eCommerce Basics: How You Can Create a Price Testing Framework

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Woman Comparing Product PricesFiguring out the best prices for your products requires some experience and patience to ensure that they’re as optimized as can be. And while price testing might seem overwhelming, it could actually be an orchestrated and streamlined process, if you have a proper framework. Think of the scientific method — set your hypothesis, test, analyze results, and then do it all over again for continuous refinement and optimization.

Below are some hacks for creating your own price testing framework:

Setting Goals

Start with goal setting. When it comes to testing prices, primary goals typically include growth or revenue and growth of profit. If you are leaning towards increasing your product sales, then you might prioritize revenue optimization. Basically, you’re not concerned about your margins and are instead looking to speed up your sales to ensure that your inventory moves as quickly as possible.

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On the other hand, if you want to increase your product margins and make more from every sale, profit optimization would be your prime goal. Note, however, that although these end goals differ, you would need to take the same steps.

Selecting your Test Groups

Choose a product with substantial volume, one unit sold for each SKU daily at least, and another one in a similar category to act as your control group so you could easily evaluate your results. Measure each category’s sales growth against each other to ensure that they’re really comparable.

Adjusting Prices and Measuring Test Results

Adjust your prices in tiny increments in order to test the demand sensitivity of your market. Use competitor data you’ve collected from your competitive price monitoring activities as a standard for price comparisons and adjustments. Do this for one to two months to obtain ample data for your final analysis.

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Go for a basic variance analysis to see if your profit and/or revenue are decreasing or increasing and then calculate the difference in daily averages for your profit and revenue metrics prior to and following your price testing. Lastly, compare the differences between the control and test groups to determine how your price adjustments affected your bottom line.

Price testing is key to price optimization if you want to maintain your competitive advantage. You just have to create your own testing framework, with the tips above in mind, to ensure that you get accurate results every time.

That being said, perform price testing regularly because you shouldn’t stop optimizing your prices just because you got the results you want from your first test.

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