Seasonal pricing helps businesses take advantage of fluctuations in demand throughout the year and smoothen their growth curve. By charging more during peak periods and less during off-peak periods, businesses can maximize their profits and better match their prices to customer demand.
There are a number of different ways to implement a seasonal pricing strategy, and the best approach for your business will depend on a number of factors, including the products or services you sell, your customer base, and the seasonality of demand in your industry.
What is seasonal pricing?
Seasonal pricing refers to adjusting product prices based on market demand. This enables businesses to maintain a more consistent sales volume throughout the year as the prices reflect the demand for the products.
Put simply, with seasonal pricing, you promote higher prices during the peak season and offer discounts to entice more buyers during the off-season.
So, if your store has a sales chart that looks like this, you need a seasonal pricing strategy.
While seasonal pricing can work throughout the year it’s especially effective during the sale seasons like Black Friday, Thanksgiving, and Christmas when customers expect discounted rates.
Benefits of seasonal pricing
Seasonal pricing helps get sales when customers are less likely to buy your products. For example, a pair of beach shorts in winter.
With this strategy, you:
- Offer seasonal discounts to encourage customers to buy products during the off-season
- Increase profit margins by raising prices during the peak seasons
- Get repeat purchases as customers buy from brands they’ve already purchased from
Seasonal pricing helps create predictable cash flow for your business. This strategy can get over 66% of people to purchase a product, regardless of whether they planned on purchasing it.
Challenges in implementing seasonal pricing
Hotels and airlines use this strategy regularly and customers are used to the price fluctuations. But the same cannot be said for other products.
Here are a few things to keep in mind while testing seasonal pricing for your store.
1. Pricing inconsistencies
“Buying cycles are getting longer, and most purchases happen during weekdays. So if a consumer sees a price one week, then goes to purchase the next and the price is higher (seasonal adjustment, for instance) they will likely re-start their competitive research and see what else is out there,” says, Jon MacDonald, the founder of The Good
To tackle this, test your pricing on specific customer segments via email or ads first. If customers react positively, you can test on a larger segment until you make site-wide changes.
“We heavily segment and personalize our email marketing (our core engine for sending offers). For example, if someone has bought product A before, and they receive an email broadcast that includes new, seasonal pricing for that product, we’ll use tagging and segmentation to dynamically remove that product from the email that they receive” says Zach.
2. Price trackers
“Price trackers are getting more commonplace, so brands need to watch out for them,” says Jon.
Price trackers are popular among price-savvy consumers. They send real-time alerts when there are price changes.
It’s best to be cautious or avoid using prices that can seem misleading to these savvy consumers.
3. Discounting inflated prices
A lot of stores will occasionally raise the prices only to offer a discount on it. A majority of your customers do not notice this. However, the few who do, can be vocal about it.
Jon, founder of The Good says, “Most brands will do seasonal pricing then make the mistake of offering a discount (again, $ of % off) which has the effect of creating a ‘fake sale’ in the eyes of the consumer.”
Offer smaller discounts if you want to implement seasonal discounting without trimming your margins too much. Or, switch away from a seasonal discount to a seasonal value-add. For example, Buy One Get One.
Instead of a 50% discount after inflating prices, offer a 50% discount on the second product they purchase within the same order. This will still be as effective while increasing your AOV.
Steps to create a seasonal pricing strategy
Pricing is a game of data. The more you know about your brand and your customer’s willingness to pay, the easier it will be to earn maximum profit from your existing products.
Here’s a five-step plan to help you get the right data to create an informed seasonal pricing strategy.
1. Find your peak seasons
Consider Arc’teryx, a brand that offers clothing and accessories for hiking, skiing, running, and everyday wear.
A quick glance at the categories and you can tell that the insulated jackets will be popular during winter, while the shorts in summer. Other products go through similar seasonal changes in demand throughout the year as well.
So how do you identify the seasonality of your products?
Let’s understand this with an example of a fictitious company, Sarah’s clothing which sells apparel for both men and women. They need to identify the seasonality using the following sales data:
From the above table, you can see the average sales figures lie between $20,000 to $50,000. The sales are relatively high in the months of May and June and from October to December.
The company can use two approaches to identify seasonality – statistical and visual.
The statistical approach uses data from past sales to identify seasonality. The following steps outline the statistical approach for identifying seasonality.
