How to win a price war in e-commerce?

With the development of e-commerce and its expansion to all popular market segments known for traditional trade, this market enters the next stage in which stores compete for customers by lowering prices – a phenomenon widely known as the price war.

Below, in five points, I present mini-strategies that will help you win price wars with competitors and better understand the specification of this phenomenon. In the last, sixth point, I explain why waiting for competitors should be considered on several levels, and what negative consequences could follow the wrong decision on this topic.

1. Collect feedback from your recipients

The very first thing you should start with is collecting feedback from three groups of clients:

1a. former customers who no longer buy from you

Question: what influenced their decision to stop shopping; you may suggest that the goods they used to buy from you they are now buying elsewhere and ask why they changed their store.

1b. customers who have recently left their carts

Question: what made them left their carts

1c. Recently registered customers who have not bought anything or left abandoned carts

Question: why they registered in the store, and why they did not make any purchase

2. Advantages through added values

From my own observations, which I carried out for my customers, it follows that if the differences in the price war are not too large (up to 20%) between stores, then the customer very often chooses a product from the supplier who offers them one of the positive values that suit their needs. Below I have listed the most common positive values in e-commerce stores by their weight.

2.1 free delivery

Free delivery is the most popular added value in e-commerce; in most stores, it is considered a standard. Despite this, when considering a given market segment, there are very often some stores that do not have free delivery or offer free delivery from a given amount of money.

2.2 customer service

Being one of the most underestimated positive values, customer service has a very large impact on the customer’s decision to choose the store from which they buy the product. Think about which store you would buy the product:

• a – in a store where the price for a product is 20% cheaper, but you have to wait 1 business day to get the answer to the question about the product?
• b – in a store where the price for a product is 20% more expensive, but you get the answer to your question in an hour or less by e-mail, or by a consultant call?

In most cases, customers will choose the store “b”, especially if they are buying in it for the first time.

However, many stores have average customer service. For example, we often have to wait over 1 business day for a reply to an email sent. Customer service is a simple and quick way to add positive value to your store against your competitors that will help you win the price war. If your competition has average customer service, use that to your advantage!

2.3 complementary products

As in offline large-format stores that win the fight against specialized stores, just as in the case of online shopping, a richer offer very often allows you to win a price war with competition having a narrow range of products. Statistically, customers prefer shopping in one store rather than ordering several goods from different places, just as we prefer shopping in a mall rather than traveling around the city to several different places. Of course, this rule does not apply if the main product does not have complementary products, but it is rare in the market.

You can read more about complementary products in section 3. Introduction of side-products.

2.4 vouchers, loyalty coupons

Gratification for making purchases in the form of vouchers for subsequent purchases, loyalty points or other bonus systems, despite being an older practice, still works very well. If you want to attach a customer to your store and convert them to a returning customer, this point is mandatory.

2.5 free returns

If returns are rare in your business, implement them as a free option because it is a positive value for your customers, even if they rarely use it. However, if your business is largely based on returns, I also recommend implementing free returns, but in this case you need to develop an appropriate free returns policy so that the value-added that we want to implement does not turn out to be too costly for our business and instead of helping, will lower our business profitability even more.

2.6 complaint service

Statistically, complaints in e-commerce are below 5%, but hardly any store informs customers about efficient complaint service as a positive value before purchase. Such assurance compared to competing stores will provide us with another plus, which for many people will be more important than the lower price of the product itself (assuming that we buy a relatively expensive product/products). For low-cost products, this positive value will not apply.

3. Introduction of side-products

The offer extension to include complementary products is another good practice in the price war. If the customer, in addition to a product at a lower price, needs to buy other products, in most cases they will choose a store with complementary products, because it is much more convenient for the buyer.

Think about which complementary or other side products you can introduce to your store, so that customers will buy your main product and side products more often, instead of purchasing just the main product at a lower price from the competition.

4. Intentionally lowering the prices of top products

Another good, but unpopular practice in e-commerce is to lower the prices of top products to attract customers, and cross-sell by-products at higher prices to make up for lost margins. It is a strategy similar to the third point, where I wrote about attracting customers to our store, selling the main product at an inflated price together with complementary or side products.

Dumping of prices of top products is known in offline businesses, especially in FMCG industries, where food supermarkets very often dump prices of e.g. Coca-Cola or Pepsi drinks to attract customers to their store where they display other products on shelves. This is to persuade the customer to add other goods to the cart, at the higher prices which often make up for the lost margin on the product that “lured” the customer to the store.

5. Elimination of costs-generating product groups

If you analyze your e-commerce in terms of profitability, it may turn out that selling products below $25 to customers who do not return to the store again is not worth it because by including the service and shipping costs (margin) for such a product, we often pay extra to business.

With this type of product group, I often advise my clients to throw them out completely or make a deal that buying a product below $25, the shipping cost is another $25, so as to eliminate high costs (we only inform about shipping costs at the stage of adding items to the cart, so as not to discourage the customer with lack of free shipping).

In addition, very often, in response to this strategy, the competition adds free shipping to this type of product to stand out in the market, and that’s when we are glad that we planted them “Trojan horse”, which will internally weaken their business – due to worse customer service, higher product margins, etc.

Note:

When eliminating product groups that generate high costs, you need to carefully analyze whether the customers who buy them do not come back in regular intervals, e.g. quarterly, and make larger purchases, which turn these costs into your profit. Too hasty elimination of unprofitable product groups without a detailed analysis of customers’ behavior, instead of helping can do more damage.

6. Waiting for competitors’ actions

When working with clients, I often find companies that have waited out a price war with their competitors for a year or two, assuming that such price dumping will eventually finish the competition. However, the effects are completely opposite to the predictions: as the subsequent quarters pass, the competition is doing better and better, while revenues of such passive businesses are dropping.

The reason for this is erroneous assumptions in the interpretation of competitors’ activities. Very often, the competition unknowingly dumps the prices of top products (read point 4. Deliberate lowering of the prices of top products), and thus increases the scale of business with zero or minimal margin. At some point, a scaled business at the appropriate level earns much better on the minimum margin than passive businesses, where the client volume is much smaller and decreases each quarter are in favor of competition.

In addition, the competition sooner or later introduces complementary products (see section 3. Introduction of side-products), or their own brands in the form of white-label products that allow to further increase the profitability of their businesses.