The E-commerce Leader

[00:00:00] Jason: You’re higher priced. Therefore people trust you more. Therefore people buy more. Therefore you have a higher BSR. Therefore you can justify your pricing for the longterm.
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[00:01:11] Michael: in today’s challenging economy pricing strategy is an incredibly important management responsibility. In today’s episode, we’re going to discuss three proven pricing strategies and the number one pricing principle from Jason’s book pricing power.
[00:01:23] Jason, delighted to talk about this topic. I think it’s really under discussed. So let’s talk about these three pricing strategies. What’s tonight.
[00:01:31] Jason: Happy to jump into this one. I think the more the economy changes and more, we feel like we’re in maybe a recession or certainly inflationary period.
[00:01:41] There’s no doubt about that at this point. All of us as e-commerce sellers are asking similar questions, which include how do I manage my pricing effectively and costs are going up. And. Competition is doing weird things with their pricing. And it puts us in a very awkward position as e-commerce sellers.
[00:02:01] And so I wrote pricing power. Good number of years ago, actually, it’s been around for for awhile it’s 13 pricing principles. You can find it on Amazon. Get the Kindle version. This conversation is going to be deep dive in. Principle number one and the components of it. And yeah, as you mentioned, we’re excited to be able to do ongoing conversations around these these various principles in the book.
[00:02:24] So happy to jump into this, the first principle is powerful and important, and I think it frames the whole discussion conversation nicely. So we ready to share the principle. Absolutely.
[00:02:35] Michael: Yeah. What is the first
[00:02:36] Jason: principle then? The first principle of pricing. You need a pricing strategy or pricing methodology.
[00:02:43] Now that sounds so obvious. It’s wait, what? But the underlying thesis there is you can’t wing it or where you shouldn’t wing it and you really should have a strategy that you’ve thought through. And that you can say, yes, this is our approach as a company to pricing. And I think that’s a really important first foundational principle to sort out for yourself.
[00:03:08] Yeah,
[00:03:08] Michael: I like that a lot. And recently thanks to your inspiration. I even, I listened to the e-commerce leader and I went away and bought the book competitive strategic analysis, I think by Porter. And one of the things that has emerged quickly from his thoughts of I’m working my way through it.
[00:03:22] So dense book. But is it strategy involves accepting payoffs or trade offs rather not pay us, not getting bribed. Trade-offs so if you have one thing, you can’t have the other, and this is a classic thing. So you can’t have a product that you’re positioning is really premium and yet sell tons of them for low prices.
[00:03:37] That those two things are incompatible. And I think this is, His way of defining strategy is what are you going to focus on? What you willing to sacrifice? And I think that’s very grown up thinking because everyone wants to have their cake and eat it. And even our prime minister here in the UK said, I’m rather pro having my cake and eating it.
[00:03:53] But I, I just thought the whole point. After that saying is that you can’t, you got to choose. So I really liked the fact that you’ve got to have a strategy in, and for me the word strategy includes the word trade-off and I guess we’ll be getting into that as we get into are the strategies that you talk about.
[00:04:08] Jason: Yeah I think that’s the first follow on question after is what, if you have a strategy within the questions, what should your strategy be? What are the appropriate strategies that you can. You can bring to the party or follow tried and true practices.
[00:04:22] And so that’s the gist of the conversation today. That’s what we went on to dig into.
[00:04:25] Michael: Perfect. So tell us about the first pricing strategy then, which will be presumably a trade-off with other things that we might have to choose between. So what’s the first choice. Yeah.
[00:04:35] Jason: And these will be common ideas as we dig into them with people, you’ve heard these phrases before, but I think the question is how do you, , you decided.
[00:04:44] The first one is premium pricing, , and the premium pricing idea or model is being the high priced, , seller in your category. , and, , and so that’s the first, , choice to make is do you want to be premium pricing, a person or the high price leader? And, A heart position to take, and there’s reasons why it could work amazingly and there’s reasons why it could work badly or won’t work.
