As a retailer, it is no secret that it is highly beneficial to utilize either cost-plus or competitor-based pricing strategies.
However, figuring out what your customers value in your products is a bit trickier. Many have decided to utilize A/B testing to figure it out, but that comes with many risks. Before we dive into why that is the case, let’s define price testing.
Price testing revolves around trying out different prices for your items. Therefore, in this case, you don’t use optimisation tools but rather get shoppers to vote for their favourite prices based on whether or not they commit to a purchase. So, why shouldn’t we use A/B testing?
Why you shouldn’t use A/B testing
When it comes to pricing, statistical significance is complicated to obtain since getting the right amount of people for your A/B test is not easy. However, without that minimum number of people, there is no way of making sure that your outcome is dependable.
Therefore, if you do decide to do A/B testing, you will want to make sure that you have a statistically significant number of testers. As a result, typically, only those who get a lot of traffic can even think about using this method. However, the responsibilities that they are testing can’t be big ones.
What’s more, is that you have to track the results for over a month, if not for longer. The problem with this, though, is the fact that price sensitivity can see considerable changes in over several days.
Therefore, you would need to run tests more frequently, resulting in the need for more customers, which you will find an unfeasible task over time.
Additionally, you will have to make sure that you anchor the right customers. If you don’t, then there’s a chance that you will cause them to get upset once they see that the prices that they have gotten used to seeing start to change.
What’s more, is that even if you do conclude that you can offer your product or service at a higher price, it won’t be very easy to justify that price, especially to loyal customers.
The thing is, you can’t sell them items at one price and others a higher price because word spreads fast, and people will be feeling discriminated in no time. In other words, the ethics behind it are faulty while you can rest assured knowing that there will be a major backlash, resulting in a decrease in sales.
Lastly, it’s important to note that A/B testing will not reveal shoppers’ valuations regarding your item. All that you can expect it to tell you is which test beats the other one. However, this information does not guarantee that it is the best solution as it doesn’t provide exact reasons.
You can make assumptions, but they still aren’t reasons that you can depend on for reliable results.
What’s more, is that while it is beneficial for testing out things like landing pages since you can consistently repeat your testing, it is rendered useless for pricing because it is physically impossible to A/B test each price. So, what’s a good alternative? Price testing with the help of advanced pricing software.
Price testing with pricing software
The best way to find the optimal price without having to take any risks is with the help of advanced pricing software. For example, you can utilize a Sandbox feature to test out different kinds of pricing scenarios through any strategy.
Even in the case that you would like to find information about a completely new item, the Sandbox can create very accurate results that are backed by previous sales of items that are close to it.
As you can see, through price testing, you can make sure that you are getting dependable results without having to take significant risks to do so.