Pricing Strategy for Ecommerce – Is Your Price Right? - Oberlo

Competitor-based pricing is another commonly used pricing strategy for ecommerce businesses. It's a pricing strategy that is more complex than ... Skiptocontent Startyour dropshipping businesswithOberlo Starta dropshipping business → Signupnow Home / Blog / PricingYourProducts–PricingStrategiesforEcommerceBusinesses Article by AndrewRoach 18Dec,2020 Skiptoarticlecontent Postcontents 1 WhatisaPricingStrategy? 2 PricingStrategiesforEcommerce:Cost-basedPricing HowDoesCost-basedPricingWork? AdvantagesofCost-basedPricingStrategies DisadvantagesofCost-basedPricingStrategy 3 PricingStrategiesforEcommerce:Competition-basedPricing HowDoesCompetition-basedPricingWork? AdvantagesofCompetition-basedPricingStrategies DisadvantagesofCompetition-basedPricingStrategies 4 PricingStrategiesforEcommerce:Value-basedPricing HowDoesValue-basedPricingWork?  AdvantagesofValue-basedPricingStrategies DisadvantagesofValue-basedPricingStrategies 5 NailYourPricingStrategyToday 6 WanttoLearnMore? Creatingapricingstrategyforyourecommercebusinessisessential,butitcertainlyisn’tsimple. Ittakestimetolandonthe“right”priceforyourproducts.That’strueregardlessofhowmuchexperienceyouhaveasanentrepreneur. But,whenit’syourfirsttimelaunchinganonlinebusiness,comingupwithapricingstrategyisespeciallytricky.  Youneedtofactorinallofthecoststhatyou’llincurwhenyou’resellingyourproducts(includingmarketingcampaigns)andcomeupwithpricesthatyourcustomerslove and allowyoutomaximizeyourprofitmargins. Andwhenyouconsiderthatpriceisoneof,itnotthemostimportantfactorthathelpsshoppersdecidewherethey’regoingtoshop,you’regoingtowanttonailyourpricingstrategy. That’sexactlywhywe’vecreatedthispost.We’regoingtodiveintothepopularpricingstrategiesthatecommercebusinessesuse,andbreakdownwhichoneisbestforyourbusiness.  Attheendofthispostyou’llknoweverythingthatyouneedtocomeupwithapricingstrategythatyoucanimplementtoday.  So,let’sjumpintoit,shallwe?  ThinkingofstartingaShopifyStore? BringyourbusinessonlinewithShopify,themostpowerfulecommerceplatformoutthere StartafreeTrialtoday WhatisaPricingStrategy? Beforewedivetoodeep,let’stakeastepbackandexplainwhatapricingstrategyis.Essentially,apricingstrategyisaasetofrulesormethodsthatbusinessescanusetopricetheirproductsandservices. Makenomistakes,pricingstrategiesaremarketingtactics,andnailingyourpricingisoneofthebestwaystoimproveyourconversionrate. Runninganonlinebusinesswithoutapricingstrategyislikerunningaracewithoutatrack.Youneedtohaveapricingstrategyinplacewhenyou’rerunninganonlinebusinesssoyoucanmakesurethatyoudon’tpriceyourproductstoohigh,orworse,toolow. PricingStrategiesforEcommerce:Cost-basedPricing Okay,firstupwe’vegotthecost-basedpricingstrategy.  We’rekickingoffwiththispricingstrategybecauseit’sundoubtedlythesimplestone. Cost-basedpricingisessentiallycomingupwithapriceforyourproductsbyaddingthecostofyourproducts(includingshippingcosts)andthemarginthatyouwanttomakefromeachproduct.  Ofcourse,you’llneedtofactorinthemarketingcostsintothesepricestoo,otherwiseyou’llrunthechancethatyoucouldmakesaleswithoutactuallymakinganyprofit. HowDoesCost-basedPricingWork? Whenyou’recreatingacost-basedpricingstrategyforyourbusiness,therearetwomainthingsthatyouneedtoworryabout. Thetotalcostthatyouincurwhenyou’remakingasale,andtheprofitmarginthatyouwanttomakepersale. So,let’suseanexampletoshowexactlyhowcost-basedpricingworks. Let’ssaythatyou’rerunninganonlinewomen’sclothingstore,andyou’resellingcroptops. You’redropshipping,soyouwon’tneedtoworryaboutproductioncosts,asyou’repurchasingyourproductsdirectlyfromyoursuppliereverytimeyoumakeasale. Itcostsyou$5tosourceyourproductsfromyoursupplier,and$2toshiptheproductstoyourcustomers.  Thattakesyouto$7intotal.  