Pricing is one of the most powerful growth levers in your business. But when was the last time you tested it?
According to research, brands have reached a 6% lift in gross profits, simply by implementing a price testing strategy. And without it, you could be leaving major revenue dollars on the table.
But how do you know when to implement A/B testing on your prices? Today we’re sharing practical tips to help you identify when and how to use split testing for profitable retail operations.
Is your pricing optimized for demand on Amazon? Find out with our free Amazon price elasticity of demand calculator.
Why A/B Test Your Pricing?
A/B testing, also known as split testing, involves comparing two different versions of a pricing strategy to see which one performs better in terms of sales, revenue, and customer behavior.
Each pricing model should run independently for a fixed period to monitor the exact change in conversion rate and sales. This way, you can find prices that increase overall revenue or profit.
According to research, even a 1% increase in price can generate an 8.7% surge in operating profits. However, data also shows that a whopping 30% of pricing decisions fail to optimize prices, resulting in losses — not gains.
With a repeatable strategy for split testing your pricing, you can apply the right pricing at the right time based on your goals and growth strategy.
Get the deep dive on Amazon Pricing Strategies to Drive Profits. Watch on-demand and learn how your pricing impacts your success on Amazon.
When to Split Test Your Pricing
eCommerce moves much faster than traditional retail. If you’re defending your position on Amazon or Walmart, you might need to adjust your prices for any number of reasons — to drive sales, protect your margins, minimize ad costs, avoid stockouts, clear overstocked inventory — the list goes on.
By A/B testing your prices, you can make sure you’re using your pricing to its full potential based on any number of eCommerce scenarios. Let’s take a closer look.
1. Maximizing Pay-Per-Click (PPC) Conversions
Did you know that between 2022 and 2023, the average CPC increased by roughly 5%? Based on past cost per click (CPC) inflation rates, this number is expected to continue rising. The good news is, with the right pricing strategy, you can spend your advertising dollars confidently knowing that your prices support your broader business goals.
For example, our team at Trellis worked with a client who wanted to raise prices to enable their ads to run further with better margins. By slowly raising the price, we were able to identify exactly where their profits dropped off. This allowed the brand to maximize overall profits, while freeing up much more wiggle room in their ad campaigns.
With this data, our dynamic pricing system was able to increase margins across the entire catalog, while giving the brand the freedom to make changes to product content and promotions and ultimately move into more competitive keywords to drive increased sales.
Optimize your pricing for sales or profit. Trellis’ powerful pricing platform automatically A/B tests different prices to understand how they impact sales and margins based on demand elasticity and profit sensitivity. Schedule your free demo today to see the platform in action.
2. Avoiding Stockouts
According to one McKinsey survey, 71% of consumers said they’d switch to another brand if the product they wanted was out of stock and only 13% waited for the original brand to re-stock.
On competitive marketplaces like Amazon, the impact of stockouts can be devastating. Data shows that when products in positions 1-10 went out of stock for just 1 day, their rank fell by over 28%. After more than 3 days, their rank fell by 83% and after 10+ days out of stock, their rank fell by close to 150%. That kind of drop can take years to recoup.
If demand is high and stock is low, split testing can help you adjust surge prices to pace the sales of your remaining product, avoid going out of stock, and protect your reputation and rankings.
3. Maximizing Seasonal Pricing
The right approach to A/B testing can help optimize your prices based on the time of year, or even the time of day.
For example, if you have a new product you want to put on the map during Q4, you can use split testing to find prices that will help you run a balanced approach to increasing seasonal sales, profitably.
In a competitive category, you can use split testing to plan aggressive seasonal promotions, while keeping a close eye on your margins. You capture more conversions, while protecting your Best Sellers Rank (BSR) from competitors’ deficit-driven promotions.
Here are some simple tips to help you outperform the competition:
- Test discounts and follow competitors: This data will be crucial to maximizing future seasonal campaigns.
- Test and find your optimal price: With the additional traffic, a few extra points of profit margin can make a massive difference to your bottom line.
- Identify the keywords that drive the most volume for the lowest possible ACoS: Be ready to scale these keywords when the next major sales event hits.
Last but not least, you should also do everything you can to make every click count. Make sure your listings are well-optimized with high-quality images and keyword-rich titles.
4. Keeping Prices Competitive
Today 60% of online shoppers factor in eCommerce pricing as the very first criterion affecting their buying decision. Yet only 26% of businesses consider the competition or market when setting their prices.
No two ways about it: competitive pricing can boost your conversion rates. The real question is, how much should you drop your prices? And how do you weigh the impact of those conversions against other important factors like overall revenue and profitability?
