Pricing Strategy: The Ultimate Guide to E-commerce Pricing

Commonly pursued pricing strategies include Price Skimming, Penetration Pricing, Cost-Plus Pricing, Value-Based Pricing, and Competitive Pricing ... SolutionsPriceCheckingDynamicPricingMAPMonitoringPriceMatchingPriceManagementPriceScrapingPriceWatcherRepricingEcommercePricingCompetitiveIntelligenceAssortmentAnalysisDigitalShelfManagementFeaturesIntegrationsShopifyMagento2Magento1OtherPlatformsviaAPIPartnersResourcesBlogCaseStudiesEbooks2021EcommerceEventsPricingAcademyHelpCenterTestimonialsUltimateE-CommerceGuidePricing STARTATRIAL Login Reading: PricingStrategy:TheUltimateGuidetoE-commercePricing Sharethis: Twittericon Facebookicon LinkedInicon HomePrisync|BlogPricingStrategy:TheUltimateGuidetoE-commercePricing PricingStrategy:TheUltimateGuidetoE-commercePricing by BurcTanir July19,2018 Tableofcontents Cost-basedpricingMarket-basedpricingDynamicpricingConsumer-basedpricingBundlepricingPenetrationpricingPricediscriminationLossleaderpricingPriceskimmingBuildyourownstrategyFrequentlyaskedquestions Rememberthelasttimeyouvisitedyourfavoriteshop?Let’srelivethosemomentstogetherandseehowyoucanrelatethatwithe-commercepricing. Yougointoyourfavoritestore,gazingthroughthestallsbriefly,touchingacoupleoftheitemsforthefeelandtexture.Suddenly,youfindyourperfectmatch,grabitandputitoveryourbodytoseeifitreallylooksgreatonyou.Youlovetheitemandtheonlythingstandingbetweenyouandthet-shirtisthepricetag.Youfindit,flipit,andcheckhowmuchtheitemisworth. Yikes! Itcostsalot.It’snotabargain,soyougiveupandleavetheshopfeelingblue. Soundslikeancienthistory,right? TodaywefollowourfavoritebrandsonInstagram,seteyesonaproductandlocatewhereit’ssoldinseconds. Andwehavetoomanyoptions.Optionsthatsellidenticalproductsatdifferentprices. Google’sconsumerbarometerbelowshowshowmuchtimeisspentonaproductbeforeapurchasingdecisionismade. Asyoucanseeonly21%starttheirresearchmomentsbeforeapurchase.Thereststartsfromhourstomorethanmonths! Sohowmanyproductsandpricesyouthinkaconsumerseesbeforelandingonyourwebsiteandbuyingsomething?Hundredstothousands. Toemphasizethatevenfurther,let’slookatsomestats: Themostimportantstorefeaturesdrivingthepurchasingdecision(80%)iscompetitivepricing.Around%90ofe-commerceshoppersaremastersofhuntingdeals.Thankstotechnologyandcomparisonshoppingenginesconsumersgetalertsinmultipleitemsfrommultiplestores.Pricecomparisonenginesareakeypartofthee-commercemarketingstack,astheyconstitutearound%20ofe-commercetrafficforallsortsofproductcategories. Don’tgetscaredbythesenumbers.Hereliesagreatopportunityforgainingadvantageandchangingthedirectionthewindblows. Yousee,e-commercepricingcanactasahigh-trafficmarketingtoolandcaninfluencebothcomparisonenginesandconversionrates. We’retakingaholisticapproachtopricingstrategies,sogetreadytolearneachandeverypricingstrategythatmightthegame-changeryou’vebeenlookingfor. Cost-basedpricing Thismethodrequiresthecompanytowritedownitsunitproductcostsforeachofitsproductsinitsportfolio,andthensetatargetprofitmarginforeachofthoseproducts.Theformulaisbelow: Somecommoncostsmoste-commercebusinesseshaveare: YourdomainYourwebsitehostingYourrent(ifyouhaveanofficespace)SourcingproductsStoringyourproductsinawarehousePlatformfeesShippingReturnsandrefundsBankandprocessingfeesSoftwareSalariesMarketingbudget