The politics of business to consumer pricing

One of the biggest challenges of selling online is your pricing strategy. Get this right and your business will sing. It sounds easy doesn't it?

Of course there are many other factors which will make your business sing but pricing is right at the heart of any business, and we will have plenty of time later to talk about some of the challenges in retailing online.

I'll start from the beginning. The dawn of the internet age changed the face of retail, and the way products are sold around the world, forever. The buying habits of the consumer were revolutionised. Prior to the internet the consumer had no real means of researching price without a huge amount of work and travel. A products price was more or less accepted.

The internet opened up a whole new opportunity for the consumer to compare prices across a range of retailers which naturally saw online businesses competing on price to win sales.

This is where we start to get on the politics of pricing. For the sake of this article we are going to say that a typical online retailer sells several brands from several suppliers on their website. While it might be illegal for a supplier to tell a retailer how much they should sell the products for, they can stop supplying product to a retailer without giving a reason. This becomes relevant when suppliers protect the brands they sell by requesting the products are not discounted, either at all or below a certain level. Stray below this threshold and you may find you can no longer obtain these goods.

Is this a good thing? Well it is a game changer from the point of view that you can't compete on price with these brands. You need other ways to stand out above the competition in a level playing field.

Why would a brand want to control the consumer price? Well there are many reasons, most of which are there to protect the longevity of the businesses that sell their products. Without it the High Street stores wouldn't be able to compete on price and it would be no longer financially viable to sell these products in store. The brands then loose valuable retail shelf space. Even if you take the High Street out of the equation, without such a policy it is a race to the bottom on price, and these brands can be used by online retailers as loss leaders.

If you are thinking about starting an online business you need to think about these challenges and build them into your business plan.