Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time. It is typically measured by the percentage change in a price index, such as the consumer price index (CPI). Inflation can have a significant impact on e-commerce pricing, and as it has been rising, it is an important factor to consider in 2023.

Here are a few ways in which inflation can affect pricing:

• Prices: Inflation can cause the prices of goods and services to increase over time. This can impact the prices of products sold through ecommerce platforms, as retailers may need to adjust their prices to keep up with inflation.
• Margins: Inflation can also impact a business’s profit margins, as the cost of goods and services may increase, while the price of the products being sold may not. This can make it more challenging for retailers to maintain healthy profit margins, which may affect their pricing strategies.
• Purchasing power: Inflation can reduce the purchasing power of consumers, as their money may not be able to buy as much as it did before due to rising prices. This can affect the demand for online goods and services.
• Competition: Inflation can also impact competition in the e-commerce industry, as businesses may need to adjust their prices in order to remain competitive and meet the needs of their customers.

It is important for businesses to carefully consider the effects of inflation on their operations and pricing strategies.

Specifying the sale price before the sale

As Omnibus Directive requires us to show the 30-day lowest price before the campaign, the comparison price and discount percentage will play a part. According to studies, the minimum discount should be at least 5%. The minimum does not sound like a discount but still is the lowest amount, attracting customers’ attention. Therefore, it would be best if you chose the discount’s upper limit by evaluating our campaign’s cost structure and aim. In this example, our costs are only 18% of our price (450€), which gives us great flexibility when designing the on sale price.

Let’s assume we aim to create as much profit as possible and clear stock to make room for newer models. For this example, we evaluate that we want our minimum margin to be around 160€ price point, and to clear stock, we want the minimum sale percentage to be at least 30%. The 30% we have learned by analyzing previous sales. These premises paint our range of possible sale percentages to 30% – 64%.

Note that the discount will cut our margin more than it cuts the price the customer has to pay. So in this example, giving a 50% discount from 450€ for the customer cuts our margin by roughly 60%.

In these scenarios, we also assume that we are not the only ones selling light wooden chairs. According to studies, this makes our customers more price sensitive. Based on studies, we can also assume that since we are an eCommerce company, the customers respond better to “30% cheaper than market” signs than to “30% discount from our previous price”. This encourages us to focus our marketing more on the discount from the market price than the discount percentage from our original price.

The question is: What is the best price for the 31 days before the campaign? How will that affect the overall profitability of our sale campaign? 

We will lose sales in the previous 30 days if we have a very price-sensitive market. So to cover that, we need to understand the impact of the price change before the sale campaign. 

Selecting the sale campaign discount %  

A successful sales campaign depends highly on how good deals you can provide—knowing your purchase price, demand from earlier campaigns and your marketing budget, the questions are: 

What will be the best sale discount % in your upcoming campaign? 

What is the best option for the sale to be as profitable for us as possible? 

Finally, before you make the decision you could use two thumb rules. First, the percentage should be more than 30% (see above the explanation) and the end price inline with other sale prices on the market. 

To see the difference, we will compare the two scenarios and think about how realistic those are for us.

Returning to normal pricing after sale campaign  

We are naturally returning our pricing to normal, which also needs some consideration. For example, what should be the regular price of our product after the sale? We again examine the price impact on the overall profitability 30 days after the sale. Many eCommerce companies use dynamic pricing, so this issue might be something they consider more on the gateway they give the pricing engine to set the prices.

Running the sale price simulation

Eventually, we analyze the results between the scenarios with detailed analyses and see how revenue and profit develop at each stage. To make this visually clear we highlighted the three 30 days periods with different colors. The areas are:

Lighter pink 

30-day period before the campaign.

Green

30-day campaign period.

Purple

30-day period after campaign.

So let’s start.