At most small and medium-sized e-commerce retailers, prices are typically set and updated in an ad hoc fashion without one clear owner. The process often starts by using a gross margin target, followed by some comparison with competitors, and then some adjustments from there. Many of these retailers would quickly admit that this isn’t an optimal strategy, and that they are likely leaving money on the table — and they’re often right. The authors’ experience with price testing has shown that there is actually a significant amount of money left on the table when pricing is left un-optimized.

Finding the right price for products or services is one of the most important decisions for retailers and business owners. Setting prices too high would reduce demand and market share, while setting prices too low would sacrifice margin and could adversely affect long-term brand reputation.

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