Have you priced your products right?
Finding the right price for products can be a challenge for most online businesses.
Even after you have considered a host of factors like its uniqueness, branding, product assortment and the target customer to arrive at the best possible pricing strategy for your offerings, you wonder…
Is this the right pricing strategy? How can one be sure? Is there a way to test the pricing strategy?
Lets understand what such testing means and how it can help your online business.
Aspects of Product Pricing
Price of the product is a reflection of a few factors.
Apart from the basic costs involved in making your product, you consider the prices of other similar products in the market, the affordability of the target customer and perhaps the expected demand of your offering to decide on the price to be charged.
How much control you have on the price you set, largely depends on the nature of your offering.
If your product is unique and one of a kind with very little competition, you could expect to charge some premium. However, for undifferentiated products, the pricing needs to be reasonable and competitive to capture consumer attention.
Price sensitivity of the product i.e. the relation between price and revenue must be considered too
Typically a price drop is expected to bring an increase in sales volume. But have you looked at the bottom line? Has revenue increased? Only then would any price drop be worthwhile!
It could be that although the price drop has seen a rise in sales, it has not been enough to result in revenue growth. In such a situation, the lowering of prices to push higher sales hardly makes any sense!
So how does one get to know this?
Simple; the way to go about understanding all such relationships is by turning to price analytics data for your online store.
Use Analytics To Understand
The best way of checking the accuracy of your pricing strategy is through pricing analytics tools. Apart from the popularly used Google Analytics, platforms like Shopmatic have built in analytical capabilities that can help in testing your pricing strategy.
Whether you are looking at the success of the promotional price of your newly introduced pack of organic walnuts or the attractiveness of offering a 25% discount on every purchase of over 1kg of mixed nuts at your online store- the analytics reports will be able to give you all the answers.
Data generated by such tools
- help analyse profitability of various price points, thereby showing up ways to maximize revenue.
- measure the exact impact of every change that you introduce to your pricing strategy,
- it also helps identify which of your customer segments value your offering and are most likely to respond to specific pricing strategies.
All future pricing decisions can then be made based on such data derived from the buying decisions of customers. This removes all elements of guesstimates about what should be the best price for your products and optimizes your pricing strategy for maximum revenue.
A/B or Split Price Testing?
Split Price testing is the process of offering the product to the customers at a couple of alternative prices while keeping a close watch on the resulting revenue that it generates. The higher priced product brings extra value than the lower priced product but is that what the customers want?
For example, your online store could be selling the bundle of a 250gms package of healthy nuts and 250gms seeds at an attractive price of $20 and also offering the 250gms nuts package alone for $14. The third alternative is a 500gms package of nuts at $25. Which one does the customer prefer?
The metric to look out for is Revenue. This helps to understand the price sensitivity of the customers and also identify the products that give the highest profit margin. Such data is critical as you can then offer the product at a price that the customers are willing to pay and work towards maximizing revenue.
Why is Price Testing helpful?
Depending on the price sensitivity of your product, every small change in your pricing (increase or decrease) can have a significant impact on your revenue and hence testing your pricing strategy will allow you to realise your business to reach its full revenue potential.
If your business offers tiered pricing (products/ services at different price points by limiting or expanding features / functionalities corresponding to each tier price), split testing can identify the best margin yielding products which can then be marketed to improve revenue growth.
Understanding your customer’s behaviour is precious data and a key to planning and improving your business’s future performance. Such analysis can at times reveal the obvious that you might have overlooked or even provide insights on what is not working right and thus not worth wasting resources upon.
Should you do Price Testing?
Despite all its benefits, price testing can sometimes be tricky and a bit of a double edged sword.
While testing offers you some good insights on what the customer prefers to pay for, it might end up antagonizing some clients when they come to know that they have been made to pay more for a product than others. Such dissatisfaction can be damaging for your reputation and lead to your losing them as a customer.
The statistical accuracy of A/B testing depends on large sample sizes which can sometimes be a difficult prospect for small businesses. Also, looking at the prices of a product in isolation may provide misleading results as there may be other factors like the change in the pricing of similar products by competitors or even your own marketing efforts that could have influenced the outcome.
Look for working solutions
One way out can be to widen the testing and look at pricing strategies for similar groups of products rather than each one individually. Having an objective view on the value proposition that your product brings to the customer along with some feedback from buyers of the product in the form of surveys also helps. Make an attempt to understand the customer’s willingness to pay or reflect on why a sale didnt happen. This can provide some valuable pointers on the accuracy of your pricing strategy.
Pricing your products right is important. Stay committed to building the best practices for setting your pricing strategy and don’t be afraid to review them as you go along.
“Expect change. Analyze the landscape. Take the opportunities. Stop being the chess piece; become the player. It’s your move.” – Tony Robbins
Get free online marketing tips and resources delivered directly to your inbox.
