Game of survival: how price pressure affects the strategy ofbusinesses

In e-commerce shoppers want “everything, all at once and cheaper,” and sellers are competing to try to offer the lowest price and still profitable. Price pressure is becoming a serious challenge, forcing businesses to seek a balance between competitiveness and margin.

In this battle wins not those who reduce prices quickly, but who adapt their business strategy to the new market conditions.

What is price pressure

Price pressure is a situation where external or internal factors force businesses to reduce the price of goods or services. This can negatively affect profits, the stability of the company and strategic development. Price pressure is especially relevant for e-commerce, as competition in this sphere is often constructed around price.

Possible consequences of price pressure:

• reduced profitability – companies could reduce savings or loss partial profits;
• deterioration of service – savings on service could be one of the options to compensate for losses;
• devaluation of brand value – permanent promotions and discounts could make customers feel that the brand’s goods do not have the declared value;
• complications with long-term planning – constant changes in prices and working in price pressures complicate strategic development.

Companies often experience price pressure, because they have to operate in volatile markets, in conditions of variations in currency rates, changes in the behavior of customers and strong competition. This forces.businesses seek ways to optimize costs and adapt their pricing strategies.

Causes of price pressure in e-commerce

Let’s look at the main causes of price pressure.

Competitors with low expectations

Competitors with low expectations strategies create significant price pressure. They optimize the cost chain because of economies on scale and reduce costs by standardizing products, optimization of stock, outsourcing processes to countries with cheap labor and etc.etc. This flexibility allows them to offer significantly lower prices.

An example of this approach is Chinese platform Shein, which has become one of the biggest players in the fast fashion niche. Based on using the fast production model Shein optimizes costs through standardization of processes and partnerships with factories in regions with low-cost labor .

The fluctuations in the rate of the hryvnia

The change in the rate of the hryvnia because of the war affects the purchase value of goods, especially imports. At the same time, national manufacturers are also facing increased costs because of the rise in the price of imported raw materials or components. All this creates pressure on retailers and forces them to seek a compromise between maintaining affordable prices for consumers and maintaining their own marginality.

Changes in taxation

The Military Collection and Excise on Fuels affects the cost of commodities, which will force national manufacturers to adapt pricing. In particular, the increase in the cost of fuel because of vaccines will lead to increased costs for the

Buying Behavior

Buyers have become more demanding, informed and often choose goods on price – quality. Although price pressure from customers is not the strongest factor, it is influential in decreasing prices, especially in the budget segment. At the same time, there will always be customers in the market for whom the value of the product is more important than the price. And companies can use this to differentiate.

Tactics and strategy to counter price pressure

Countering price pressure requires systematicity, combining short-term steps for quick response and long-term strategies to adapt to market changes.

Short-term actions could include a thorough analysis of competitors and predicting their future steps, optimizing costs without damaging quality of product or service, temporary reduction of price or advertising promotions to retain customers.

Long-term strategy is adapting to market changes: repositioning the brand to improve the value offering, investing in innovation or creating new products, new strategic partnerships to optimize the supply chain.

How to develop an action plan: the matrix of strategic price response

How to depend onDepending on the market situation the company can choose one of four strategies:

• Attack. If customers receive the offering of business as value, and the profit from sales is high, the company must attack, using its value offering to attract more customers.
• Protection. If the company receives high profits, but customers do not perceive its offer as more attractive than the competitor, it should choose a strategy to protect the market position: for example, offer discounts to retain customers.
• Smoothing. If the company is not receiving high profit, but the offering is valuable to customers, it is followed for a determined time to participate in price competition. To do this is to utilize the advantages of its price offer, but without excessive price concessions. This will allow you to protect your market share.
• Adjustment. If the company has little profit, and customers don’t perceive its offering as value, we need to temporarily adjust to the market to accept the losses, focusing on the long-term increased value of the offer.
  Short-term tactics to counter price pressure

They are usually directed to buy a little time to deepen analyze and develop a long-term strategy.

1. Focus on differentiating the product.

Dignities:

• opportunity to avoid direct price comparison with competitors;
• concentrate marketing efforts on the core benefits of the product;
• increase the value of the brand;
• facilitate communication with customers.

