling the trigger on the purchase. And so that’s good news, bad news. Good news is if you’re operate in that range, you’re fine. But bad news is a lot of times that range isn’t. Profit wise , and if you think about Howard Schultz, back in the seventies, a cup of coffee was like 59 cents or whatever, and he did not wanna operate in that price range.
[00:05:11] And the drama ensues, like how do you get out of that channel of pricing when you want to, to ex explore higher prices and be more profitable. And I’m gonna give a couple answers in this convers. Great. I’ll talk about how to be the genius pricer in a moment.
[00:05:27] But this is one of the problems is, you don’t wanna be in the range of acceptable pricing. Usually you want to be higher priced than
[00:05:34] Michael: that, yeah. I guess one of the problems coming into the current situation is that for a lot of people there. Cost prices for the sellers will be such that if they sold at their preferred, consumers selling price, I, the retail price, it might actually have zero profit or loss built into, so actually premium pricing now. Could simply mean profit pricing as opposed to just selling a break even or worse. I think an awful lot of the planets in that situation, right? So certainly in the UK, one question about the perfect, sorry, go on.
[00:06:00] Jason: I was just gonna say exactly right.
[00:06:01] What’s the efficient market theory is that there is a perfect, the perfect, price point that, that moves there, there’s no profit in that system. It’s optimized for, super efficiency, not for you to make, a good living. And that’s the drama and that’s what we have to manage and we have to do it professionally and well.
[00:06:17] And that’s the whole gist of these ideas. Yeah.
[00:06:20] Michael: So one question that Springs to mind for me is, How about finding the perfect price experimentally using software? So obviously re-pricing tools for resellers have been used a lot for years. Obviously one of our sponsors, Eva runs the, repricing for private label.
[00:06:33] Good. So hardest to implement technically but possible. How does that factor in your opinion? Yeah,
[00:06:38] Jason: absolutely. I think it’s one of the ways in which you can discover the optimal, the price, optimal outcome for you. All things being equal. The price optimal outcome for a consumer is the lower the price.
[00:06:51] The better. They would like it for free. Thank you very much. They’d even like you to pay them to actually take your product. That’s the price optimal outcome for the consumer, but the question was the price optimal outcome for the seller. And that’s where we really find these nuances. So a lot of times what the pricing algorithm or tools will teach you.
[00:07:11] If you do an AB test for your pricing on Shopify, or if you do serial testing on Amazon with your price points, what you can discover. Is that you can sell at a higher price and you’ll have less velocity, less transactions will flow through, but you’ll end up optimizing for profit. And that’s a very interesting set of tests to do.
[00:07:35] And what it makes you realize is that just selling more, isn’t the answer, selling. The appropriate priced amount that gives you a profit and getting it sold, at that price is the optimal outcome for you. And so the software tool absolutely allow you to do. Or at least test your way into it.
[00:07:53] And if you can figure out how to put your prices a bit higher, but still maintain some velocity to get the, your quantities moving. Then you’ve got an opportunity there to, also have profit as well.
[00:08:06] Michael: Yeah, absolutely. Couple of thoughts on that one is. With private label sellers, I’ve always seen because you have to order in bulk and you have to hold inventory for quite a long time.
[00:08:15] There’s always a really terrible payoff. a reality between the amount of, turnover speed. In other words, how long you’re gonna hang onto your inventory for which has a. Working capital implication or more cashflow implication versus profit. And those two things are in a great tension. They’re not exactly in opposite directions, but there is great tension between them.
[00:08:32] So I think you have to be realistic about that. If that’s your business model right now, the other thing is, talking about. so of pricing ranges that you were talking about. I think AB testing offer reveals doesn’t it? That you can creep towards the top of your pricing range, as you said, if you get more profit per unit, but if you’re unit sold and you can creep towards the bottom of it and sell more units at less profit, but it is still gonna work within a range, I guess you can’t, it sounds like an obvious point to make, but I see people put a bit too much faith in AB testing.
[00:08:58] It will show you what the market thinks of your product. Perhaps more granularly than you would’ve done. Organically, but it won’t make your brand more valuable and more, convert at a higher price point or, be, or just convert better in my experience. Yeah. So in other words, it’s not a brand changer,
[00:09:12] Jason: totally agree.
[00:09:13] Yep. Absolutely right. And there’s reasons for that. And so we’ll talk about that in a couple minutes here. So let’s talk about the second unfortunate
[00:09:20] Michael: least second unfortunate fact. It sounds like you say like Holmes’s mystery. Like it, the three unfortunate facts of my two
[00:09:26] Jason: miles. Oh my gosh. Yeah, the reality is the second unfortunate fact is that customers anticipate.
