Being a D2C brand in today's retail world is somewhat demanding. The traditional approach to retailing, reselling, and managing your distribution network is changing quickly. Marketplaces turn your products into commodities; distributors use discounted pricing to lure customers and sell private-label products that cannibalize your sales.
As a result, many D2C brands build an omnichannel approach to survive and find new ways of working. In most cases, the strategies companies adopt are thorough in technology, marketing, branding, and customer experience—something we all love to work on. However, with the highly sophisticated and technological approach to Ecommerce, most D2C brands lean toward static pricing. So, why should you as a D2C business learn what is dynamic pricing and how it might help you?
Your price matters more than you think
Although, as consumers, we grasp the importance of price, we consciously neglect it when it comes to our brands. Yet, contrary to popular belief, you compete with pricing. Let me give you an example. I was buying a jacket and got a discount code for 40% off at a D2C shop. I googled the product, as all consumers do. To my surprise, the 40% discount was less than their distributor's original price. In such a case, most of us would choose the cheaper options, as it creates more value for us as consumers. If you think I am exaggerating, be my guest. The fact is, consumers generate demand, accept it or not. You, too, are affected.
So why is little or no effort put into pricing?
Is it the denial to accept that in Ecommerce, you compete with your resellers? Are you afraid of annoying your distributors while adjusting your prices? Ruin your brand image? Maybe so, yet the reality remains. Consumers get your products cheaper from your distributors. That is why, in the Omnichannel approach, the price quickly becomes a crucial aspect of your marketing.
Omnichannel strategy, a balanced and well-planned approach to pricing
Building an omnichannel strategy requires comprehensive expertise in several areas. Although I am not an expert in all those areas, I know a thing or two about pricing and branding.
Building an omnichannel strategy can be seen in two different ways. You can create a flagship store or do business directly with all available tools. If you select the first, pricing can stay static. However, if you decide to do the latter, pricing plays a part, and understanding how is essential.
Let's assume you choose to play with all the tools and build a cohesive brand, superior customer experience, and a good-looking site. You focus on customer stories, buyer personas, and branding. Then comes the time to choose a strategy for pricing. You know, you will compete with price, that is for sure. But how can your pricing benefit everyone; you, your distributors, and your customers?
Ensure your portfolio is supporting active and dynamic pricing
Building a D2C shop requires special attention to the portfolio you are selling. For example, if you and your distributors sell all the same products, you naturally get unwanted attention. But what if you create a portfolio that your distributors sell and then some that you only sell? Then you can more easily optimize dynamically product prices you sell.
In such a case building a modern pricing strategy is based on your brand strategy. You want to build a brand experience to your D2C shop next to none. People visiting your site are looking for something special your resellers need to offer. For resellers that is all fine, and you get to build a loyal customer base for your D2C shop as well. If that is the case you can also optimize your pricing based on demand and similar products on the market.
So, to kickstart your D2C pricing strategy build a portfolio management plan first. Choose which products to sell yourself, then which products you will sell through the distributors. Products you are only selling can have a notably different pricing strategy than the ones your distributors are selling. With the rest, you accept that you and your distributors will use dynamic pricing. How aggressively you will follow the market is then totally up to you. For the rest, you can fully optimize your pricing based on the demand and need.
Understanding your demand is the key
You can easily monitor your demand for each price point using modern pricing software. That will also help you to understand your portfolio's actual market demand. When you know the demand, you can better discuss your brand value with your distributors and plan which products to offer. In the most optimum case, you sell products that your distributors can sell added benefits, products, or parts.
To sum it up, pricing is a crucial element you should include when building a D2C store. Consumers choose the product first, then find the place to purchase it. Unless you offer some extraordinary experience or added value for your products, you are likely in a position where even you, as a brand owner, need to concentrate on the pricing. Only some companies can build a channel that rigidly follows the brand owners' pricing guidance. For others, you should balance clashing with the market and actively creating a need for your products with your distributors. In the latter, dynamic pricing is a tool that will let you raise profitability and get to know more about how your market demand is developing.
So how to get started?
First, decide which products you will be fully open to repricing and which you will mainly sell through distributors. Then create an ABC listing on those products you will be selling yourself. Find out first which products are highly price-sensitive. For products having a high market demand, people are often price-conscious. For those, it's best to use dynamic pricing to keep the prices in line with market pricing. You can map similar products either from competitors or your distributors. For products that are not that price-sensitive, you should aim to raise the profitability.
The easiest way is to optimize the profitability instead of volumes, as those are products you sell more seldomly, and when consumers do purchase those, price isn't an issue. That way, you increase volumes in strategically important products with dynamic pricing and pure profits with products you seldomly sell. There is a good offer of automatic pricing solutions, like Sniffie, on the market. The main thing is to look at pricing with new eyes and allow yourself to play with the same tools as everyone else.
Making pricing work for you and your distributors is the key to success, for both of you.
Guest post by Tomi Grönfors
Tomi Grönfors is the CEO & Co-founder of Sniffie a dynamic pricing tool for Ecommerce companies. Sniffie is on a mission to make dynamic pricing simple for Ecommerce.