Thenyousetacostof$5moreperproductforFacebookadstodrawintraffictoyouronlinestoreandlandaconversion.  So,intotalyou’llspend$12tosourceaproduct,makeasale,andshipittoourcustomer.  Prettysimplesofar.Next,you’llneedtodecidetheamountofmoneythatyouwanttochargeperproducttocompletethiscost-basedpricingstrategy.  Youcouldtrysellingthecroptopsat$15each,oreven$20,andseeifyoucanlandthesales–you’dbeearningadecentprofitatbothofthoseprices.  AdvantagesofCost-basedPricingStrategies Honestly,cost-basedpricingisjustsosimple,whichiswhyit’sagoodoptionforbeginnerentrepreneurs. Youcancreateapricingstrategywithoutin-depthresearchintoyourcustomers,orthemarketyou’reoperatingin. Ifyoucanlandsaleswiththemarketingbudgetthatyou’veaffordedyourselfinyourpricingstrategy,you’llbeabletoresteasyknowingthateverysaleyoulandisbringinginprofit. And,ofcourse,youcanthenreinvestthatprofitintoyourmarketingcampaigns,andtrytobringinevenmoresales. DisadvantagesofCost-basedPricingStrategy Themainproblemwithcost-basedpricingstrategiesisthattheysimple aren’tcustomerfocussed. Instead,they’rebusinessfocussed. Youusethispricingstrategyandthinkabouthowmuchmoney you wanttomake,ratherthanhowmuchmoney yourcustomer wantstopay. It’salwaysimportanttothinkaboutyourcustomerswhenyou’rerunningabusiness,evenifyoudon’thaveanyrightnow. That’sbecauseyourcustomersarethefuelthatpowersyourbusiness.Withoutthem,yousimplycannotmoveforward. PricingStrategiesforEcommerce:Competition-basedPricing Competitor-basedpricingisanothercommonlyusedpricingstrategyforecommercebusinesses.  It’sapricingstrategythatismorecomplexthancost-basedpricing,butit’sstillaccessibleforentrepreneursofallexperiencelevels.  That’sbecauseacompetitor-basedpricingstrategy,asthenameimplies,focusesonresearchingthecompetitorsinyourniche. HowDoesCompetition-basedPricingWork? Whenyou’recreatingacompetition-basedpricingstrategyyou’llneedtoanalyzeotherbrandswhoaresellingproductssimilartoyours,andnotedownthepricesthattheyhavesetfortheirproducts. And,ofcourse,thatresearchwillspainthehigh-endboutiquesandthebudgetstores.  Why?Well,whenitcomestoresearchingcompetitorsyoureallywanttodoitright.  Youwanttogetastrongfeelingforwhat’shappeningatallrangesofthenicheyou’resellinginbeforeyoucanbeconfidentincreatingacompetitor-basedpricingstrategy.  Then,you’llusethatresearchtochoosethepricesforyourownproducts. And,ifyoudoyourresearchright,thispricingstrategycanbereallyeffective.  Now,you could justmanuallylookthroughyourcompetitor’swebsitesandchecktheirpricesonebyone. That’stotallyfine–you’llgetagoodunderstandingofthemarketthatyou’reoperatinginlikethis,evenifitdoestaketime. But,youcouldalsouseapricetrackingtool,whichwillcollectdataaboutyourcompetitor’spricesforyou,withoutthemanualwork.  Onceyou’vegotagoodideaofwhattheaveragepriceisfortheproductsinyourniche,compareitagainstthecostthatittakesyoutomakeasale,andthedifferencebetweenthosetwofiguresisyourwiggleroom. So,iftheaveragepriceforayogamatis$40,butitonlycostsyou$20tosourceandsellyourproduct,you’llbeabletopriceyourproductanywherefrom$20-$50. Notbad,huh? Pssst!Yogamatsareonourlistofthebestsportsproductstosellin2021.Wanttherestofthelist?Justclickhere.  AdvantagesofCompetition-basedPricingStrategies Competition-basedpricingstrategiesarefantasticformakingsurethatyou’resellingyourproductsaroundthemarketrate. It’sapricingstrategythatrequirestimeandefforttoimplement,butithelpsbusinesseslikeyourstocomeupwithpricesthatarefairtoyouandyourcustomers. DisadvantagesofCompetition-basedPricingStrategies Ifyouopttouseacompetition-basedpricingstrategyforyourbusiness,youneedtobecarefulthatyoudon’tentera“racetothebottom”. Thishappenswhennewbusinessesenteranicheandtrytopositiontheirbrandsasthelowestpricepoint. Whenmultiplebrandsaredoingthisatthesametime,they’reslashingtheirprofitmarginstoo,whichmeansthey’llneedtosellmoreproductstoearnthesameamountofprofitastheircompetitors. So,oneofthedropshippingtipsweoftengivetobeginnersistofindnewwaystoattractcustomersratherthanslashingprices,becauseofferingeverythingatalowpricecanhaveanegativeimpactonyourcompany’simage. PricingStrategiesforEcommerce:Value-basedPricing