Many customers found themselves shopping online – some made their first purchase online, others expanded the range of products purchased online with a catalogue of items that have been purchased on a fixed basis. An example is the e-grocery market (i.e. online grocery shopping). According to PwC studies, the percentage of consumers buying food products online during the pandemic increased by 63%. By comparison, as of 2018, according to a survey conducted by the Gallup institute, 84% of respondents declared that they had never bought food on the Internet.
On the other hand, seeing the decline in sales in traditional trade, many companies moved their businesses to online channels. This led to increased competition, despite the increase in online distribution potential. Salesmen who had not previously had to fight for customers met new players who also wanted to profit from online sales. In a dynamic e-commerce world, the “cost plus” pricing strategy stopped working, the lack of investment in SEO made their position in search engines fall, and the lack of paid views caused that even despite good positioning they fell in the listings below sponsored offers. So it was necessary to revise the company's strategy and search for further distribution channels.
Online distribution channels
Online distribution channels can be divided into three main types:
- its own online store;
- price comparisons;
- marketplaces.
Let us briefly discuss each of them.
Own online store
A friendly online shop is the most profitable distribution channel for each seller. It gives you full freedom to promote your products, sell product sets, other offers, loyalty programs, etc.
This way of conducting online trade also gives full autonomy in terms of infrastructure, graphic identification or ways to engage potential customers, stop them from abandoning the basket, etc. For example, the store can be equipped with a “pop-up” notification system that will motivate you to complete the purchase, offer discount vouchers or inform about the current number of customers interested in the offer. This is how the Notipack tool works, for example.
One of the fundamental advantages of sales in this channel is the lack of sales commission. This makes focusing on offering products on your own website a priority for many entrepreneurs.
Price comparison machines
Price comparisons are websites collecting product offers in one place. The buyer, looking for a given product, can see a summary of offers of different sellers, quickly sort through reviews, prices or prices at the expense of the shipment. This makes decision-making much easier. After selecting an interesting offer, the buyer is redirected to the seller's website, where he can finalise the transaction. Such a model is attractive to retailers for several reasons. Firstly, the customer has the opportunity to get acquainted with the store, to check its reliability, customer service or loyalty systems. This makes it more likely to return to the store. In addition, the possibility of upsell’u- purchasing additional products appears, which increases the profit of the store.
According to Gemius “E-commerce in Poland 2020, depending on the industry, as many as 70 to 90% of customers use price comparisons before deciding to purchase. The most popular price comparisons in Poland are Ceneo and Google Shopping (in 2020 the number of visits to Ceneo exceeded a round billion).
It is worth mentioning here why Google Shopping is becoming more and more popular in Poland, despite the fact that by far more people have heard of Ceneo than about Google's comparison.
After entering a phrase in the Google search engine, we usually expect suggestions from websites. However, if our search is related to a product, the first thing that will appear to us are the offers promoted on Google Shopping.
Because Google is often the first place where customers seek information, companies are increasingly choosing to sell and promote in this channel.
It is worth knowing that when using product ads in Google, there are opportunities to avoid an additional Google Shopping margin.
One such way is to use your own CSS (Comparison Shopping Services), a product comparison machine owned by a brand or store. With this we gain free movement from the “via” field on product ads and also buy clicks with the exception of about 20% of the Google Shopping margin, which is imposed by Google on product ads for shops not using CSS solutions.
Learn more about how to own your own product comparison machine Here..
Marketplaces
The third type of distribution channels we focus on are marketplaces. In contrast to price comparisons, in this case the entire transaction takes place on the website and using the mechanisms of the marketplace. As a result, the customer is unlikely to reach the website of the store he uses.
Since the sale takes place through a broker, he is the one who cares about customer loyalty and their return during subsequent purchases. The most popular ways to do this are through Allegro Smart, Amazon Prime or Empik Premium loyalty programs. By purchasing this type of package, marketplace customers are given access to special offers for selected products, free shipments from the selected amount, or access to a multimedia database. For Empik Premium, users get access to free audio- and e-books and to Empik Music.
The most popular sites in this category are Allegro, Amazon and Empik.
Allegro is the most recognizable website by Poles – 86% of respondents spontaneously served it as the first to be asked about websites related to online commerce (Gemius study).
Amazon is an American giant who did not enter Poland until March 2021. According to research, on the American market as many as 51% of people are looking for purchasing inspiration on this platform. Winning in this category means that in terms of popularity it is the most important marketplace in the USA.
Empik has been present in the consciousness of Poles for many years. Recently it has evolved into a marketplace, adding products of other sellers to the online offer. However, Empicu's offer is only addressed to “medium and large companies”. According to the official website of the store, it has more than 2,5 million visits per day, and has more than 55 million users.
How do I choose the right distribution channel for myself?
With so many possibilities ahead, the question arises which way is the most optimal. With your online shop, you should think about a channel that will support traffic on our website and serve as an additional advertisement. In the case of price comparisons, promotion of your own brand is possible by the fact that transactions take place on the seller's website. This gives you the opportunity to introduce your own loyalty system or create a community around the brand. Customers involved in this type of marketing activities will be more eager to return directly to the store website, seeing more benefits in purchasing from the known seller than in the savings resulting from choosing the cheapest offer from another distributor. So if it is important for us to promote our own online store, it is worth focusing on being visible on price comparisons.
As in most distribution channels, the item on the listing may depend on the price of the product, the ratings or the way in which it is promoted (in the case of Ceneo, this is the cost per conversion, described here: link ). By default on the listing they appear at the top of top 3 selected by Ceneo offers, and below the list of products sorted at the lowest price. So it is worth to dig into this subject and see how by matching the price of the product (but also other parameters) we can increase traffic in your online store.
