Pricing for eCommerce
Selecting the right pricing strategy is key to eCommerce success, and store owners will need to run a few tests before finalizing which pricing method to adopt. When it comes to eCommerce pricing, you need to analyze what appeals to your target audience and offer pricing that fits their needs (and your business goals, too).
Here’s a look at the eCommerce pricing strategies you could adopt:
Cost-based pricing
In this method, the business writes down its unit product costs for each product in the portfolio. Then, it sets a target profit margin for each product.
Some common costs in the eCommerce business are:
- Domain price
- Website hosting
- Rent for office
- Sourcing products
- Storing products in a warehouse
- Platform fee
- Shipping cost
- Returns
- Marketing
- Salaries
- Software
It looks too obvious, but most eCommerce companies still lose track of their unit costs and do not apply this basic strategy. Let’s look at the target profit margin. The main task is to come up with the right profit margin that helps you maximize the profits and does not scare away customers.
Two risks come with this approach:
- Undervaluing the product by pricing it too cheap
- Losing competitiveness by pricing too high
The reason why risks multiply is that it ignores two main factors which play an important role in the price/demand scenario:
- Competitor prices
- Customer agrees to pay or not
For example, if you sell diamond necklaces, you will not worry about costs because the customer is willing to pay the price. However, the same approach in the electronics industry for consumers where competition is so harsh, and all products are identical. The profit margins are very slim, and players with high prices do not have much of a chance.
Market-based pricing
If you are not the only player in the market, you need to be aware of competitors. There are so many active eCommerce companies in the market, so you end up competing with 15-20 companies. So you cannot ignore the competition and look at the customers who only care about prices. The neglected benefit of this type of pricing is that it grants you price increase opportunities, increasing profits while getting a competitive edge.
Dynamic pricing
It is a very profitable eCommerce pricing strategy where marketers set flexible prices after considering account costs, targeted profit margins, market demand, and competitor prices. In other words, it allows you to set optimal prices at the right time to cater to real-time demand. You can put market-oriented pricing on autopilot with dynamic pricing. It is great to have tons of data, but this data should be useful as actionable insights. Dynamic pricing and repricing software take competitor prices and adjust your prices immediately against the changes. You can test different rules with this strategy to position the business however you want.
Consumer-based pricing
Consumer centricity is above anything else in eCommerce. You must be able to answer two questions when pricing products:
- Who is my customer?
- Do I bring value to my customer?
The answer will bring self-awareness to the company. You should segment your audience and define who will interact with your products in which way. Use real-time data and history to define these customer segments and create an effective pricing strategy for your business.
Bundle pricing
It is very simple to apply bundle pricing to your products. You sell a range of products for a discounted price. For example, many products require accessories, such as a camera requiring a camera bag, a tripod, and more. You will bundle similar products and sell them for a discounted price. Bundling increases your average order value and helps customers find similar things.
Penetration pricing
Penetration pricing is a strategy where an eCommerce business enters a new product into the market at low prices. Businesses also use this strategy with a new product or service. The secret is just to lower your prices from the competitor and steal the show.