[00:05:10] , but the first question is, can you be the high price leader? If you can be the high price leader in your niche, your industry, it is the most favorable or most optimal position. , and that I, in my view is the thing to think through how could you be the high price leader? Because it provides the. , margin, on a per unit basis.
[00:05:31] , and it positions you in the mind of the consumer as the leader in the space, the leader generally has pricing power. The leader generally is the one that can price themselves high and maintain that high pricing with the support of the, , the user community. And so for all those reasons, asking yourself, if you could be in that slot, is the first thing that, think about, , what that’s on that, Michael, but.
[00:05:55] Michael: Yeah, I think it’s first of all, I think it’s often something that people think they’re doing, but they’re not really. Sorry. I just realized I was miso and cooling. Sorry, let me try again, two, two platform artists there. Yes. Very much so sense that it would be a desirable thing to go for. I think a lot of people think they’re practicing premium pricing strategies, but I think they want to have their cake and eat it.
[00:06:16] In other words, they want to sell a lot at a high price. I guess that can be possible. Nike does that with trainers and other examples we can think of in the consumer space. I’ve iPhone is an example of that in the phone space, apple used to make the trade off that they were quite clear that they were premium products and they weren’t interested in mass market penetration at a certain stage of their development, or they may have been willing to sacrifice a bit at that way.
[00:06:38] And I think a lot of people in the Amazon space particularly have. Struggled with the idea that there’s a trade off between how many units you sell per month and the profit per unit. And obviously if you get it right, you can maximize profits, but they really, I see people even otherwise intelligent people struggle to let go of one or the other.
[00:06:58] What’s your experience with working with clients and that all your own experience with that?
[00:07:01] Jason: I think a lot of people take a back of the envelope approach to pricing and they say to themselves, oh, this is as high as I can price. I can’t price any higher. But when you ask them that question, like why they’ll say that’s a dollar or two above the competitor that I’m aware of that.
[00:07:17] Sort of good, a good competitor or, the biggest competitor or maybe that’s a duck, that it’s that thinking. , very few people have split, tested their pricing up and down the price point, scale and said to themselves, what will the market bear and what happens to my per unit economics at the various price points?
[00:07:37] Honestly, a lot of times people don’t know if they could be the high price leader cause they haven’t ever tested the thesis. , with, a live fire exercise, like on, on Amazon or on the internet. Can you be the high price leader? I don’t think so. Have we tested it? No. And but it takes courage to do that and you have to be willing to, ruin your sales for, a day, a week, a month, whatever if you fail that, that test.
[00:08:01] But if you don’t feel that. That’s really interesting place to be in. , and so I think the first thing to do is to not just say at a gut level, what do I think is true, but say, , how can I prove what’s true with some tests and document, outcomes have an Excel spreadsheet or whatever, or use tools like Splitly, I don’t know that’s just deliverable for Amazon, but tools that will allow you to cereal or AB test over time longitudinal testing of your pricing and see see what the market will.
[00:08:30] Because it makes all the difference on your unit economics. And to your point, sometimes even selling the lower, , volume, , but at a higher price will net you better unit economics that you could be happier with for the long-term.
[00:08:43] Michael: Yes, indeed. I think Splitly is now gone away because I think Amazon does some of that. Activities they used to do in sense of split testing. I can’t remember honestly, that I’ve not run a split test time. As in for a while, what I would say is this that actually you can go a lot further than that, and you can actually use software these days with private label products.
[00:08:59] It’s not been a common thing with reselling. There’s been a lot of software and for a lot of time for Amazon specifically will enable you to. We sell a lot of that is rules-based so it can be quite primitive and it can end up, getting the buy box and getting you sales at the cost of your profits.
[00:09:14] And obviously there’s a payoff there. So if you use tools, you need to know the nature of the tool and how to use it. There is
[00:09:20] Jason: a really.
[00:09:23] Michael: No. So sorry. Wyoming is repricing twos for recess. Sorry. Sorry. Thank you. Realize what couple of you get caught speaking repricing tools for resellers. It was just hard to keep your head state, but there is actually a really cool tool that I just want to mention.
