Pricing and Margin - Online Versus Traditional

Overview

A significant topic that should be addressed within your organiz

ation is the differences in pricing items when selling online. Selling online is vastly different than in a more traditional brick and mortar environment. Whether you’re in the retail realm or there’s an outside sales staff in a B2B model, with each sale, these price points will directly impact the margins of the entire organization.

Sales Margins – Traditional versus Online

Traditionally, the cost of an order that is captured online is significantly lower than that of a more traditional method. Consider a retail store: there is the cost of the building, utilities, personnel, and most importantly, the inventory on the shelves. Or, you might think of a B2B organization that utilizes a traditional outside sales staff to speak to customers and complete business transactions. The online site captures these orders with little to no human interaction once the site is launched. This directly affects the cost associated with capturing the orders, as well as the resulting gross margins associated with these orders. You should consider how these margin changes will result in a “ripple effect” throughout the organization.

Brick and Mortar versus the Online Sales Model

Selling items online is different than selling within a more traditional model. The pricing will be different, the marketing will be different and, as previously mentioned, the profit margin will change as well. A great topic to discuss is whether item prices should change if sold through the eCommerce system. If so, you’ll also want to consider if this will drive customers away from your traditional place of business to make purchases solely online.

Selling to End Customers in a B2B Model

When implementing a B2B site, you may have considered selling your products directly to your end customer, possibly thinking, “If we’re selling online to our distributors, can’t we sell directly to our end consumers?” Unfortunately, there is no right or wrong answer to this question, and therefore it requires careful consideration, planning, and communication. Because this topic is so intricate, some items you may want to consider include:

Will selling to the end customers have a negative impact on the distributors' revenue?
How will the pricing of items for end consumers affect the distributors’ pricing (and related sales volumes)?
Can the distribution channels receive credit for sales that were generated online?

Summary

The aforementioned items require discussions that must involve various departments within any organization which include but aren’t limited to sales, marketing, channel management, distribution, and of course IT. Failing to include any of these groups or not considering everything involved with an eCommerce site might be detrimental to selling online.