It is not just about lowering your prices. No.
In fact, if you start playing the ‘I’m lower priced than you’ game, you are in real danger of losing sight of your margins and bottom line goals.
And it’s not just about a cost based pricing either. Afterall, if there is more revenue to be made, why wouldn’t you like to make it?
So what then, is the best way to price your product or services for your online business? Should this be approached differently from that of an offline business with a physical presence?
As with many things in the world of ecommerce, one size does not fit all. Your strategy for pricing your products and services for online sale will be unique to you.
The balancing act
Pricing is central to your business as an online retailer, and deserves time and a strategic approach. Ecommerce is increasingly popular and one of the big reasons is that customers compare prices easily and readily.
However, if you only focus on a ‘lower price’ approach, you risk undervaluing your products. And at the same time, if you are too high priced, you risk losing a competitive edge.
Price comparison engines can provide results and alerts from multiple stores to browsing or researching consumers.
The relationship between your price and the demand of your products or services has to be balanced such that the consumer is willing to pay to buy from your online store even though they have spent hours researching other online stores and have found a variety of prices offered.
Factors to incorporate:
Match your brand expectations
The most obvious thing your pricing strategy needs to deliver is that your products and services should match what is expected of your brand. The perception of your brand value is determined not only by what you sell, but also by the experience you offer on your store, and the story you build around your business through your communication.
Get to know your customer very well
Research, research, research. Your customer is central to your plan. So you should get genuinely familiar with who your customers are, and what is the value you bring to them.
Segment your audience if you have multiple products or services to offer.
All your products or services should be valuable to your target audience. That is the only reason they will buy.
The importance of this exercise cannot be stressed enough. Once you are clear about the value your products bring, you will be able to use this not just in your pricing strategy, but also in your communication and messaging. So write down your answer for this one.
Research the competition thoroughly
Whether or not you are operating in a market with plenty of competition, it goes without saying that you must research and look through the competition before deciding on your own pricing.
Approaches to consider:
Skimming the price
This is a carefully devised approach that takes advantage of introducing a new product or service to price it higher than what it will retail at later.
The draw is the newness and exclusivity of the product during the introductory launch phase, and playing on the customer’s desire to own something before it becomes too common (iphone launches for example).
Bundling the products
Volume discounts, value bundles, incentivising add-ons and offering higher priced complementary products at attractive bundled rates, can all work to entice your customer. This is especially true if you don’t want to be in the ‘lower price’ game, yet still need to attract the well researched customer.
Create a ‘basket’
If you have the flexibility of doing so, then consider setting your primary or core product at a lower price and marking the necessary attachments or accompaniments required at higher prices. Especially if they need to be bought more regularly, this approach works very well over the long term. (for example printers and ink)
How often have you been attracted by phrases like “limited availability”, “exclusive offer”, “be the first to get your hands on”? Use these to draw the attention of your customers too. When writing copy for offers etc, incorporate these and then proceed to provide the details in a realistic and simple manner. Remember – the goal is to make your customer buy from you; not to confuse them!
Use charming psychological pricing
A simple search will tell you the charming effect of prices that end in the number 9 on customers. This is one of the ways you can leverage how the customer brain works to price your goods.
Customers will compare prices between websites and also within your own store and products too. Review your home page to incorporate strategies that work for your brand. Like for instance displaying expensive and comparatively cheaper priced goods side by side increases the chances of the customer buying the cheaper goods. (original price and sale price). Or offer products tiered by relative pricing in your store like ‘added value’ added features’ etc.
Communicate the emotional component of your product or service
A story can make your brand more personal and relatable. So get a feel for this and communicate your unique story through your ‘about us’, blogs, the design of your website, and social media updates. This will give you some room to create your own price points in the market.
Successful pricing strategies in e-commerce work best when integrated with a digital marketing strategy.
Test your pricing
Is your online price strategy right? Test it!
Use the analytics tool of your platform to evaluate the performance of your bundle, value basket, introductory offer, or any other strategy you have used. Measure and test the success of every change you make so you know the best way forward.
Your online store has a unique brand, product assortment, target customer, and perhaps even geographical focus.
This gives you the opportunity to choose a pricing strategy that works for your business even if it doesn’t work the same for another. So use price intelligence to protect margins and increase sales confidently!