It is also worth knowing that the sale of the shop offer on Ceneo can be automated using external solutions to help optimize campaigns. This is practical especially for shops with a large offer, whose “hand” supervision is time-consuming and inefficient. The tool that helps to fight for the best positions in this comparison is, for example, centeo.pl.
Price strategies in e-commerce
Price strategies are ways of acting and planning company shares based on market prices. On the one hand, they respond to the question of what price position the brand wants and on the other, they define the way in which the sales revenue is generated.
Price strategies usually focus on two objectives:
- maximizing margin,
- maximizing revenue.
The reduction in the margin often results in higher turnover due to lower prices and increased demand – customers are willing to buy more goods when it is sold at a lower price. Shops with low price position encourage customers to buy attractive, cheap offers, and their profit is realised thanks to the effect of scale.
Price strategies in e-commerce are not in itself innovative. It is because proven solutions are used, adapted to the reality of the online market. Some strategies have proven obsolete and ineffective (e.g. Cost plus), but others, like Everyday Low Prices or High-Low Prices, are used by many companies with positive results.
Let's take a look at them.
Everyday Low Prices (EDLP)
Everyday Low Prices strategy – called the Daily Low Prices strategy in Poland – is to set the price level in its offer below the market average. Thanks to this, each of the products offered is at a price lower than most offers on the market, which makes the items sold by us displayed high in the list of price comparison machines. This in turn translates into a greater conversion and a greater chance that the customer will buy the product from us. With such a price strategy, we have a lower margin, but profits are caused by scale.
High-Low Prices (HL)
The High- Low Prices (High-Low Prices) strategy is to set prices for its products at a high level, overestimating only individual offers. Such promotions should be particularly beneficial to customers, as they are so-called traffic generators, which are to attract attention and direct to the store's website. According to this strategy, the profit is to be generated on the basis of other products that the customer will buy “by the way” by going to the store website.
Risks in EDLP and HL strategies
The biggest threat to the application of these strategies is the transparency of prices in e-commerce. The discrepancy between the company's assumptions, its communication and the real prices is exceptionally visible on all types of price comparisons.
In the case of EDLP strategy, the reputation of the store is developed by low prices of all products in the offer. This is convenient for customers, because they don't have to wonder whether to buy all the products in one store or more profitable for them to shop in many stores. However, if the store fails the customer's expectations and starts offering products at much higher prices, the seller may lose the customer's confidence.
In the case of the HL strategy, buyers will easily notice if the product we promote is not really an attractive price. It can also quickly verify whether our other articles are offered at a good price, and if not, it can eventually only buy a discounted product.
The solution is, of course, price control on the market. For EDLP, this will apply to most products, while for HL at least products selected to promote.
If the range is small, it can be done by hand, but it is worth remembering that not only the channels on which we are located, but also other popular sales platforms, should be controlled. If we sell on Ceneo, it is worth verifying prices also on Google Shopping, as consumer awareness grows and before buying they check not only the website where they shop.
Automation of the pricing strategy
If we offer more products and our offers are available on many channels, e.g. on Ceneo, Google Shopping and Allegro, manual verification can become inefficient. In such a situation it is worth to try a special tool to price monitoring. . This service is most often available in the form of an online panel and provides information on the prices of selected products from selected parties and allows you to follow the chosen pricing strategy. With the price monitoring platform, you can control both offers available on price comparisons and marketplaces, as well as on selected competition sites.
With a full view of the market and a clear view of the current position in the ranking of offers, you can adjust prices in your store more quickly. Since the aim of the sellers is to maximize profits, often the offers at the top of the listings have similar values – distributors set the highest possible prices while maintaining the leading position. Due to this, sometimes lowering the price by just a few cents results in a leap from further position to 1st place in the ranking.
Another case is the possibility of raising the price if the products from our offer are much cheaper than from the competitors. This allows you to maximize the margin, while remaining in the first position of listing and maintaining the current inflow of customers.
The next step could be to automate prices depending on the current market situation, the price rules adopted and the minimum margin established. After collecting data from the market, the system called Dynamic Price (or repricing) automatically adjusts prices to maximize the profit of the store. This allows us to avoid confusion or inconsistencies in our pricing strategy.
In Dynamic Price, there are usually several price rules, i.e. rules according to which the system adjusts prices. They are often specific to the industry, company or distribution channels. The most popular of them are:
- Top 3 on a given platform – thanks to this system regulates prices in such a way that the offer of our store is always among the first 3 offers on a given channel.
- Between the two competitors – automatically sets prices taking into account the selected competitor
- Low stocks – useful for sale; prices fall automatically with low stock.
- Optimisation of profits – a rule using artificial intelligence (AI). Algorithm learns by analysing data and optimizing prices according to market conditions. The established prices depend not only on the behaviour of competitors, but also on, for example, the flexibility of demand for the product concerned.
Using repricing to change prices, the process can be significantly accelerated, the probability of making a mistake is minimized, and based on the current data downloaded automatically by the system.
Summary
In a dynamic world of e-commerce, it is worth to be present on more than one sales channel. In the case of an online store you can use the possibilities of comparisons and their range. Using appropriate pricing strategies, you can build traffic on your website, by downloading potential customers from the comparison site to your store. This gives us the opportunity to build a relationship with the customer and convince him that it is worth coming back to us. However, it should be borne in mind that the consistency of the offer and transmission is very important to the customer. Therefore, it is important to keep an eye on the market at all times so that it does not turn out that what we are advertising is contrary to what we are offering.