[00:09:39] That’s called there’s a repricer for. Private label or custom products, which is harder to engineer because you need to pick specific competitors and it needs more sophisticated system. And that’s run by guys over at Eva who I’ve been working with to help them develop the kinds of features that private label sellers really need.
[00:09:55] And that’s quite exciting because I’ve actually. They’ve integrated stock control into it, which is a whole nother flip side of the whole pricing debate. Isn’t it. If you put your prices up, stock tends to move less quickly, and that can be good if you’re going to go out of stock that ruins your profits and sales.
[00:10:09] So anyway, they’ve got an engine that combines the two and it doesn’t an automated way and they see an increase of 30% in profits by doing that. So real pricing, lots of muscles. Really push out the profits as well.
[00:10:21] Jason: Yeah. E-commerce or sellers on Amazon should check it out. They’re a show sponsor, right?
[00:10:25] So it shows up for this show. So you’ve really found some interesting elements of that I think are very important. And yeah, to your point, if you’re on Amazon, you need to do the work to figure out what you can do as a pricing strategy. Not just simply a wing it as they say,
[00:10:42] Michael: absolutely.
[00:10:43] Okay. So what’s the second study then? So premium pricing sounds very attractive. I guess before we move on, we ought to talk about how real is it to position yourself as premium. What’s the cost. Everything has a cost or a thing you’ve got to do to get it. What’s the kind of cost for getting premium pricing.
[00:10:59] Jason: How do you mean a cost?
[00:11:00] Michael: so what do you have to do to get it? The downside of it?
[00:11:02] Jason: The downside of premium pricing, you mean, as you try to become the premium price or offer in your marketplace and you and you
[00:11:10] Michael: fail well, that’s one thing. Yeah. And also what, so what are the downsides, but also, what do you have to do to achieve it?
[00:11:16] I suppose this one I’m asking.
[00:11:18] Jason: You have to price your product higher than anybody else. And customers have to buy that. Sorry, then I don’t mean to be coy about it, but I mean that the market will tell you if you can do the high priced leader, if you can be the premium price, the customer will say to themselves, this is higher than everybody else, but I’m willing to.
[00:11:38] You have to give them a reason why maybe it’s the power of the brand. Maybe it’s the associated benefits that and features that your product feels a little bit different. Maybe it’s positioned a little bit more differently and people are like, oh, this one does this has this. And if you answer the question in the mind of the consumer more effectively than the competitors, will they buy yours over the others?
[00:12:01] Even if your higher price? I think a lot of marketplaces will prove that yesterday. A lot of times photography is a differentiator in such a way into such a degree that people will be like, this one is higher quality and you say why is it higher quality than the other one? The photography is better.
[00:12:20] That makes no sense at all, except for an e-commerce context where the photo is a proxy for reality. And these are the elements that go into being a high price, a leader, and thinking through those dynamics. A lot of little nuances as well. Michael, you would have insight into this, but I know a lot of people have said there’s a pricing opportunity when you’re FBA seller on Amazon versus merchant fulfilled.
[00:12:44] I don’t know if that still holds up as much anymore now that there’s the alternatives that are somehow in between prime merchant fulfilled or, whatever it is. But I know that people have said that those dynamics also allow for pricing. And interesting opportunities to make thoughts on that.
[00:13:01] Michael: Yes. So the three options are merchant fulfilled, which is when you just do it yourself. And then it’s FBA fulfilled by Amazon and then seller fulfilled prime, which is hard to get. But if you’d have 90 days of good metrics and you can do the fulfillment yourself and you have certain capabilities, you will be then prime eligible, even though you’re fulfilling it yourself.
[00:13:18] So the critical piece is prime eligible versus not prime eligible. And basically you’re basically right, because if you are prime eligible, you will. Yeah, roughly twice the exposure in organic rankings, maybe it’s, two-thirds more, but it’s a heck of a lot more. And that’s really critical because you can do more volume and thus you can, if you choose to translate that into the same amount of visibility, fewer sales, but at a higher price, or you can translate that into same price, more sales.
