Pricing items online is a daunting task, as well as online price tracking.
It is a trial and error experiment as you don’t know a priori the prices that will be more attractive to your potential customers.
That is why, we wanted to help by clearly identifying essential & common pricing strategies that will help you make more sales and enable you to beat your competitors.
Here are 11 e-commerce pricing strategies examples to help you in that process!
1 • TARGET RETURN PRICING: SET THE PRICE THAT WILL HELP YOU ACHIEVE YOUR ROI
All companies shall determine the price of their products based on the expected rate of return of their venture.
All business school students know break-even margins, profit margins equations. An equation is used to set the price of a product that will yield a certain profit if a given quantity of the product is sold. A company can establish a price where a given benefit will be realized when a certain level of sales is achieved.
Under this strategy the manufacturer is supposed to review various scenarios and guess the impact it would have on sales volumes and profits. Grainger is a B2B E-Commerce site that uses this strategy to sell its products.
2 • PSYCHOLOGICAL PRICING: TRY TO MAKE YOUR PRICES EMOTIONALLY APPEALING
Psychological pricing is also known as charm pricing.
It is one of the oldest pricing methods, relying on a theory that some prices have psychological influence. Prices are indicated as odd prices. It involves pricing slightly below a round number. For instance, you may price a product at $2.99 instead of $3. Many will buy the former. You can check our full article about Psychological Pricing Tricks.
This strategy is driven by the client’s emotional response. This pricing makes a customer buy something believing it is cheaper, although it is not. It is one of the most widely used techniques. For instance, Apple products are priced using the “$999” model.
3 • COMPETITIVE PRICING: SET YOUR PRICE BASED ON YOUR COMPETITION
Competitive pricing means using your competitors’ prices to set your own.This method is common for companies selling identical products or close substitutes that have the same level of satisfaction. It is also common for goods that have been in the market for a long time, leading to the entrance of many competitors.
This pricing can be used to sell hardware at a loss if you know the software will sell at a higher price resulting in overall profit. CDW Corporation uses this pricing strategy to sell technology products and solutions and services to various businesses.
In an online world where visitors compare A LOT before purchasing, competitive pricing has turned out to be crucial for e-merchants.
If you need help monitoring your competitors’ price, do not hesitate to contact us to get a quotation: WorkIT Software helps +180 e-commerce customers (brands or distributors) tracking their competition price.
4 • VALUE-BASED PRICING : SET YOUR PRICE BASED ON THE VALUE YOU BRING TO THE TAPE
Value-based pricing is based on the estimated value of a product to the customer, instead of the cost or historical price. Value-based pricing means setting a price that most consumers are willing to buy at.
This pricing method is ideal for companies producing goods with unique features to meet customers’ expectation. Also companies in the brand-conscious segment such as Under Armour use this strategy. Their customers buy their products at higher prices because of the integrity and brand of the product, which they feel they will be unable to find anywhere else.
5 • RELATIVE PRICING: SET YOUR PRICE TO MAKE YOUR PRODUCT PART OF A CERTAIN CATEGORY
Relative pricing involves pricing a product regarding another. It is an opportunity cost. An increase in the price of a given product without a corresponding increase in the price of other commodities is an indicator of the relative price increase. It is not recommended to charge low prices.
Many companies try to copy others when setting and changing their prices. When you price above the level of your rivals, customers will link it with luxury, quality, and prestige. Apple uses this strategy when pricing their products. Their products are more expensive than others, and their clients associate that with quality.
6 • COST-PLUS PRICING
It is also called Keystone or mark-up pricing. It includes the calculation of the cost of a product and adding a mark-up. This technique sets a price that is higher than the cost of production and gives a certain level of profit for a company to reach a given rate of return.
Higher mark-up price is recommended for online businesses facing a slow rate of turnover, have significant shipping and handling costs, and have scarce products. This strategy ensures you are always making a profit. McMaster-Carr uses this approach to supply industrial and commercial products worldwide.
7 • THE POWER OF NINE
A study was done to test the power of 9. An item was selected and tested at three different price levels, $34, $39 and $44. The one selling at $39 made more sales than even the one that was selling at $34. Even when included at discounted prices, the number 9 outperforms others.
Many online companies use this number in their prices. This has helped them make more sales than when they would have used other numbers. This technique is more efficient in price-conscious markets than in other markets.
8 • CONTEXTUAL PRICING
Under this technique, the seller changes the price depending on specific factors within its environment.
The demand for particular products changes depending on the time of the year. Also, product demand and price is affected by other products offered at that place.
Under this strategy, the price of a product is affected by other factors and not the product alone. In e-commerce, an update on the website and branding may make your products appear more elegant and luxurious hence justifying a price increase. For instance, during Valentine or Black Friday, pricing evolve a lot.
9 • LOSS-LEADING PRICING
Loss-leading pricing involves selling particular products below their cost to attract more buyers who later buy the most valuable goods. Price is an important determinant of demand. Low prices lead to high demand for a product. This technique aims at creating new visitors to an online website. It can be done by giving free products to induce subscription.
This pricing is ideal for firms that want to penetrate a given market, to introduce new products or to dispose of the old stock. It enables new businesses to get new customers for their products. Amazon has successfully used this strategy to grow. The 2014 Fortune 500 list ranked Amazon number 35.
10 • DYNAMIC PRICING
It is also referred to as real-time pricing and involves setting prices that are highly flexible. This strategy aims at allowing price changes over the internet depending on market demand. This pricing method uses bots to change prices depending on the business rules. Bots are software agents who collect data to adjust the price of a product correctly.
This pricing is the best one to ensure profitability. Out-of-stock situations are the best times to raise prices as customers are looking for these products on various websites. During festive seasons, e-commerce sales depend on this strategy to make simultaneous pricing decisions.
11 • ANCHOR PRICING
Under this pricing method, decisions are based on the first piece of information that a customer is offered. The price of one product is contrasted with that of another product. Studies have shown that the clients are affected by the price of other close items when valuing a given product.
Anchor pricing allows sellers to place premium products near standard ones helping customers see the difference. This strategy is ideal when introducing a new product. Aweber uses this technique in assisting their clients in choosing their preferred advanced pricing plan.
CONCLUSION: TEST, LEARN AND BEAT YOUR COMPETITION
To be successful in e-commerce, you need to regularly monitor market conditions and carry out the necessary changes to remain competitive. Each pricing strategy has its strengths and weaknesses, and you might need to test a few different ones to find the best strategy which will fit your business.