It’s no secret that pricing is #1 factor influencing a consumer’s purchase decision. In addition, online customers are extremely aware of products’ prices and price-comparison sites are doing a pretty good job helping them. Hence, setting your prices right and using the pricing strategy that best fits your needs and online business nature can make or break your online store or eCommerce business .
Read along to get a better understanding of what are the different pricing strategies for eCommerce business and then you can decide on the best pricing strategy for your own eCommerce store .
What Is Cost-Based Pricing ?
Cost-based pricing is the basic and most common type of pricing for eCommerce business products. It’s the sum of all unit costs + a profit margin. Some of the common costs in an eCommerce business are domain and website hosting, sourcing products and storage, shipping, returns and funds, and marketing budgets.
You’ll be shocked of the number of eCommerce businesses that lose track of their unit costs and fail to even apply this strategy.
But then, how would you set a reasonable profit margin that will maximize the profits without scaring off the customers?
The trick here is not to price your products too cheap to an extent that undervalues your products, nor should you price too expensive and lose competitiveness.
Take into consideration the competitors’ prices and consumers’ willingness to pay. For example, selling a unique hand-made piece of jewelry is different from selling a tablet; the first can hold a fat profit margin, while the second has a pre-set slim profit margin as the competition is harsh and the products are identical.
What Is Market-Based Pricing?
Market-based pricing is a pricing strategy where a business observes the competitors’ prices for the same products they sell and puts a nearby price, whether slightly lesser or higher.
In case your eCommerce store is selling unicorn dry food, then you don’t need to worry about the rest of the market :D.
For the rest of us, your online store is probably selling the same or similar products to another 20-25 stores, if not more. Today’s consumers are meticulously aware of market price for the product they need. In addition to that, online shoppers usually check their favorite price-comparison site before making a purchase.
According to Google’s consumer barometer, only 21% start their research moments before a purchase; the rest starts from hours to more than months! That’s how price-sensitive online shoppers can be.
Tip ? It’s not wise to undercut your competitors and lower your prices until your margins are paper-thin.
In the above example, these online retailers have all unified their prices as they know, for such a common commodity, it’s not wise to go higher than your competitors.
What Is Consumer-Based Pricing?
Consumer-based pricing depends on customer-centricity, where you start by defining your customers, and then dividing them into groups to target each of them with the right products and prices, using real-time data and purchasing history to accurately identify customer segments.
You should have sufficient knowledge about your customers and the value your product brings to them.
What Is Loss Leader Pricing?
Loss leader pricing strategy means that you set one product at a significantly lower price (that puts you at a loss) to lure your customers into your website where they’re likely to buy other normally priced products.
This is a tricky and extremely risky approach to pricing strategies , but it works really well with smart merchants who know exactly which items to offer at loss and when exactly.
Loss leaders have a lot of techniques or rules when it comes to which products to offer and when; you set your own depending on your market and vision.
For example, offering an 8-pound turkey at half price (or even less) on Thanksgiving Day will not only lure people into your online market, but encourage them to buy all their other feast ingredients (at their normal prices) from your online market shop or online grocery.
Essentially, this pricing strategy is popular because it’s so effective in two ways:
- Have low-priced items lure customers in, then hit them with up-sells and cross-sells,
- Or use a loss leader to generate long-term customer loyalty.
What Is Dynamic Pricing?
Dynamic pricing is a pricing strategy where you set the optimal prices at the right time in response to real-time demand and competition status while taking into account your business goals.
This means that dynamic pricing allows for more flexibility in pricing your products depending on costs, targeted profit margins, the demand of the market, and your competitors’ prices.
Luckily, there are a lot of reliable dynamic prices engines out there; these are basically software programs that collect competitor prices and adjust your prices immediately against any changes. Check some here and do your own search based on your business needs and budget.
At the end of the day, following a dynamic pricing strategy means that your prices will always stay competitive or optimized and your business will gain a competitive edge in the market.
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What Is Bundle Pricing ?
Bundle pricing is a pricing strategy where you sell a range of products together for a discounted price. Online customers are willing to pay more for 3 items together as long as they save on each item if purchased alone.
This strategy is great for products that come with other accessories or that are complemented with other products. For example, AirPods, cover cases, holders, chargers, and memory cards for mobile phones, or coal, tongs, racks, and lighters for a barbecue grill, and so on.
Bundling products of a similar nature is a great way to increase your average order value and help customers get all they need from one place, which will increase loyalty and good reviews.
What Is Specific Pricing ?
Specific pricing is when you set an uber-specific price for your product instead of a rounded figure, which gives consumers a feeling that the price has been calculated by adding together the sum of the product’s parts.
This pricing strategy works well with tech and electronics categories; for example, $1259 is better than $1300 for an LCD TV.
