5 reasons why having the lowest price can hurt you!

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One thing that some new eCommerce merchants pitch to me with their marketing plans is having the “lowest” or “best” prices on the web.  Although this is an advantage in many places like Amazon and in some of the Comparison Shopping Engines (that don’t post merchant reviews), having the lowest price on the web can actually be a bad thing.  Here are 5 reasons that having the lowest price online can hurt your online business.

1.  Affiliate Marketing.

Although you may say that you have the best prices around as a selling point to Affiliates, experienced Affiliates know this isn’t always the best thing for them.  Lower prices mean lower AOVs and lower commission rates.  Unless you can increase cart sizes with cross and up selling in your cart, they may make less money on each order.  Because the Affiliate has limited traffic, unless you can increase conversions and AOV to be greater than a merchant that already works for them, the lowest prices online are going to be a negative thing since they will make less, especially if they can only generate the same amount of sales off the same products.

2.  Loyal Customers.

One thing that can happen when you promote having the lowest price online is loyal customers that are only somewhat loyal.  If they tend to be the price conscious shoppers and that is why they found you,  there is a reasonable chance that even though they know to go to you, they will shop around.  The people who are ok with mid level prices may come to you directly and know they can use a coupon or they don’t mind paying your prices since they seem fair and they don’t mind them.  Having the lowest price online can bring in a less loyal following as someone who trusts the brand and doesn’t mind spending a bit more at mid level and high level prices.   If your prices are on the higher end, you could always build stock in your brand and extremely loyal customers as your brand becomes a status symbol.

3.  Reduced Margins and Clearance Sales or Sections.

If you are already eating away at your margins to have the lowest prices, when you need to clear out old merchandise in a clearance section, it may be even harder to move the product since the price reductions won’t be as drastic as it would have been if you were are mid level pricing.  At mid level pricing you could say 30% or 50% off.  At lowest level pricing you may only be able to say 10% or 15% which really doesn’t sound like clearance…unless you go for retail pricing and show the discount that way.

4.  PPC and Paid Channels.

By having the lowest prices online, you eat into your margins which can reduce what you can spend to bring in a new customer or a sale using paid channels.  If your competition has higher prices, but more margin, they may be able to go after keywords that you cannot make work within your margins and be able to gain exposure in some channels that you cannot.

5.  Less Room for Coupons, Discounts and Deals.

Having discounts, etc… can become difficult if you have the lowest price online when it comes to black friday, cyber monday, labor day, etc… sales.   Your competitors can reduce their prices to match yours and that will look extremely valuable to their user base and they will still be profitable.  Your margins may prevent you from being able to offer these types of deals so you’ll have to be more creative.  Instead of doing a 50% off sale, you could try a multi-tier sale like 10%, 10%, 5% where the first two items or most expensive are 10% off and the third is 5%.  These tend to work well and increase your shopping cart.

Having the lowest price online can be a good thing, but it isn’t always the best.  You’ll win in certain channels like marketplaces, as long as you have positive reviews, but when it comes to your actual store, you may want to reconsider them.  Having the lowest price can turn off certain partners and make it more difficult to use certain marketing channels.  You could also have issues offering sales when everyone else does and to be competitive with them.  Your ability to clear product faster to make room for new products and better products could be effected if you cannot reduce margin enough to make the offer appealing enough to move as clearance.

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2 thoughts on “5 reasons why having the lowest price can hurt you!”

  1. Great post as always, Adam.

    It would be interesting to see what percentage off the average online price actually does drive additional conversions. For example, if the average price you see for an item is $19.99 in Google Shopping or Amazon, how low do you actually have to go before first time shoppers (bargain hunters) will actually bite.

    I also have a gut feeling, based on the way I shop, that many people equate the lowest price with… the lowest customer service. If you run that thin on margin, how many folks can you afford to have to actually deal with customer issues?

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