Itmaybetooobviousbutit’sreallyshockingtoseehowsomanye-commercecompanieslosetrackoftheirunitcostsandfailtoevenapplythisstrategy. Let’stakealookatthesecondpartoftheequation,wheremostofusgetgreedy,thetargetprofitmargin. Thecrucialtaskiscomingupwiththerightprofitmarginthatwillmaximizetheprofitswithoutscaringoffthecustomers. Thereare2risksthatcomewiththisapproach. PricingtoocheapwhichwillundervalueyourproductsPricingtooexpensiveandlosingcompetitiveness Thereasonwhyitcarriessuchgruesomerisksisthatitignorestwomajorfactorsthatplayanimportantroleintheprice/demandrelationship: CompetitorpricesConsumers’willingnesstopay Forexample,whenyou’resellingadiamondneckless,youknowthatthebuyersdon’tcareaboutlowprices.So,afatterprofitmargincouldstillholdvalid. However,thesameapproachwouldyieldzerosalesintheconsumerelectronicsindustry,wherethecompetitionisharshandtheproductsareidentical.There,theprofitmarginsaretotallyslim,andtheplayerswithrelativelyexpensivepricesdonothavemuchofachanceinthemarket. Ratherthanpursuingacost-basedapproachtopricing,youmustmakesurethatyourcostsarecalculatedineverypricingstrategyyoupursue. Market-basedpricing Ifyou’renotthesingleplayerinthemarketyoudefinitelyneedtobeawareofyourcompetitors.Therearetonsofactivee-commercecompaniesintheindustry,around860,000tobeexact.Aspartofthishugejungle,eachcompanydirectlycompeteswithatleast15-20businesses. That’swhyonlineretailerscan’tignorethemarketcompetition.Aswementionedabove,consumerscareheavilyaboutthepriceandtheycomparepriceswithallthetime. Pursuingacompetitivepricingstrategydoesn’tmeanundercuttingyourcompetitorsandloweringyourpricesuntilyourmarginsarepaper-thin.Itcarriestheriskofracingtothebottomwhichisbeneficialtonoone. Themajorandoftenneglectedbenefitofmarket-orientedpricingwithsolidcompetitivepricingintelligenceisthatitsometimesgrantscompaniesexceptionalpriceincreaseopportunities,whereyoucanincreaseprofitswhilestillholdingacompetitiveedge. Let’stakealookatthisexample.Below,therearethreeretailerssellingthesameLECREUSET27cmSignatureOvalCasserole,MarseilleBlue. Thefirstoneisthemostcompetitive,sellingat£171.08. Thesecondandthethirdonessellthesameitemat£210.00. Inthisscenario,thefirstretailercoulddetectthatopportunitythroughacompetitorpricemonitoringsoftwareandraisethepricejustbelowitscompetitors.Theywouldincreaseprofitmarginsandstillbethemostcompetitiveinthemarket. Dynamicpricing Dynamicpricingisaveryprofitablee-commercepricingstrategyinwhichmarketerssetflexiblepricesbytakingintoaccountcosts,targetedprofitmargins,thedemandofthemarketandyourcompetitors’prices. Inotherwords,itallowsyoutosettheoptimalpricesattherighttimeinresponsetoreal-timedemandandcompetitionstatuswhiletakingintoaccountyourbusinessgoals. Market-orientedpricingcanbeputonauto-pilotwithadynamicpricingengine. Havingtonsofdataisgreat.But,thecrucialthingistoconvertdataintoactionableinsights. Fortunately,thedynamicpricingandrepricingsoftwarecollectscompetitorpricesandadjustsyourpricesimmediatelyagainstanychanges.Then,thetechnologyletsyoutestdifferentpricepointsthroughrepricingrulesthathelpyoupositionyourbusinesswhereveryouwant. Ifyourbusinessstrategyisfocusedonsellinginhighvolumesatcheapprices,thenthesoftwaredoesit.Youcansetruleslike: MypriceshouldbethecheapestinthemarketMypriceshouldbe5%higherthanthemarketaverageMypriceshouldbe$50lowerthanmycheapestcompetitor Therepricingengineworksalldayandyourpriceswillbechangedaccordingtothefluctuationsinthemarketand,ofcourse,basedontherulesthatyou’veset.Asyou’reabletoreacttoeverysinglemoveinthemarket,yourpriceswillalwaysstaycompetitiveoroptimized. Withthemixofcompetitiveintelligenceandrepricingability,yourbusinesscangainacompetitiveedgeinthemarket. Consumer-basedpricing Ineveryaspectofe-commerce,customer-centricityshouldcomebeforeanythingelse. Whenpricingyourproducts,youmustbeabletoanswertwoquestions: Whoaremycustomers? WhatvaluedoIbringtomycustomers? Theanswertobothofthesequestionswillactuallybringasolidself-awarenessforthee-commercecompany. Youmustsegmentyouraudience.Definewho’slikelytobuyyourproducts,dividethemintogroupstotargeteachofthemwiththerightproductsandprices.Usereal-timedataandpurchasinghistorytoaccuratelyidentifycustomersegments. Afteryoufinishsegmenting,learntheirwillingnesstopay(WTP)foryourproducts.YoucanconductaWTPresearchyourself,orgethelpfromprofessionals. Bundlepricing Productbundlingisfairlysimple.Yousellarangeofproductstogetherforadiscountedprice. Forexample,manyproductsrequireaccessories.Somearemandatory(likealenscaponacamerathatusuallycomeswiththecamera),butsomearehighlydesired,butoptional,likeatripodforacamera. Bundlingproductsofasimilarnatureisagreatwaytoincreaseyouraverageordervaluebecausecustomersarelikelytobelookingforsimilarthings.SomeonebuyingaDSLRcameraislikelytobeinterestedinadifferentlensoratripod. Penetrationpricing Penetrationpricingisamarketingstrategywhereabusinessentersanewproductmarketwithbelow-averageprices. Businessesalsousethisstrategywhenthey’rehighlightinganewproductorservice. Itworksinasimpleway,wheretheysettheirpriceslowerthancompetitorstolurecustomersfromcompetitorsintotheirstores. Pricediscrimination Pricediscriminationisatailoredapproachtoe-commercepricingwhereanidenticalitemissoldatdifferentpricestodifferentbuyers.Itworksonthreelevels: Firstdegree:Consumersarechargedthemaximumthey’dbewillingtopayforanygivenproduct.Forexample,auctionorbiddingsites,whereonecustomermightpaylotsmoreforasimilaritem,basedonwhatthey’rewillingtopay.Seconddegree:Consumerscanchoosetheirpricediscrimination.Forexample,theymightbeofferedalowerpriceiftheybuyaproductinahigherquantity.Thirddegree:Productsarepriceddifferentlybasedoncustomersegments. Inessence,itinvolvestakingpastandreal-timecustomerdata,segmentcustomersbasedonthatdataandthengeneratepricesspecifictoeachsegment. Lossleaderpricing Lossleaderpricingstrategyinvolvessettingafewproductstobesoldatalowerprice–apricethatactuallyputsyouataloss–inordertogetyourcustomersthroughthedoor(oronyourwebsite). Lossleadershopethatoncecustomersareonthewebsite,they’remorelikelytobuyyourother(normallypriceditems). Anelectrictoothbrushisagreatexampleofaloss-leaderproduct.Thiselectrictoothbrushcosts£99. Althoughwedonotknowthemanufacturingcosts,wecanassumethattheymakemostoftheirprofitsonthereplaceabletoothbrushheads. Whenyouthinkaboutanelectrictoothbrush,youdon’ttendtobuythemoften.Andsobrandscanaffordtosellthematalossbecausetheyknowthey’lleasilyrecouptheirlostprofitcostsformtheaccessorieswhichneedtobechangedmuchmoreregularlyfororalhygiene. Soifyouwanttoimplementalossleaderstrategybutyouareworried,considerwhetheryouhaveanyadd-onproductswherepeoplewouldneedtocomebacktoyourstoretomakeasupplementarypurchase. Priceskimming