According to a University of Florida study, consumers are less likely to tap that call-to-action button when they think that stores make rounded prices artificially higher.
What Is Small-Syllabled Pricing ?
As weird and hard to believe as this might sound, but studies have actually proven that consumers tend to perceive a price as lower if it has fewer syllables!
Yes, I didn’t get it either at first :D, until I read that Research from Clark University. It found that even if two prices are the same length, e.g. $27.84 and $28.15, the longer the price phonetically, the higher it seems. Which would be $27.84 in this example, despite it being the lower price.
So, if you run an online fashion/clothing/shoes store, you can try using this pricing technique of rounding numbers into fewer-syllables figures rather than being specific (customers make emotion-based purchases at such stores).
A simple way to reduce the syllable count for emotion-based purchases would be to just round off the values ?.
What Is Psychological Pricing (Charm Pricing)?
What’s harder to believe is that a $39 item would outsell its cheaper counterpart priced at $34 only because it ends in an odd number “9”!
Studies have shown that charm prices (i.e., those ending in an odd number) increased sales by 24% on average when compared to their nearby, ‘rounded’ price points.
Researchers at MIT and the University of Chicago ran an experiment on a women’s clothing item with the following prices: $34, $39, and $44. Surprisingly, the $39 item sold more than its cheaper counterpart price of $34! It’s weird but true.
So, the next time you’re pricing new products for you eCommerce store, you might want to try out this charm pricing strategy and playing with odd numbers and see how this will pay off ?.
What Is Price Skimming?
Price skimming is a pricing strategy played by the big names in the eCommerce business market, where “being the first one to put your hands on” their product really matters to a large segment of people. It is where businesses are able to leverage the “newness” of their product and maximize their profits from the get-go.
These brands, like Apple, play on the feeling of exclusivity that people like; you’ll usually find words like “exclusive offer” or “limited availability” in their marketing copies, highlighting the urgency of the call.
In the above image, look at the prices these items were sold for just because of the fact that they were “Ralph Lauren’s new collection” two months ago!
What Is Penetration Pricing?
Penetration pricing is when a store or a retailer lowers a product’s price significantly compared to other competitors in the market.
This is a marketing strategy used in specific events for limited time to achieve a certain goal:
- Your store wants to enter a new product market, so you offer below-average prices.
- Your store wants to highlight a new product or service and seeks fast spread and mass awareness.
- You want to lure customers from competitors into your store.
Yet, penetration pricing is highly risky and is not suitable for all types of businesses; it can harm rather than benefit your brand if done randomly without prior stud, planning, and market research.
What Is Price Discrimination?
Price discrimination is a pricing strategy where an identical item is sold at different prices to different buyers, depending on the maximum a consumer would be willing to pay (auctions and bidding sites), price discrimination by the consumers themselves (lower price for higher quantity), or customer segments.
You could simply tailor your products’ prices according to certain factors, based on real-time data and customer segmentation.
One product can fit into an auction or bidding where the highest bidder takes it home; in such events, consumers are willing to pay a lot more for an item depending on its scarcity, sentimental value, or importance to a certain group of people.
Another product fits more in a whole-sale market, where the buyer is offered a much lower price if they purchased large quantities, like on AliExpress and similar websites.
And then, you are free to price your products differently based on customer segments, but be careful to dig deep first into real-time data and enough search about each segment.
What Is Flat Pricing?
Flat pricing is a strategy where you price almost about all items the same. This strategy works magic for online stores whose inventory consists of products that are very similar in price.
Flat pricing makes it easier for customers to shop and for you to manage and calculate profits.
You might be more comfortable to try out flat pricing strategy on one day or one week and see how this will affect brand awareness and future sales.
Why Place Expensive Items on the Left?
A slippery pricing technique used by many online stores is to organize your storefront in such a way that expensive items are placed on the left (or on the right for Arabic websites), followed by less expensive or cheaper similar items.
Such strategy gives the users of a website a feeling that they are willing to pay that much for the other items as long as they’re not as expensive as the one they saw first.
The Modern Shop makes effective use of such technique. The website hits a customer with a $2100 bedside table at first, then eases them into cheaper ones (which are not that cheap if you took another look at them). Therefor, customers are happy to pay the $875 or even the $1225 because, thank God, it’s not the $2100 ?.
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To Sum Up,,,
Businesses are different and the eCommerce world is expanding massively. In order for your online store to survive and thrive, you need to price your products (no matter what their nature is) correctly and reasonably.
Take into consideration the type of your product or service your eCommerce business offers, your customers’ segments, market demand, and competitors’ prices.
Play your odds and try out different pricing strategies and see what works well for you.
Do not depend on opinions or someone’s point of view, use real data and make your own research.
And if you have any questions or ideas, we are always here for help ?.
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