[00:09:35] Pricing discounts. And it’s really an interesting exercise to ask yourself as a seller, are you pricing your products for your best customers that repeat repeatedly buy all the time, or are you pricing your products for the first time unaware and unknowing buyer, the brand new to you buyer.
[00:09:55] And the reality is it’s easy to price for. Brand new unaware of your prior activities buyer. And it’s a lot harder to price for your best customers, because your best customers know what you do. They pay attention, especially the super price conscious ones. And as we go into a recession, a lot of people run think we’re in one.
[00:10:16] Right now, the price conscious shoppers really rise to the occasion and they pay attention. And if they’re a loyal customer of. They’ll remember when you had a sale and a lot of times they’ll remember more than you will. What did have we put this on sale before? I can’t remember. Did we?
[00:10:32] I don’t know. Maybe it was six months ago. Oh no, that was three years ago. You don’t even remember this stuff, but the customer remembers and they will anticipate the discount. So if you think you’re smart by making a, black Friday sale. November just realized that customers anticipating that fact, because if you’re being super obvious and just, very kind of autopilot change it on certain days, whatever, customers will pay attention to that.
[00:10:59] And therefore, what that means is they will not buy your product at the higher price at the normal price. They’ll wait for it to go on sale and that cat and mouse game with. Buyers is really interesting to think through. And so that’s a, it is just a difficult reality that your best customers, especially the price sensitive ones will pay attention.
[00:11:24] You will have to justify at least in their mind what in the world you’re doing with your prices. And, and they’ll anticipate that the best deal for them, that’s gonna come up in the future. yeah. A couple
[00:11:36] Michael: of thoughts on that. I think a lot of, retailers have trained their buyers to expect sales.
[00:11:43] Some of. Horrendous essentially of the time there’s, something I only really see when I visit, relatives who have TV at Christmas, in UK DFS. And they pretty much, whenever I’ve seen an advert, so furniture store that’s been in business for years, so it must work to some degree. They always have discounts.
[00:11:57] I’ve never seen a season, which they don’t have discounts. Somehow on everything, which begs the question of, whether they just go with the absolute legal definition of minimum definition of a price. Discounting it, and that strikes me as a pretty good way of destroying your pricing power.
[00:12:10] And other extreme, really great brands like Chanel, I understand will leave one or two bottles of each type of perfume in any given store that stores their products, high street store or even online if they have good control, but they never really allow great Plenti of the stock such that it’s always at.
[00:12:28] A premium. It’s always quite what word, restricted in amount. So that strikes me as a much smaller way of doing it. How do you begin to build that kind of sophistication into a, an online version of your business?
[00:12:39] Jason: I think the first thing you do is really make sure you pay attention to when you do discounts.
[00:12:44] How you do it, have a Google sheet or some kind of tracking document that says, we put this item on sale on June 1st, and the price was and just keep track is the first thing, just have a history of your pricing decisions for your product. And so you can look back because you know how it is in mental shortcut in your mind.
[00:13:02] You’re like, what can I do to make some money? Oh, I’ll put something on. Oh, what should I put on sale? Oh, this item, have I done that before? I don’t remember, but whatever I need money. So I’m gonna, that’s how we operate. Sometimes it’s fly by the seat of your pants pricing, and that is not optimal.
[00:13:16] Michael: I’m absolutely weird you that, by the way, the positive you’re listening live, I’m just having to unmute and mute twice, but you don’t want me coughing in your ear. I think one of the things I see a huge amount is that, people rely on Amazon. To tell them what their price has been historically, which is really inaccurate a lot of the time or just, it does the dates.
[00:13:31] Data’s actually not stored, at least not in any easy way to so yeah, tracking and pricing I think is absolutely basic, but you’re right. A lot of us don’t do it and we’ve all done that short term dash to cash. So what’s this, third unfortunate fact.
[00:13:43] Jason: about process. Yeah. And Lizette, just asking the comments, a great question, which I’m gonna add is like our fourth unfortunate fact, which we’re talking about, but the third unfortunate fact is, and don’t worry, guys, we’re gonna have.
[00:13:55] Suggestions positive strategies for being pricing genius in a moment. So we’ll get to the good stuff here, but the third unfortunate fact is customers also anticipate the price increases. So it’s the reverse side of the coin of them anticipating the price discounting they’ll anticipate the price increases.
[00:14:13] And when they anticipate the price increases, they do just the opposite behavior. So they know you’re gonna raise the price. So what do they do in that situation? They buy. They’ll buy today. If they know you’re gonna raise the price tomorrow. So you gotta be really thoughtful about when you do price increases.
