Each online store owner has to think about the pricing strategy. After all, price is one of your customers’ crucial elements when they’re deciding where to buy certain products. There are several pricing strategies you can choose from, but it shouldn’t be solely based on your opinion. Some research will be necessary. In this article, we are going to show you what you should take into account when devising your perfect eCommerce pricing strategy. Here we go!
In fact, deciding what your pricing strategy will be is the last stage of the process. There are several elements you have to consider along the way. These elements are:
- The products you offer
- Your target audience
After analyzing these three facets of running an eCommerce company, you’ll be on a straight course to adapting a strategy that will suit your business needs and ensure your profits.
Products you offer
The very first thing you have to analyze is your offer. Are your products available in many other stores? Or maybe you sell hand-made (or unique in some fashion) products that are available only in your store?
Let’s take an example of an online store offering household appliances. Your store can offer vacuum cleaners that are sold in a hundred other stores in your country, or you can be the only distributor of a specific brand for the entire country. So, although the product is the same in both of these situations, your pricing strategy will be completely different.
The next thing you should think of is your product type. If, for instance, you offer high-end, premium products, your prices will be different compared to mass products available in other stores. Generally speaking, customers are willing to pay more for premium goods, even if they are considerably more expensive than other, non-premium products.
At this point, it’s vital to mention the case of Apple. It doesn’t really matter if you are a fan of their products or not. The indisputable fact is their products are much more expensive than those offered by their Korean competitors. Are they worth the difference in price? That’s the question each customer has to answer themselves. The fact of the matter is simple–both Apple and Xiaomi manage to sell their products to thousands of customers worldwide. And that brings us to the second question.
Your target audience
You have to be aware of your target audience. Who are they? How much money do they make? What kinds of products and services do they purchase? What matters to them? What are their aspirations? Naturally, it’s impossible to get precise answers for each one of your potential customers. But, thankfully, there are tools that can help you answer these questions.
First of all, you should actively use Google Analytics. That’s a completely free tool provided by Google. Google Analytics helps you to measure the traffic on your website and describe the characteristics of people who visit your store.
When you know and understand your target audience, you can say how much they are willing to pay for your products.
Attract the right people
Let’s say that your situation is different. Your current target audience is not entirely satisfactory. Let’s say you want to start selling premium products in your store, but, until now, you’ve been offering just standard, mass products. Is there anything you can do about it? Thankfully, yes!
Currently, thanks to social media, you can attract people who meet very specified conditions. One of the best examples is Facebook and their Facebook Ads offer.
Thanks to FB Ads, you can decide who should see your ad based on their:
- Education, and many more elements
This means that you can target your ads to people who:
- Are parents-to-be
- Have recently been to the United States
- Work as CEOs
- Are interested in Swiss watches
- Live in Rome
- Have visited your website or are on your e-mail subscribers list
Actually, there are 1,300+ targeting options, 15 objectives to choose from, and six main ad formats available! This means that you can specify your target audience with amazing precision, and, as a result, present your offer to people who you want to attract to your store.
This is the last element you should bear in mind. If you sell mass products and your competitors sell exactly the same products, your prices just have to be competitive. Otherwise, your customers will go somewhere else where they can buy the same laptop 15% cheaper.
Now, how can you check your competitor’s prices? You can do that manually, but that’s time-consuming and ineffective. We advise you to use price comparison websites instead. Here’s a list for you:
There are many more websites like these, operating exclusively on a given market. For instance, in Poland, we have Nokaut.pl and Ceneo.pl. These websites offer price comparison only for Polish online stores.
If that’s not sufficient, there are many price monitoring tools available online. For instance, you can check:
With such support, you can verify your competitors’ prices and make well-informed decisions about your own prices.
6 ideas: pricing strategies
Market feedback is key aka dynamic pricing
Each time you change anything about your prices, you should monitor your customers’ behavior. How did they react? Do they buy more? Or maybe less? Constant market monitoring will help you assess if the previously introduced changes have improved your situation and sales or not.
You have to keep in mind that pricing strategy is by no means constant. And this is exactly what our recommended strategy called dynamic pricing is all about. Your prices should be able to increase or decrease at any given moment due to various reasons or changes in demand. As we told you in our previous blog posts, the market is a living thing, and you should constantly adjust your prices to your target audience’s needs and the general situation on the market.
By far, it’s the most popular pricing strategy. With this strategy, you calculate your prices by adding a fixed percentage margin to a product’s cost. Let’s say you sell snowboards, and your goal is a 30% profit margin for each sold snowboard. You take your distributor’s price and other additional expenses (operational costs, packaging, labor, time) calculated per one product and add your margin. It’s as simple as that!
The key to this strategy is to calculate your costs as accurately as possible. If you don’t, you can lose money on each product you sell!
We have already mentioned that strategy. Your goal is to monitor your competitors’ prices and sell the same products cheaper than them. However, keep in mind that in many instances, it’s a short-sighted strategy. Eventually, you’ll end up cutting prices below your profit and start losing money. You should be aware of this strategy but utilize it wisely.
This is a strategy commonly utilized by sellers and manufacturers of premium products. It’s based on assessing the maximum amount of money a customer is willing to pay for the product you offer. This strategy can also be combined with others. For instance, if you have both mass products and high-end products in your store, the value-based pricing probably won’t be applied to all your products, just the premium ones. The main drawback? It’s a bit like reading tea leaves–you can get it right, but on the other hand, it can be a complete failure.
In this strategy, a product’s initial price decreases over time. Price skimming is popular for products that quickly become outdated, such as tech products, home appliances, laptops, smartphones, but also seasonal products (like skis or bikes), etc. As newer products with more advanced technology become available, older models become significantly cheaper to purchase.
On the other hand, price skimming is not a very good strategy for companies that sell FMCG products. If your company sells cosmetics, food, beverages, or household chemicals, you should avoid this strategy due to the issue of a short shelf life.
And last but not least, there’s the…
Flat pricing strategy
This strategy is utilized by dollar stores, where products cost more or less the same amount of money. If your offer comprises products that have similar prices, why not unify them? It can be an interesting way to stand out from your competitors. The main upside–it’s the most straightforward strategy you can think of. Everything costs 2 USD. It’s brilliant in its simplicity!
Moreover, this doesn’t have to be your permanent strategy. You can organize a special promotion like a “2 USD day” and choose one date when everything in your store can be bought for just 2 dollars. Naturally, this strategy is rather for companies that sell cheap, mass products.
Lastly, a word of advice. One of several ways to decrease your prices is by reducing your costs. As it happens, at Omnipack, we are experts at reducing logistics costs! Find out how today and start making more money!