- Identify the period for which you have sales data.
- Calculate the average of profits for the entire period.
- Now subtract the monthly profits from the average.
- If the profit is higher than average for 2+ months, those are your in-season months.
While looking at numerical data can help you identify seasonality, the better way to do so is by visualizing it.
The visual approach is a simpler way to identify seasonality. The line chart above shows the monthly sales of Sarah’s clothing for a period of 1 year.
If you have data for a longer time period, consider adding a moving average to see when there’s an increase in sales compared to the average. From the line chart, you can see the peaks in sales during certain months which identify the seasonal trends in Sarah’s clothing business.
2. Determine the minimum and maximum prices
There are two ways you can go about deciding your pricing range.
- Refer and utilize existing pricing data.
- Run pricing tests to determine the optimal price as per current market demand
Price testing delivers relevant and up-to-date information on which to base your pricing decisions. And if you are a Shopify brand, Dexter can help you set up a price test in 3 steps.
Dexter’s price tests are designed to give you actionable insights from statistically significant data. You also get a real-time view of your price tests and can stop the tests as soon as you find the results satisfactory.
3. Decide your seasonal pricing structure
Striking the right balance with seasonal pricing is tricky. The off-season discounts offer a short-term boost in sales and can tempt store owners to continue. But going overboard with discounts can warp customers’ perception of your brand and create friction when you go back to regular prices.
Also, since customers associate higher prices with higher quality, it’s best to keep discounts to a minimum. A better approach is to add value—See what you can offer customers for purchasing during the off-season. It can be a free product or free shipping to encourage them to purchase.
Alternatively, you can only raise prices in peak seasons by offering free complementary products with purchases over specific amounts. You can determine what works best for you by testing different combinations for your store.
4. Create seasonal pricing bundles
Seasonal pricing bundles are a great way to increase the revenue for the store by bundling products that customers may want. For example, if you are running a winter bundle, you can include gloves or scarves that are priced at $50 and offer the bundle at a small discount.
Jon says “Based on our testing at The Good (thegood.com) consumers are okay with seasonal pricing if more value is added (even perceived). This means adding a free gift with purchase, free shipping, or doing a bundle of closely related products that benefit the consumer –– note that this doesn’t mean a discount, this is adding value, not subtracting $ or %.”
McDonald’s meals are a great example of product bundles.
Instead of selling the burger, soda, and french fries separately, a meal appears better value. It reduces the number of choices customers have to make and combined with the combo discount, a meal is a no-brainer.
This is why product bundles work so well when done right. Dig through your data and find what products people are adding to their cart together. Find complementary products and suggest those automatically at checkout.
You can also allow customers to create custom bundles using Box Builder. Bundling not only helps your customers find the related products but gives an instant boost to your store’s average order value.
5. Communicate your seasonal pricing strategy to customers
Deciding the pricing strategy is one part. The other is to communicate your offer effectively. After you plan the bundles and discounts, it’s time to showcase it to your customers.
As a rule of thumb, begin promoting discounts and discounted bundles at least a week before you implement them in your store.
This gives you time to gather an audience and avoid launching
Example: How Christmas Lite Show uses pre-season discount to convert over 30% of visitors
Christmas Lite Show (CLS) is one of the largest animated drive-through lighting shows. While the company is popular, it did not have an ecommerce presence and all sales were made directly at the venue
This brought the company’s cash flow down during off-seasons. To battle this, CLS decided to implement ecommerce with the help of an agency. They started with a website redesign and added email opt-in which tracked the conversions. They used a pre-booking discount as the lead magnet.
Since this discount was only available when purchased from the website, customers flocked to their website and CLS collected over 7000 emails within a while before their show.
This got them bookings much before the show. It also gave them access to the email contacts of interested customers who can be nurtured throughout the year.
Ready to try seasonal pricing?
Seasonal pricing can be a game changer for many businesses. It helps you grow consistently and generate predictable cash flow. Also, while you nurture leads over the year while promoting price updates, your brand stays on top of their minds for when they need the products.
Dexter takes the complexity out of determining prices. It helps automate price tests and provides the data to price products accurately. With the right set of prices and thorough research to back up your findings, you have a bulletproof strategy that propels you towards long-term profitability.
If you need help testing your pricing strategy with Dexter, our pricing experts are available via live chat right from your Shopify dashboard.