[00:13:44] So it absolutely does relate to that.
[00:13:47] Jason: There’s a concept star principle related 80, 20 Richard Kotch. And it’s basically this idea that Those who have get more. And if you’re, if let’s say for example, you’ve got a competitor who’s priced at $10 a year, for the thing and you price it $13, but your number one in the category on Amazon and their number, like 12, the benefits accrue to you, people will say you must be better.
[00:14:15] And that, so some of it just as the BSR. It is a differentiator that would permit for higher pricing and premium pricing and it compounds it. It’s like it doubles down on itself. It’s a virtuous cycle. You’re higher priced. Therefore people trust you more. Therefore people buy more. Therefore you have a higher BSR.
[00:14:33] Therefore you can justify your pricing for the longterm. So those elements aren’t. I ignored for or missed out on and conceptually, you want to lean into those ideas. Yeah,
[00:14:45] Michael: I agree entirely. It’s funny that you’re saying BSR, Amazon reference site, I’m going to do an off-farm as in reference then just to balance things out in case of BBC kind of watchdogs are listening for balance here.
[00:14:55] This applies all farmers in as well. So at the same with Google, I believe that 75% of the cakes accrued to the top three, maybe five positions on Google. So that means that there’s a, there’s an element of once you installed at the top, there’s a self perpetuating element, as you say. And I absolutely couldn’t agree more.
[00:15:10] I suppose, what people are often trying to do, particularly with an Amazon launch to come back to Amazon. But not only Amazon is that they’re trying to install their product as the premium product, by making sure that it ranks very high. Now that’s only going to work. If you quote, stick the landing, as people call it.
[00:15:24] In other words, once you stop spending like a crazy person on advertising and you allow your price to go up a little bit, you stop. Basically penetration pricing, which I know is something else we’ve got to discuss. And then at some point you try and raise your price and see if it sticks. But that’s the acid test.
[00:15:41] That’s the launch strategy is not a premium pricing strategy. It is the way to kickstart a premium pricing strategy. I will say if the other events are not in place, what happens is your product rises to the top. And you’re really happy until you look at your bank account, which is hemorrhaging money and giving it all to Amazon.
[00:15:56] You stop hemorrhaging money and then it drops back down. And if you’re really unlucky and you’re not mindful about your pricing strategy, to your point of having one really important, because what happens then is you react and go, oh my goodness. And you start throwing money at Amazon ads again, and then it goes back up the rankings and you Bob back and forth.
[00:16:11] That’s pretty disastrous and very common.
[00:16:13] Jason: Yeah. But on the positive side, on the opportunity side, if you’re the, as they say, the victim to the Victor goes to school, let’s say I’ll be all things being equal. You are competing with 25 other people selling the same thing, not the exact same thing as a reseller arbitrager, in a similar niche with your version the one with the most reviews is a Victor.
[00:16:37] You might have best-selling rank because you have the most reviews. Therefore you had can justify a higher price. Therefore you’ll have, because you get more reviews coming in that kind of virtual cycle. So there’s a reason that phrase to the Victor goes, the spoils is used because it’s in these situations.
[00:16:54] So anyway, so this is an overview of premium pricing or luxury pricing that I think people people want to think through and get, they can take that position or figure out how to engineer the taking of that position. It’s well worth the
[00:17:08] Michael: time. Yeah, absolutely. Okay. So we spent quite a lot of common premium pricing, no apology for that, because it’s obviously something we all designed many of us desire, but then the second one strategy is a little bit different.
[00:17:19] So tell us about that.
[00:17:20] Jason: Yeah. The second pricing is what most people do, which is you could call it neutral pricing, , or competitive priced offer. , it is basically matching your company. So neutral pricing is the phrase, , the new neutral pricer is someone who’s taking an audit of all the other sellers on, in the marketplace.
[00:17:40] That’s selling something similar and saying, okay, the average is $22. I’m going to price mine at $22. So you don’t want to be the high. You don’t want to be the low. You want to be the out in the average. , there’s a lot of reasons to do this. , and all things being equal with. Type of analysis is telling you, when you look at all of the sellers and the price points, market is telling you is what the average consumer will pay.