Initssimplestterms,e-commercepriceskimmingistheartofsettinghighpricesforyourproductsduringanintroductoryphase.Whatthismeansisthatbusinessesareabletoleveragethe“newness”oftheirproductandmaximizetheirprofitsfromtheget-go. Whatyouneedtorememberaboutpriceskimmingisthereareconsumersouttherewhowanttobethefirstonestogetholdofaproduct.Theylikethefeelingofexclusivity. Ifyouwanttoimplementpriceskimming,usephrasessuchas“exclusiveoffer”or“limitedavailability”,“bethefirsttogetyourhandson”withinyourmarketingcopytomakesureyouhighlighttheurgencyofthecall. Appleisoneofthebestexamplesofpriceskimming.Duringtherun-uptoanewiPhonerelease,therearerumorsbeforetheannouncementevenhappens. Onceit’stimefortheactualannouncementtherehasalreadybeenenoughexcitementdrummedupthatincreasesthebuyer’sappetiteforapurchase. Youhaveseenthenews,wherewannabeiPhoneownerswouldcampoutsidethestoretobeonethefirsttogettheirhandsonthenewestmodel.Otherswouldpre-payfortheirmodelweeksbeforetheyevengetthephone. Buildyourownstrategy Pricingfailswhenit’stakenasadulltaskwithinane-commercecompany.Whentakenseriouslyandhandledinsmartways,itturnsintoasecretandveryeffectivemarketingtool. Theapproachesthatwesharedherearenotnecessarilymutuallyexclusive.Inotherwords,youdon’thavetochooseoneandforgettheothers.Contrarily,likemostofthemarketingandgrowthstrategies,theyworkbestwhenintegratedintoamixedstrategy. Defineyourbusinessobjectives,needs,andinterests.Then,decidewhichofthestrategiesabovewouldworkwellwithyourobjectives.Combinethemintoauniquepricingstrategythat’llcorrespondtoyourneeds. Finally,pricingisnotastatictask,anditrequiresanongoingefforttooptimizeandfine-tuneitasyoure-commercecompanygrows.Likeanyothere-commerceoperationthatyouneedtorun,therewillalwaysberoomforimprovementandit’snotgoingtobeaneasytask.But,fortunately,youhavequiteenthusiasticfolkslikeusthatlookforwardtohelpingyouout! FrequentlyAskedQuestions Howdoyoupriceyourproductsonline?Basedonyourbusinessgoals,long-termgrowthplan,andproduct-specificsalesstrategy,youcanchoosefromorcombineseveralstrategiesincludingPriceSkimming,PenetrationPricing,Cost-PlusPricing,DynamicPricing,Basket-BasedPricing,BundlePricingetc.Whatarethe5pricingstrategies?CommonlypursuedpricingstrategiesincludePriceSkimming,PenetrationPricing,Cost-PlusPricing,Value-BasedPricing,andCompetitivePricing.Beforedecidingononeorseveral,determinewhichonesfityourbusinessstrategyandanswersyourneeds.Howdoyouapplycost-basedpricing?Youcancalculatethepriceforaproductbyusingtheformulabelow.Price=(MaterialCost+LaborCost+OverheadCosts)x(1+Markup)*Determinethemarkupyourself.Althoughwidelyused,Cost-PlusPricingdoesn’tfitthee-commercebusinessenvironmentsinceitignorescompetitorprices. pricingstrategies Sharethis: Twittericon Facebookicon LinkedInicon 0Comments LeaveaReplyCancelreply Savemyname,email,andwebsiteinthisbrowserforthenexttimeIcomment. 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