Question

QUESTION 1
With the aid of a quadrant diagram, describe the four dynamic pricing mechanisms in e-commerce.
QUESTION 2
What are e-commerce metrics? Identify four metrics and their implications for the web store manager.

Answer 1

Q1 ) Dynamic Pricing Mechanism in E Commerce:

Cost-plus pricing: Cost-plus pricing is the first and most fundamental method of pricing. In this model a seller fix its price of the product on two parameters only; i.e. The Cost required to Produce the product and predetermined profit amount. Being free from any other factors (than cost and profit) Cost-plus pricing is simplest of all to execute and follow. However,  as it considers internal information only while setting the price and does not factor for external agents (like seasonality , market reaction, or changes in consumer preferences) it is not considered a very efficient method of pricing.Being fundamental in nature it is easier to update prices in Cost Plus pricing.

Pricing based on competitors: Pricing Based on Competitors is a competitive methodology of pricing as it requires close monitoring of competitors’ prices and make adjustments accordingly. For instance, Flipkart being a major market player in retails changes its price often and this encourages close competitors like Amazon to alter their prices accordingly in order to remain competitive. Competitor-based dynamic pricing is a better way of pricing and assists in increasing sales, especially in scenarios wherein competitors run out of stock. A proper boundary on pricing can always help in curbing cut throat competition by driving the prices to too low. A quality dynamic pricing model always has boundaries that protect markets from such scenarios.

Pricing based on value or elasticity: In this methodology , companies fix the price for a product by analyzing consumer specific value attached to a product. This is called value-based pricing. It is difficult to study values specific to a customer as it differs from person to person and have a differentiated price for each customer. Here customer's willingness-to-pay is used as an input for perceived value. Here price elasticity of goods helps companies in calculating how many consumers may buy a product at particular price. Product with high elasticity are more prone to price changes and vice versa What makes this pricing strategy dynamic is that elasticities of products change basis its category, season, location etc. The company here uses elasticity aspects to maximize its sales volume and profit.

Conversion rate pricing: Conversion rates method of pricing works solely on measurement of number of browsers on a particular website turning into buyers. Every time conversion rates of surfers to buyers is low, the price is dropped to push the conversion rate and vice versa.

Q2 ) Ecommerce Metrics and its implication on web store manager :

a) Sales conversion rate is the percentage of people visiting the online store/page to the number of purchases.

Sales Conversion Rate = (Number of Sales/Number of Users)*100%

Impact on Web Store Manager:

If conversion rate is low , store managers can take initiatives like speeding up the surfing , using better quality pictures, utilizing better product grouping or altering the prices to push the sales.

b) Website Traffic is the total number of people visiting the website.

Impact on Web Store Manager :

A lower web traffic means the company/website is not known to more customers, basis this store manager can take decision of running promotions and advertisement for the website.

c) Average Order Value is the average value of each purchase made in the store.

Average order value = Total Revenue/Number of Orders

Impact on Web Store Manager:

Tracking average order value allows store managers to set benchmarks and figure out how to ensure people spend more on every purchase that they make.

Basis this manager can take a call to upsell complementary items to customers that may improve usability of primary purchase of customer. The store manager can also offer products as a package , so that customers may get some discount on each item as against buying the products separately. Lastly, store managers can also offer free shipping on purchase above some amount to encourage higher average order value.

d) Shopping Cart Abandonment rate is the percentage of shoppers that add products to their respective cart but do not order and leave the store without making a purchase.

Impact on Web Store Manager:

If shopping cart abandonment rate is more the store manager requires to simplify the overall shopping experience, primarily the checkout process.

The store manager can further use remarketing techniques to make the undecided shoppers shop back at the store. For instance sending targeted ads or follow-up email reminders.