When to start with pricing

Price is the most important driver of purchasing behavior (as discussed in the introduction to the Pricing Academy). However, like any other business function, price management requires a time investment. The amount of time you should dedicate to pricing largely depends on the size of your online store. That said, consider the following sections as a general guide rather than strict rules. Beyond store size, factors such as marketing strategy, overall business strategy, process maturity, and market conditions also play a role.

This chapter appears toward the end—not to discourage anyone from addressing pricing earlier, but rather because we believe it is crucial to first explain the concepts, their rationale, and the limitations of different approaches.

Online stores with annual revenue up to € 2 million

In the early stages of an online store, typically up to € 2 million in revenue, basic strategic pricing principles will be the most useful. While more advanced price optimization can also be beneficial, it is important to ensure you have enough data to evaluate whether a particular pricing tactic is effective. Generally, a minimal approach to strategic pricing is sufficient at this stage:

• Segmenting your portfolio into basic categories—by brand, product category, or a combination of both.
• Cost-based pricing, meaning purchase price plus a set margin that covers both variable and part of the fixed costs.
• Manual pricing adjustments for the top 50 products that significantly contribute to revenue and are highly competitive.
• Dynamic pricing elements like competitor-based pricing can be used cautiously. Avoid overcomplicating rules and conditions, as limited data at this stage may make it difficult to measure effectiveness. Treat competitor-based pricing as a whole and evaluate its impact accordingly.

Key benefits at this stage

1. A fixed margin ensures you never sell products at a loss below the purchase price.
2. Grouping products into structured categories makes portfolio management more efficient and prevents random, hard-to-control margins on individual products.
3. Product managers can focus on the most important products, rather than spending time on long-tail items.
4. Clear margin structures help optimize marketing decisions. For example, if your margin is 30%, you can easily assess whether a marketing offer with a PNO of 8% (profit-to-cost ratio) from Idealo is worth it.
5. Competitor-based pricing ensures that your prices are neither too high nor too low compared to the market. However, be cautious not to let the market fully dictate your pricing, as this would mean your competitors control your pricing strategy.

Online stores with annual revenue of € 2 million - € 50 million

At this mid-sized stage, an online store can still apply all the pricing strategies used by smaller stores. However, with more data available, it can also take advantage of advanced price optimization techniques. Among online stores that successfully implement strategic pricing at this scale, we typically see:

• More advanced portfolio segmentation—often a combination of category and subcategory by manufacturer.
• Dynamic pricing tactics applied per category, including testing and evaluating strategies for A-products, while B and C-products follow best-practice tactics, occasionally re-tested.
• Manual pricing oversight for top-selling products and private label items.
• Leveraging data for supplier negotiations and collaboration with other departments.

Key benefits at this stage

1. All advantages from the previous stage still apply.
2. Margin optimization through pricing tests on larger product groups, leading to better profitability.
3. Dynamic pricing beyond just competitor-based adjustments, allowing for more flexible pricing tests and evaluation methods to increase margins.

Online stores with annual revenue over € 50 million

At this scale, online stores typically have dedicated product management teams and ample data to evaluate pricing strategies across most product segments. Many operate across multiple markets and sales channels, managing forecasting and targets related to revenue, margins, inventory value, and more.

These stores follow similar strategic pricing principles as those in the previous range, but with greater emphasis on strategic decision-making, using pricing to help achieve forecasted business goals. In addition to previous pricing tactics, they incorporate:

• Demand elasticity testing to determine optimal pricing.
• Comprehensive evaluation of all pricing tests.
• Price optimization across multiple sales channels.
• Monitoring competitor prices for similar private label products.
• Advanced reporting for management and suppliers.

Key benefits at this stage

1. All advantages from the first and second stages.
2. Simplified management of product teams—strategic pricing standardizes pricing rules and processes, preventing inefficiencies when an experienced manager leaves and speeding up onboarding for new team members.
3. Increased efficiency for product managers through automation.
4. Stronger alignment between purchasing and marketing, providing better visibility and opportunities for margin growth.