[00:18:06] , and there’s logic and being in that zone. , sometimes you can be too smart by half, or as I like to say, do a half a back flip and do pricing strategies that are just too complicated. When in fact everyone’s selling their goods. At an average price point of $22. You two should be at $22.
[00:18:24] , and that’s the simplest plan to go to market with. That’s what most people do if they do back of the envelope, thinking or strategy is okay, what’s the gut feel for what these are priced at and I’m to going to a price mine or a me too pricing is going to be in that range.
[00:18:39] So very straightforward, very simple,
[00:18:41] Michael: yeah, I think, , there’s a couple of things that strike me as a sort of counter to that, which is, , the middle is normally the most crowded place because most people come to the same conclusion, but it doesn’t mean it’s wrong to, to be in a neutral or competitive driven by new price. But. That it can, that there is some downsides.
[00:18:57] I think you need to be aware of. One is that I’ve seen, that can be quite unstable in terms of sales, because what tends to happen is if you’re ranked for say, this is a simplification of life, but if you say there’s one or two keywords that matter the most of your products on Amazon specifically, and say you’re ranked number three, for whatever it is, blue plastic widget or whatever it is.
[00:19:15] You may find that you bought between number five and number 12, and go on to page two when you suddenly get a lot fewer sales it could be 10 X fewer by just changing rank a few positions. Whereas if you’re consistently at number one, two or three, you’ll find a lot more stability. So there is a cost to be paid for that.
[00:19:30] That is non-obvious. I would say that I’ve seen quite a lot.
[00:19:33] Jason: Yeah. Your average and average doesn’t stand up. And the, so that’s the problem. And, , yeah, I totally agree. So for all those reasons, I spend the least amount of energy and thought on that neutral pricing strategy. , I think it’s the least interesting option.
[00:19:48] Wrapup: Hey folks. Thanks for listening to another edition of the e-commerce leader with Jason Miles on myself, Michael VZ. So today we’ve been talking about pricing. It’s such a sexy topic as quite a few things out there. Like I know tick, top marketing or something that sounds very fashionable, but guess what is the most likely thing of a handful of things that’s really going to drive your profits, the money you get to put in your pocket and keep rather than revenue, which is all good for bragging rights at the bar, but doesn’t actually pay the rent or give you.
[00:20:17] Any kind of, he doesn’t pay the mortgage to pay the bills and it doesn’t give you a sellable business either. So today we talked about, the fact that you need a pricing strategy and also a premium pricing, a very interesting topic. A lot of people aspire to that, but. Really end up doing it properly.
[00:20:34] So there are lots of things through here. If you’ve enjoyed today’s show two things. First of all, in addition to the usual call to action, I would say go over to Alison and buy Jason’s book pricing power. It’s two $99. I think so, whatever that is, impounds. At Kindle or you can buy the print copy. The audible book is going to be coming out at some point soon, but not available at the time of recording and mid May, 2022.
[00:20:58] So that’s one thing I would definitely advise you to get that book. , Jason’s got a knack of taking some really sophisticated concepts and explaining them, keeping this sophistication. Keeping it simple and actionable as well for the busy e-commerce operator. So that’s very good stuff.
[00:21:13] The other thing is, of course, if you’ve enjoyed today’s show, don’t forget subscribe at the podcast player of your choice, apple, Google podcasts, wherever you are Spotify. And if you’re on apple or Spotify, or indeed, anyone else allows you to give it a star rating out of five stars, do give us a rating to help other people to know whether they should compete consumer stuff.
[00:21:32] A final plea would be if you’ve got time to write an actual review, if you would. To say, if you’ve, if we’ve helped you in what way, it’s helpful to help your fellow travelers in e-commerce on apple podcasts. That would be amazing. We’d be super grateful for that, because that gives us the motivation to keep producing this content to help you be the best e-commerce leader you can be.
[00:21:52] Thanks for listening.
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