Pricing is essential to your entire company strategy, and setting the proper rates may be challenging. Pricing too high or cheap can cost you business. How do we choose a strategy?
The optimum eCommerce pricing method for your company relies on many factors. It takes effort and trial to discover the optimal rates for your items and offerings.
It’s helpful to grasp the eCommerce pricing techniques most organizations employ and the effects of some tried-and-true pricing approaches.
We’ll look at five eCommerce price techniques and five pricing approaches that match them.
WHAT IS AN ECOMMERCE PRICING STRATEGY?
A pricing strategy is a plan or structure you’ll employ to price your items correctly. Different Ecommerce Pricing Strategies may be used depending on the items and services you provide, their demand, and your competitors.
Costs will fluctuate as your organization develops and expands, affecting your pricing approach. Depending on your company model, your sales cost may grow or decrease, and you may require an eCommerce pricing plan to handle this.
TOP 5 ECOMMERCE PRICING STRATEGIES
- COST-BASED PRICING
Cost-based pricing is often called markup, breakeven, or cost-plus pricing. This eCommerce pricing strategy is based on total selling cost and desired profit margin.
Say you own an online t-shirt shop. You buy t-shirts from a third party and ship them to buyers. Dropshipping removes manufacturing expenses. It costs $3 to buy a t-shirt from your supplier and $2 to deliver to your consumer. You spent $2 on social media marketing to get the consumer to your business. $3 + $2 + $2 = $7; a sale costs $7. Then add your profit margin to decide your pricing. Suppose you want a 50% markup. Then. 50 * $7 + $3.50 = $10.50 for a t-shirt.
- COMPETITION-BASED PRICING
A competition-based pricing strategy aims to provide better prices than rivals. You must regularly monitor the market and compare your rates to comparable items from competitors. Buyers usually compare rates, so it’s wise to investigate your clients and define a strict competitive set. You don’t have to do it manually—a bot or one of the pricing tools on the market can monitor the competition and modify your rates. AI is used by several of these to improve item capture.
- LOSS-LEADER PRICING
When you bring a coupon to the shop, you wonder how they can make money at such a low price. Doubtful. They’re using loss-leader pricing. Penetration pricing and discount pricing are similar. Sales, coupons, rebates, and other markdowns are effective across all industries.
Loss-leader pricing accepts a loss on specific goods in hopes of generating extra sales. By attracting that initial transaction, you’ve acquired a new client, and their future purchasing will compensate for the loss.
This eCommerce pricing approach depends on brand loyalty. To ensure repeat business, you must provide a positive digital commerce experience.
- DYNAMIC PRICING
Dynamic pricing adapts to client behavior and changing demand. Dynamic pricing means your rates alter according to things like:
- Supply and demand
- Market trends
- Competition and industry standards
- Consumer expectations
Dynamic pricing and eCommerce tactics allow companies to optimize real-time profit margins. Dynamic pricing might lower conversions if not performed correctly since buyers notice changing prices. It may lose confidence, and if clients know prices may drop, they’ll wait.
- PRICE SKIMMING
Price skimming is a pricing method in which the vendor charges the highest price buyers will pay for an item and then progressively reduces it. This is typical in niches where new things lose interest and value quickly. Price skimming is expected in the electronics industry when new goods make old ones useless. Seasonal items like Christmas décor go on sale after the holiday.
Price skimming isn’t viable for newer and smaller eCommerce businesses selling commodities.
TOP 5 ECOMMERCE PRICING TACTICS
- MANUFACTURER SUGGESTED RETAIL PRICE (MSRP)
The MSRP is the price a manufacturer advises retailers to use when selling a product. This saves time, is easy to manage, and ensures a margin both you and your customers can accept. Consumers love knowing the manufacturer sets the pricing, and you follow it.
- Multiple/bundle pricing
Upselling is easy by bundling items and providing a discount for more. Retailers sometimes offer bundles of socks, underwear, and food. Product-bundle pricing sells many things for a single price.
This increases the perceived value at a lower price, driving volume sales.
- Multiple/bundle pricing
Bundling items and providing a better price for a good quantity is an effective strategy to upsell. This is a systematic approach in retail, where grocery shops and clothes stores offer package offers for socks, underwear, and food. This strategy involves selling many products at a single price, often known as product-bundle pricing.
This increases the perceived value at a lower price, driving volume sales.
- PSYCHOLOGICAL PRICING
You know how all prices finish with $0.99? This price technique, known as psychological pricing, depends on the fact that $8.99 seems closer to $8 than to $9. It makes the item look cheaper, and studies suggest that “charm pricing” (prices ending in odd digits) enhance sales dramatically.
Consumers prefer to overlook the least significant digits rather than round the number. The pennies are visible, but they’re typically subconsciously dismissed. Research shows this impact is heightened when cent digits are written smaller (for example, $1999).
ANCHOR PRICE
Anchor pricing is another typical pricing method comparable to psychological pricing. With this strategy, you include reduced and original pricing to show the savings a customer would get.
Creating a reference point like this causes the anchoring cognitive bias. Consumers will use the old price as a reference point and “anchor” their judgment of the new, marked-down price.
- Specific pricing
Specific pricing uses a particular figure, such as $312.43 instead of $299. Consumers expect retailers to round costs to the closest to $49 or $99. Specific pricing gives the impression that the price depends on the product’s pieces, making it seem fairer.
Today’s customer demands a seamless experience regardless of nation, channel, or currency. Companies must manage their eCommerce pricing strategies over the whole lifespan and use technology and pricing techniques that aggregate all touchpoints and data into one system.