[00:14:33] If you do them every January 1st, for example, Guess what December’s gonna look like for you? A wonderful sales month, because everyone will be anticipating the price increase. People do this all the time, and it’s really a cat and mouse game that we have to think about, how are we raising our prices and how do we do it in such a way that customers don’t just beat.
[00:14:57] At our own game and just buy early buy, with the discount, today’s discount, which is your today’s price. And so that’s the, the opposite side of the coin that you have to manage for.
[00:15:11] Michael: So one thing that strikes me, that’s actually good news. And I know we’re gonna get onto more good news in a minute is an inflationary environment generally. So the news they’re getting from whatever news sources plus their experience is training customers to expect prices to go up. So they’re gonna be quicker to jump on what they think of is a good bargain now in anti rising price.
[00:15:30] Of course, the bad news is that, consumer, squeeze in consumer discretionary spending means that they’re gonna be possibly dumping your brand in favor of something cheaper. So these are the two sides, but I think at least if we can, take advantage of that and build it into our own mentality about creating a sort of rhythm of pricing, I think now is quite a good time to be able to do that actually.
[00:15:49] Jason: Yeah, I would just say that as it relates to inflation, that is the pernicious situation. It’s good. On the one hand, let’s say we know housing prices are gonna go up by 15% or 20% next year because of inflation. Like it’s just gonna happen. We should buy our better house or our house, our first house, whatever it is we should buy today.
[00:16:08] But if the. Sellers know that as well. Then on their side, they’re gonna be ready, willing, and able to just ratchet those prices right up. Oh, inflation’s on the rise. Everyone can raise prices. I shoot, I too shall raise prices. And so you get in this spiral where, it really can be a, like a death spiral or a, feedback loop.
[00:16:30] So that’s the challenge. And I think we’re in that, obviously in the us and, I was shocked to be honest, about being in England this last month. The number one thing that stood out to me as it relates to pricing, what’s that the prices in England for food, I’m not even joking, probably half the price for a normal item.
[00:16:50] If you just picked it up off the shelf for what we pay in the. it is radical. It was noticeable. And I was like, what? In the world, we are paying so much here for food. And in England, I was like, this stuff’s all on sale. It’s like clearance pricing. It was crazy. How big a difference it was in my mind when I, we went to the little, to the grocery store and, started picking up items.
[00:17:16] It was very striking. So anyway, so just a side commentary interest. Interesting. If England follows the us in terms of, inflationary pricing for food, your pricing is gonna double. Yeah, that surprising isn’t gonna fall by half I can guarantee.
[00:17:30] Michael: No, it isn’t. No, I think, there are a couple of factors behind that one is that supermarkets really dominate the food industry here.
[00:17:35] So as a percentage of income, Brits have over the last sort of 30 years or so paid the lowest percentage of their income on food. Compared to anyone else in Europe. And that’s partly cuz maybe we, we traditionally don’t value it as much as a French or Italians, which I could say is true from my experience of their culture.
[00:17:50] But I think it’s partly cuz the suppliers of the raw ingredients milk or whatever have been squeezed to death. However, what that means is that we’ve got a very low base in which it’s shooting up very quickly, which of course people aren’t used to. So the other thing that tells me is that whatever you’re used to is what you think of as normal.
[00:18:05] You think of it as shocking below here. I think of it as normal. If it goes up 30. Everyone up in arms and there’ll be Rios in the streets, whereas you’ll be saying, Hey, that’s 70% cheaper than my bill. What are you complaining? No,
[00:18:14] Jason: I’ll be saying there’s still now 25% for it to go up, yeah. It’s, it, hasn’t gone up high enough.
[00:18:19] It’s gone up 30%, but yeah, that’s to the point of this whole idea because we become sensitive to our own normalized pricing for us and yeah, it can be psychologically.
[00:18:29] Michael: We were gonna talk about the coming back to, Liz has got a question that you wanted to raise, which I thought was a good one as well.
[00:18:35] So do you wanna read that one out and I’ll see if I can put my Amazon hat on here.
[00:18:40] Jason: Yeah. And I’ve got some thoughts on this one as well. It’s a great question, which is what do you do when Amazon deactivates a listing and, or suggest a price that won’t even pay their own fees or like a, they recommend a price that is non logical.
[00:18:55] Yeah. And we talked in prior podcast conversations, Michael, about the number one pricing power, tool. I think it’s a prior episode just before this one. The number one pricing power tool that you have as a seller is location. And on e-commerce side, that means you have the options to sell on Shopify direct to consumer.