By testing different pricing levels, you can get a deeper understanding of how your prices compare to competitors and their real impact on conversions and customer lifetime value (CLV).
5. Planning Discount Strategies
There’s a lot to be said for a well-planned discount strategy. Today, 93% of consumers say they would make repeat purchases from a brand that offers good discounts and nearly half (48%) would avoid brands that don’t.
With 80% of shoppers saying they’d be open to purchasing from a brand for the first time if offered a discount, the right discount strategy can help you both attract and retain customers. But without a tried-and-tested approach, it could be a race to the bottom.
From 2022 to 2023, there was a 14% increase in the number of products advertised that were on sale. Split testing can help you make sure you’re attracting new potential customers, without putting your margins at risk. Test various discount levels (e.g., percentage discount vs. fixed amount) to understand customer behavior and pinpoint which discount strategy drives more sales and profits.
6. Running Clearance on Product Lines
If you’re looking for a way to offload overstocked inventory, try using split testing to experiment with your clearance prices. For example, research shows that precise discount percentages are a great way to incentivize shoppers to act, especially when combined with the urgency of shorter discount durations.
Consider using flash sales and countdown timers, while describing the discount using precise numbers, e.g. 19% vs. 20% to signal a greater sense of urgency.
7. Maximizing Average Order Value (AOV)
According to research, 35% of purchases made on Amazon come from recommendations, including bundles. Use your A/B testing pricing tools to experiment with different pricing structures for product bundles to see which pricing strategy results in higher average order value and sales.
For example, studies have found that when a 20% discount is assigned to bundles, the overall preference for individual products is still superior — but by offering a discount of 45%, the overall preference for bundles increases. Studies also show that when the product cost is higher, it can be more effective to bundle a small number of products at a higher price.
Case in point? One retailer saw a 73% increase in the sale of lotion in a value pack. In this example, shoppers chose the larger quantity over a reduced price for a reduced quantity.
How to A/B Test Your Prices
There’s a number of A/B testing tools that can help you find and set the right prices with little to no manual legwork. Whether you choose to use an automated platform or DIY it, a standardized pricing strategy can help you achieve increased revenue and improved customer trust.
1. Identify the Variables
Determine the specific pricing elements you want to test, such as the actual price point, discount offers, or bundling options. Choose metrics and variables that align with your business objectives, whether it’s increased AOV, conversions, revenue per visitor, or gross margin.
2. Select Products to Test
In eCommerce, there are countless reasons for A/B testing your pricing. You may have products that need to be phased out to make room for new styles, colors, etc. Or maybe you need to find the right price for a brand new product launch.
If you’re in the CPG space, product pricing can be particularly sensitive. Split testing can help you find the best price for maximizing profits across the product portfolio and set a pricing model that consistently delivers the right margins.
3. Create Test Groups
Split traffic to two distinct landing pages or pricing pages, each with a different discount setup, bundle offer, etc., with one group exposed to the original pricing strategy (control group) and the other group presented with the new pricing variation (test group).
Each page could include multivariate testing, for example one with a discount and free shipping vs. one with a discount and flat shipping. When testing on customers, always avoid testing two different products within the same category at the same time, to avoid the perception of unfairness.
4. Run the Test
Now it’s time to measure your performance. Track key metrics such as conversion rates at different price points, average order value, and overall sales for both test groups to assess the impact of the pricing variations. Does a lower price improve your testing results? What’s the impact on sales vs. margins? What does user behavior look like for different variations?
With a clearer idea of your price sensitivity, you’ll be able to improve your conversion rate optimization (CRO) while ensuring that each purchase brings you closer to your overall goal.
5. Review & Refine
Regularly review and refine your strategy. Note your results, monitor market conditions, and adjust your prices accordingly to stay competitive while maintaining a five-star customer experience. With a strong pricing plan that you can both experiment with and iterate on, you can confidently scale your revenue and profits.
A Pricing Strategy You Can Grow On
In the modern game of eCommerce, staying competitive isn’t easy. By finding the sweet spots in your demand elasticity, you can take control of your pricing strategy and keep the business growing — both in revenue and profitability. Trellis is here to help.
Trellis offers advertising automation, dynamic pricing, and powerful analytics to connect brands with the right customers on Amazon, Walmart, and beyond. Through full-funnel analysis, we help brands of all sizes maximize share of voice, improve catalog productivity, engage repeat customers, and drive revenue growth for sustained online success.
See Trellis’ powerful pricing platform in action. Schedule your free demo today or sign up to our newsletter and get eCommerce insights delivered straight to your inbox.