Building a Solid Price Strategy with Data: A DTC Guide (part 1)

What is in this newsletter:

In this edition, we dive into :

• Harnessing Data for Pricing Success: Why data is crucial for optimizing prices.
• Steps to Build a Robust Dataset: Essential data points and how to gather them.
• Prioritizing and Strategizing Products: Key parameters for effective pricing strategies.

Did you know that companies leveraging data-driven pricing strategies can increase their profit margins by up to 20%?

The foundation of any effective price strategy begins with data. Without comprehensive data, any decision made is essentially a guess. Guessing involves a high level of risk, and in the competitive world of e-commerce, risk needs to be minimized. Here’s a detailed look into how we at Aument.io approach building a robust pricing strategy.

Why Data is Your Pricing Powerhouse

Data is the cornerstone of pricing optimization. Various use cases, such as increasing profitability, boosting sales volume, or clearing out products incurring high storage costs, all require extensive data. No matter the methodology—be it spreadsheets, linear regression, decision trees, or more sophisticated techniques—having accurate data points is crucial to making informed decisions.

Steps to Building a Strong Dataset

1. Conversion Data: Track product and site views to understand customer behavior. This data is crucial but can be challenging to extract from Shopify’s API.
2. Paid Price: Analyze final prices after discounts to gauge customer willingness to pay.
3. Perceived Price: Consider the initial price shown to customers, including typical discounts for optimal pricing.
4. Cost of Goods Sold (COGs): Essential for profitability analysis. Historical COGs data is often hard to obtain from Shopify but is critical.
5. Historical Data Compilation: Reconstruct historical data from orders and product tables, taking regular snapshots of COGs and other relevant metrics.
6. Key Identification: Ensure clear relationships between your inventory system and Shopify. Using Shopify product IDs over SKUs can streamline this process.
7. Hierarchy Mapping: Maintain price consistency across products and variants. Establish relationships between packs or different levels as needed.
8. Peak Traffic Identification: Recognize peak traffic moments, such as hot sales and Christmas. Identifying less obvious peak times can also be beneficial.
9. Competitor Data: Depending on your product type, competitor data can be crucial. Nextbigshop.com is a fantastic starting point.

Prioritizing Products Based on Business Rules

After establishing a strong dataset, the next step is to determine which products need more attention. Here are some parameters we use to highlight strategies:

? Margin Buckets by Paid Price: This easy-to-calculate metric involves comparing the final price with the cost.

? Current Simple Stock Value: Categorize stock into groups such as in stock, oversold, out of stock, and stock errors for validation.

? Gross Sale Share Percentiles: Understand the most significant points in your product mix, similar to Shopify’s grade report but with enhanced arithmetic analysis.

? Weeks on Hand: Calculate the sales velocity of each product every 7 days against the inventory amount to avoid manual downloads.

Building a Strategy Matrix

Finally, create a matrix that combines different metrics to give actionable outputs. Here’s an initial version:

By establishing a strong dataset and building a strategy matrix, you can quickly determine which products are most suitable for various pricing strategies.

Here is the first MVP we built for the product price opportunities.

This approach leaves us with three key questions to address:

1. What is the impact I can get if I seize the opportunity presented on my dashboard?
2. What is the optimal price to execute this opportunity?
3. How can I measure the impact effectively?

These questions will be the focus of my next newsletter, where I will delve into the specifics of assessing and executing pricing opportunities.

The promotional moment - Leveraging Aument for Optimal Pricing

If you prefer not to handle this intricate process yourself but are interested in the benefits of precise price definition, Aument is here to help. Our product is designed to tackle these challenges seamlessly, helping you to:

? Increase your profit margins

? Boost your sales volume

? Reduce storage costs of unsold products

If you are a Shopify brand looking to be more profitable, you can install Aument here: Install Aument

Here you can see a quick demo of the product.

This is how the dashboard MVP evolved to become part of the product (release for all our customers next Tuesday):

Your Support Makes a Difference

If you know someone looking to improve business efficiency, pricing, or inventory strategy, please share this content with them. Your network might include individuals or businesses that could greatly benefit from these insights.

Additionally, if you found this information helpful, a like or a comment would be greatly appreciated. Right now, we’re working hard to attract more leads and demos, and any help is invaluable. Your support can make a significant difference.

Thank you for your continued engagement!