Disadvantages:

• Risk of failure if customers do not appreciate the unique characteristics of the product;
• need for increased marketing costs;
• complexity of fast realization in conditions of high competition;

2. Shrinking audience and rejection of less profitable customers in the favor of competitors.

Dignities:

• optimization of resources to more promising segments of the market;
• increased margin in the short-term perspective;
• opportunity to disengage from less profitable clients;
• beneficial step if competitors continue to focus on less profitable segments.

Disadvantages:

• loss of flexibility because of narrowing market niche;
• loss of customers, who could provide more profits in the future;
• decreasing the base of customers; limiting the sale of additional services.

3. Reducing price or additional bonuses to retain market share.

Dignities:

• increased loyalty of customers because of feeling beneficial;
• effective step, if competitors cannot maintain money flow because of limitations in their capabilities (financial, marketing, manufacturing resources);
• covering the company’s fixed delays by increasing sales volumes.

Disadvantages:

• decreased margin;
• probability of price wars;
• risk that customers may be begin to perceive reduced prices as the standard and refuse to purchase by returning to the normal price;
• reducing the general value in the niche, which could encourage stronger competitors.

For effective prediction of price steps of competitors it is important to use specialized predictions of the price steps of competitors .analytical tools, such as the platform for monitoring prices and assortment Pricer24. This allows companies to receive accurate data on the prices of competitors in real time and quickly adapt their pricing strategies.



Long-term strategies and their impact on the business

A company facing pricing pressures must rethink and adapt its strategy to the new conditions. Let’s review the basic long-term approaches that can be used to counter price pressures.

1. Focus on differentiating the product or the premium segment of the audience.

Dignities:

• opportunity to focus on the specific strengths of the product;
• focusing on the most “valuable” customers;
• creating a strong emotional connection between the brand and customers, which increases loyalty.

Disadvantages:

• risk of losing potentially profitable segments of the audience;
• need to reorganize business processes to satisfy more skewed demand;
• significant investment in marketing and R&D to maintain premium status.

2. Expanding the assortment of goods into related prior destinations or locations.

Benefits:

• Expanding brand presence;
• diversifying the product portfolio;
• reducing dependence on one product or market,Which reduces the total risk of business.

Disadvantages:

• need for thorough assessment of risk in new markets and in new product categories;
• need for additional resources for market research and new product launches.

3. Transition to a strategy with low retention or create a cheaper version of the product.

Disadvantages:

• contribute to increasing efficiency of the company;
• opportunity to retain premium elements of the brand – even when launching a budget version of the product the company can continue to associate with quality, status or other premium characteristics;
• potential to reach new customer segments that previously were not able to allow themselves to produce.

Disadvantages:

• cannibalization of sales by more cheaper versions of products;
• risk of decreased quality;
• need to accurately assess markets and products to avoid mistakes;
• complexity of managing the perception of the brand, if the association with premium is disturbed.

4. Create bundles with additional goods and services.

Benefits:

• opportunity to expand the offering and find new opportunities to sell;
• increase the average check customer and create additional value.

Disadvantages:

• need to transform the company and processes;
• need to carefullymanagechanges.
Whatexactlynottododoinpricing

Withpricingpressurecompaniesmustbecautioustonotcomplicatethesituation.There are a fewsomeadvicewhattodefinitelynotdo:

• Ignoringanalysisofthemarket.Carefullyandregularlytrackcompetitors,marketenvironmentandnewthreats.
• Reactingtopricepressureswithoutpreliminaryanalysisandplanning.Develop aclearanddetailedplanofaction,toavoidchaoticdecisions.
• Focusononcurrentcompetitorsandproducts only.Considerallpossibleoptionsandnewdirectionsofcompetition.Sometimes thethreatcomesfromthesidewhereitisleastexpected.
• Limityourstrategyonlytoreducingprices.A quickresolutiontoretaincustomerscouldleadtodecreasedmarginandpricewars.
Summary

For abusinessownerpricepressureisaseriouscall,requiringfirstathoughtfulresponse.The mostobviousresponse-reducingthepriceisnotalwaysoptimal.Rather thanthanspontaneouslyreduceprices,it is importanttoconductan in-depthanalysisofthemarketandcompetitors,evaluateyourownmarketposition,studythevalueofyourofferinganditsperceptionbycustomers.Selectinganeffectivestrategyto counterpricepressureisbasedonthesefactors.The rightstrategicapproachwillallowthecompanynot onlytokeepitspositioninthemarket,butandtogrowevenintheconditionsofpressure.

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