[00:19:15] You can sell on eBay, you can sell on Etsy, you can sell on Walmart. You can sell on a Mac Carre, Libre. You can sell on Poshmark, offer up Craig’s list. You can, if you choose on Amazon as well. The question is where do you get an optimal price? In those marketplaces. And so location is really part of the, answer it, the answer isn’t to fiddle around in Amazon in such a way that you make them do what you want to do.
[00:19:42] Now, maybe there is a technical solution, Michael knows of, but the truth from a macro perspective is location broadly. And having the options to sell in different places creates pricing power. Michael, what are your thoughts?
[00:19:55] Michael: Yeah, it’s an interesting one. So Liz, sorry to hear of your, pain there, if that’s you.
[00:20:00] It really depends on why Amazon’s doing it. There’s gotta be a few different reasons. If you can pop into the comments, why, Then we might be able to shovel, shoot it a bit further, but to your point, Jason, the only thing technically that strikes me, that’s an obvious one is if you are selling it cheaper somewhere else on the web, then you’re asking for Amazon to basically if not deactivate your listing, but you’ll lose the buy box, which effectively means you’ll lose 80% of your traffic at 80% of your sales.
[00:20:21] Other than that you are vulnerable to Amazon’s little way sometimes, which aren’t extremely obvious why. And to your point, I think it’s another reason to consider, getting your own DTC sites up, up and running, which is a different strategy and a different question. But. any specific questions then asked, but I imagine there’ll be more than one Amazon seller experiencing this kind of thing in the next one.
[00:20:41] Yeah. Cause Amazon will effectively implement its own ideas of price controls, which they don’t advertise. They don’t discuss in the national press or media Aren discussed in the house of Congress, but they suddenly decide to implement their own kind of. We used to have a thing called the price commission, which my, father-in-law worked for in the 1970s.
[00:20:56] And they create their own one in times of what they think of as national crisis. , that certainly seems to happen in pandemic. I think sometimes you just don’t know that they’ve decided these policies yeah. And that’s just the luck of the draw. Yeah. So tell us about the good news then.
[00:21:09] So we’ve talked about the problems, a great deal. What are the solutions to these things? How do we reminisce these
[00:21:14] Jason: challenge.
[00:21:15] OUTRO: Hey folks. Thank you for listening to the eCommerce leader today, we talked about three unfortunate facts about pricing. The first fact being that there is no perfect price, although you can determine these things to some degree experimentally using abs testing software or for Amazon sellers re-pricing software, we’d recommend checking out our sponsor.
[00:21:33] [email protected] slash Eva. And if you use the phrase, get 50 off or amazing FBA, you should be able to get a 50% discount if you have trouble getting hold of that, just email me personally is easiest. Michael M I C H a E L. That’s amazing fba.com. So worth mentioning that, because that is one way to determine the price to a degree.
[00:21:54] The second. Unfortunate fact is that customers anticipate pricing discounts. If you train them to expect discounts, to some extent, again, if you sell in a marketplace like Amazon, they are training people to expect discounts on prime day, black Friday, cyber Monday, but not all Amazon sellers by all means.
[00:22:12] That I know personally bother to discount very much anymore. Some don’t. You don’t have to take part in that. And people who get to know your brand will get to know your behavior. Obviously if you run your own direct to consumer site as your primary sales channel, even easier to control that, the third unfortunate fact is that customers anticipate pricing increases and they buy preemptively it’s in their best interest.
[00:22:33] But if you raise your prices, every January you’ll have. A really great December for sales and that’s actually a pretty fortunate fact, but nevertheless, we focused mostly on the problems here in today’s episode. Next episode, we’ll be talking about three simple ways to create pricing power. So to be a price maker, not a price taker in the words that.
[00:22:52] Jason mentioned today. If you’ve enjoyed today’s show, then don’t forget to subscribe to the show and join us. On Spotify. We’re seeing our followers been climbing steadily for a long time. So come and join the party there. And if you are an apple podcast or Spotify, then don’t forget to give us a rating out of five stars.
[00:23:10] That’ll be really helpful. Thank you so much for listening and looks forward to speaking to you soon on the eCommerce.
[00:23:16] That was the eCommerce leader podcast with Michael Veazey in London, England in Jason Miles in Seattle, Washington. If you liked this content, don’t forget to subscribe to the show on your podcast app for free resources, including PDFs and videos on topics like traffic products and sales channels. Just go to www.theecommerceleader.com.
[00:23:41] No hyphens, just as it sound. Thanks so much for listening.