Embracing the Bargaining Power of Customers in eCommerce

There are plenty of online stores based all around the world, and with the help of search engines, your customers can find a dozen places selling the same type of products or services as you. This gives eCommerce consumers a high amount of bargaining power.

It may seem like a hopeless scenario—but what if you could use the bargaining power of your customers to your advantage? eCommerce retailers can increase conversion rates by understanding this principle.

Customers are able to find products similar to what you sell at a variety of prices. Furthermore, the internet makes it easy for people to find the best price and best value. To manage this reality, many eCommerce stores try to attract customers by offering the lowest prices. At some point, though, this makes profit impossible.

Another way to attract customers and set your store apart is by providing excellent value—products made with quality materials or excellent support and service. This lets you continue to increase profits while gaining more customers.

Discover how to impact your customers purchasing decisions and behavioral patterns in this white paper.

Which factors determine the strength of consumer bargaining power?

There are a number of factors that determine the bargaining power of the buyer in any economy. Some of these include:

  • The ratio of buyers to sellers—on the internet, it’s safe to say there are plenty of sellers who offer similar products
  • Price comparisons – on competitor sites and comparison sites
  • The ability of the buyer to produce the item themselves—you won’t see many online stores selling paper airplanes, for example, because they are simple for people to make
  • The buyer’s education about the product—this is most common for eCommerce stores selling technical products

How to avoid consumer bargaining power

There are a few ways you could avoid the bargaining power of customers for your business. You could avoid any substitute products from being on the marketplace by patenting and trademarking your product. This is not a perfect solution, though, since many eCommerce stores exist to sell common items that cannot be patented.

Another tactic to avoiding the bargaining power of customers is to enter a small, niche market. A niche market will have fewer competitors, and therefore your store will be able to stand out without as much effort. On the other hand, smaller markets will also have fewer customers, which can limit your profits.

Embrace the bargaining power of your customers

So, instead of avoiding the bargaining power of customers, you can use it to your advantage. You know that buyers are looking for the best price, value and service, yet you don’t want to offer prices that are too low. The best way to handle this delicate balance is to use a program that targets each customer individually—such as the conversion uplift solution offered by Personali.

With this solution, online retailers can use behavioral economics principles to offer each customer the perfect price. It can negotiate with your customers to find the best price point for you that also provides great value for your customers. This gives your customers the feeling that they are getting the best deal and the promotions that fit with their desires, while still ensuring that you can optimize your profits without offering all shoppers the same incentives.

Whether you choose to avoid it or embrace it, the bargaining power of your customers is real, and it’s something you need to actively manage. There are ways to use it to your advantage, and with systems like Personali’s profit optimization  solution, the bargaining power of customers can mean increased profits for you.

To read more about the relation between behavioral economics and marketing,
and demonstrate how creative marketing organizations can leverage the fundamentals of behavioral economics
download our eBook: Behavioral Economics as a Key Marketing Driver. Contact us, today.

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