Okay–nextwe’regoingtotalkaboutvalue-basedpricingstrategies. Thisisperhapsthebestpricingstrategyforbusinesseswhoarelookingforalong-term,scalablesolutiontopricingtheirproducts. Andthat’sbecauseavalue-basedpricingstrategyrevolvesaroundfiguringoutthe value thatyou’reprovidingforyourcustomerswithyourproducts,andpricingthemaccordingly. HowDoesValue-basedPricingWork?  Tocreateavalue-basedpricingstrategywe’regoingtoneedtoblendelementsofthecost-basedpricingstrategyandthecompetition-basedpricingstrategy.  That’sbecauseweneedtofigureouthowmuch“value”webring,whichisprettyabstract. So,tostartoffweneedtofigureoutwhatour“baseline”is–thelowestpricethatwecansellourproductsat. Todothatweneedtonotedownhowmuchitcoststosourcetheproduct,howmuchshippingrates,andhowmuchyourprojectedmarketingcostsaretosellthatproduct. Addofofthosefigurestogetherandwe’lllandonourbaselineprice. Next,we’llneedtoleanintocompetition-basedpricingtactics,anddosomemarketresearch. Takethetimetoidentifyyourmaincompetitors,andtakesomenotesabouthowtheypricetheirproducts. Infact,makealistofallofthepricesthatyoufindforsimilarproductstoyours.  Thenwewanttofindthemedianpricethatyourcompetitorsaresellingtheirproductsfor. Todothat,it’ssupersimple.Justaddallofthepricestogether,anddividethatsumbythenumberofpricesthatyouwrotedown. So,ifyoucheck10competitors,andwrotedown20prices,you’daddthemallupanddivideby20.  Phew.Don’tworry,we’realmostthere. Okay,atthatpointyou’llhavetwofigures–yourbaseline,andyourcompetitionprice. Let’ssayyourbaselineis$20,andyourcompetitionpriceis$40,that’dmeanyoucanpriceyourproductsbetween$25-$40andknowthatyou’llbeabletomakeprofitregardless. Butdecidingwhereexactlyyouputyourpricesonthatscaleisbasedonthe value thatyoubringtoyourcustomers–yourUSPessentially. Itdoesn’tmatterit’syourbrand’smission,yourloyaltyprograms,orevenjustthehigh-qualitymaterialsinyourproducts. You’reprovidingvaluewithyourbusiness,sotakeactionanddecidewhereyourproductslandbetweenyourbaselineandcompetitionprice. Andonceyou’vedecidedthat,you’regoodtogo–you’llhaveaworkingpricingstrategy. Nottootough,right? AdvantagesofValue-basedPricingStrategies Avalue-basedpricingstrategyisfairtoboththebrand and thecustomer. Thiscanhelpyoutoimprovecustomerloyalty,andwhenyouconsiderthatittypicallycostsfivetimesmoretoacquirenewcustomersthanitdoestogetrepeatpurchasesfromexistingcustomers,that’spowerful. Buildingasuccessfulbrandrequirestrust,andoneofthefirststepstowardsbuildingtrustwithyourbuyersisofferingyourproductsatafairpricepoint.  DisadvantagesofValue-basedPricingStrategies Theonlyrealdownsidetovalue-basedpricingisthatsometimesitcanbedifficulttoputafigureto“value”. Ultimately,thevaluethatyouprovideisonlyworthasmuchaspeoplearewillingtopay. NailYourPricingStrategyToday Thinkingofstartinganonlinestore?TryShopify,themostpowerfulecommerceplatformoutthere StartaFreeTrialToday Great–nowyouknoweverythingyouneedtocreateanecommercepricingstrategyforyourbusinessandnailyourpricing. Rememberthough,pricingisfluid. Pricesconstantlychange,andyou’llneedtokeepontopofyourpricesasyou’rerunningyourbusiness. Youknowyourbusinessbest,sobefairwithyourpricing,andmakesurethatyougatherlearningsfromeverytimeyouchangethepriceofyourproducts.  Yourshoppersaresmart,somakesmartdecisionswithyourpricingstrategies. Okay–sothat’sitfromusonpricingstrategies.Isthereanythingelsethatyou’dliketoknowaboutpricingstrategiesorpricingyourproducts?Letusknowinthecommentsbelow–wereadthemall! WanttoLearnMore? 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