An eCommerce business has to pay attention to every detail to establish its presence on the web because of the wide range of competition and accessibility to information. This makes pricing your products and services in the best way possible extremely important. But first, what is an eCommerce pricing strategy?
In the simplest terms, pricing implies how much a business charges for its products and services. And pricing strategies refer to the approach they take while determining a price that will play in their favor to increase sales and maximize profit.
Why are pricing strategies important?
Pricing your product or service is a major factor while marketing it. It can affect your profit, branding, and customer relations all at once. Pricing something high or low may also determine its success and failure in the market.
All the information about your products and services can be found on the web, and so are your competitors. Hence, customers can easily compare the prices which may affect your sales, negatively or positively.
When the price of a certain product or service falls drastically, it not only keeps the old customers hooked but also opens the avenue for new potential customers. However, sometimes the prices are increased because of the demand. Increased prices can also depict the value of your brand.
Underpricing might be good in terms of competing but it can lower the brand value in the long run if not done appropriately. And overpricing may only appeal to a specific target audience. Therefore, it is vital to carefully pick your pricing strategy. They can be changed or analyzed over time to measure their effectiveness.
Factors to consider while deciding on a pricing strategy
These factors must be kept in mind while deciding on an eCommerce pricing strategy.
Your customers are the most important factor in terms of deciding the eCommerce pricing strategies for your product or service. Your existing customers and the new ones you want to target must fall within the range of price you are setting your eyes at.
There are the types of customers willing to pay anything for what they want and also those who are always looking to cut back on their spending. After all, the customer is the one you are running your brand for, and therefore it is crucial to keep their financial capacity in mind.
Unique selling proposition
The unique selling proposition of your product or service is what sets you apart from your competitors. It highlights the best feature that your brand has to offer which also determines its value in the market. Make sure you are putting the right price on what you’re selling so that nobody else is.
If you want to grow, you either need to be better or at par with your competitors. Your main goal is to serve your customers but also to establish yourself in a way that they notice your brand amongst the vast competition. Pricing your products is one of the most visible ways to create this comparison. Remember to strategize wisely by doing proper market research to stand out.
ECommerce Pricing Strategies Explained
Now that you understand what makes eCommerce pricing strategies so important, let’s go through some of them to help you determine the one you can use for your eCommerce business.
As the name suggests, this approach is used when you want to price the value that you are providing with your product or service. You still need to be aware of how your competitors are pricing their products to get an idea.
This strategy may involve pricing your product high as you might be catering to a high-profile target audience. This eCommerce pricing strategy might be appropriate for handmade, tailor-made, or customized products and services like clothes, jewelry, craft, etc.
Cost Plus Pricing Strategy
This is one of the most common pricing strategies used in the market, where a fixed percentage margin is added to the cost of the product to determine the profit earned from its sales. This strategy is also known as markup pricing.
Small eCommerce businesses that may not have the budget to do market research at large can opt for this strategy. It’s comparatively easier to navigate if you are just getting started in the market. However, make sure to have an accountant to keep track of your calculations to avoid any miscalculations that may lead to huge losses.
Competition-Based eCommerce Pricing Strategy
According to this strategy, you should look at all the similar products or services in the market to see how your competitors have priced them. This strategy can help you give yourself an edge over your competitor by offering a better price than them.
Do your full research to find the average price of your product and service in the market. Make that average price your benchmark to come up with a better offer in comparison to it. In most cases, you will lower your prices to a certain extent to attract more customers.
However, if you are not able to lower your price, make sure to highlight how your product or service is better than your competitors to rightfully justify those extra pennies. You can also use free shipping as bait to attract customers in the initial stage.
Price Skimming Strategy
In this approach, the initial cost of a product or service is set high if it has no competitors and had been anticipated for a long time to establish itself in the market. And when new products are introduced in a similar domain with new features, the price of the older ones decreases over time.
The price skimming strategy is best suited for technical products or services as the industry is ever-going and coming up with new updates and features from time to time.
If the demand for your product is high, you could greatly benefit from this e-commerce pricing strategy. The popularity of your product, However, some customers might wait for the price drop to buy the older versions. This strategy can highly depend on your target audience’s pocket.
Premium Pricing Strategy
This strategy is specifically used for luxury and expensive products. They are intended to cater to a high-profile audience who can afford certain products and services. This strategy aims to depict the quality and eliteness of the product or service by keeping the price high.
Premium pricing offers a high margin of profit if your brand is falling under the luxury category. However, the major disadvantage of this approach is that your target audience and product range might always be limited.
Anchor Pricing Strategy
Who does not love discounts? Every customer is always on the lookout for saving on their favorite items. Discounts and coupons are one of the easiest ways to grow and retain customers. It is also one of the most widely used eCommerce pricing strategies. Incorporating the same in your pricing strategy can offer you a lot of benefits.
When this approach is taken, the discounted price of the product is placed beside the original price to highlight the difference that will be appealing to the customers and catch their attention.
The key to applying this strategy is finding a balance. The discount should not be too low or too high. It should give your customers the idea that they are paying a fair price for the item and builds their interest in the brand.
Psychological Pricing Strategy
Marketing has to do a lot with understanding the psychology of your target audience. Taking the psychological approach in terms of pricing can be beneficial at times. This is also called charm pricing and dates back to the end of the nineteenth century.
In this strategy, the key elements are odd numbers like 5, 7, and especially 9. For example, if a product is priced at $49, the customer is more likely to remember the number 40 than 50. This technique has the potential to drastically increase sales if used consistently and on all the products or services of your brand.
Choosing the right eCommerce pricing strategies for your brand can be a game changer. Identifying the needs of your target audience to determine the suitable price can help increase your sales and maximize profits.