It takes time to get to the “right” price for your products. And this is true regardless of your level of experience as an entrepreneur.
However, if this is your first time running an online business, finding the right pricing strategy is particularly complicated.
That’s exactly why we created this post. We will dive into the most popular pricing strategies used by ecommerce, and analyze which might be best for your business and what pricing methods you have available, from market skimming, competitor-based pricing or value.
At the end of this post you will know everything you need to implement winning pricing strategies.
What are pricing strategies?
In essence, a pricing strategy is a set of rules or methods that companies can use to determine the price of their products and services.
Don’t be fooled though, pricing strategies are marketing tactics, and setting the right prices for your products and services is one of the best ways to improve your conversion rate.
Running an online business without a pricing strategy is a pointless business. You need to have pricing strategies in place when running an online business, so that you can make sure that the price of the products is not too high, or worse, too low.
Price of skimming: definition
By researching pricing methods and product pricing strategies, you will surely have heard of market skimming and price skimming. But what does market skimming mean?
Skimming the market is one of the most used pricing strategies. According to this pricing strategy, the company applies a particularly high price to the launch of a new product, to maximize profits and target the so-called “early adopters”. After an initial period of high price, the price is gradually reduced to target different types of customers and market niches.
How to choose the price of a product: price based on cost
Cost-based pricing strategy is another of the more common pricing strategies.
In fact, let’s start with this pricing strategy because it is undoubtedly the simplest.
How does cost-based pricing work?
It essentially consists of working out a price for your products by adding the cost of the products (including shipping costs) and the profit you want.
Of course, you will have to consider the marketing costs as well, otherwise you risk making sales without making any profit.
When creating cost-based pricing strategies for your business, there are two main things you need to take into account.
The total cost you incur when making a sale and the profit margin you want to make for each sale.
So, let’s use an example to show exactly how this pricing strategy works.
Let’s say you are running an online women’s clothing store and are selling the clothing items.
Disadvantages of the cost-based pricing strategy
There is also a disadvantage to calculating the selling price with mark-up based on the cost.
Instead, they are focused on business.
If you use this strategy for determining the sale price, you are thinking about how much money you want to make , not how much the customer wants to pay.
It’s always important to think about your mlm mailing leads customers when running a business, even if you don’t have any at the moment.
This is because customers are the fuel that powers your business. Without them, you simply cannot move forward.
How to calculate the selling price based on competitors
Competitor-based pricing strategies are another of the pricing methods for ecommerce.
It is a more complex pricing strategy than a cost-based one, but it is still accessible to entrepreneurs of all experience levels.
This is because competition-based pricing strategies, as the name suggests, focus on finding competitors in your niche .
How to calculate the selling price based on competitors?
When creating a competitive pricing strategy, you need to analyze other brands in your niche and take note of the prices they have set.
And, of course, this research will extend to both high-end boutiques and cheaper stores.
Because? Well, when it comes to doing competitor research, you really want to do things right.
The goal of your research must be to understand well the price trend in all bands of your niche, in order to be sure and understand how to calculate the selling price of your products. best database provider
In this way you can use this search to calculate the selling price of your products. When done right, this is one of the most effective pricing strategies.
Now, you could just look at your competitors’ websites and check their prices one by one.
Advantages of competitor-based pricing strategy
Competitor-based pricing strategies are great for making sure you are selling your products at market prices.
It’s a pricing strategy that takes time and effort to implement, but it helps companies like yours find prices that are reasonable for both you and your customers.
Disadvantages of competitor-based pricing strategy
If you choose to use one of the competitor-based pricing strategies, you need to be careful not to participate in a ” race to the bottom “.
This happens when new businesses enter a niche and try to position their brand as the one with the lowest price.
When multiple brands do this at the same time, they also reduce their profit margins, which means they will have to sell more products to make the same profit as their competitors.
Pricing strategy based on value
Okay, now we’re going to talk about value-based pricing strategies.
This is perhaps the best pricing strategy for companies looking to figure out how to calculate the selling price of a product for the long term.
And that’s because value-based pricing strategies revolve around the value you provide to customers with your products, and set your price accordingly.
How do you calculate the selling price based on the value?
A value-based strategy blends the elements of the cost-based pricing strategy with those of the competitor-based pricing strategy.
This is because we need to understand how much “value” we bring, which is a rather abstract concept.
So, to get started, we need to understand what our “baseline” is, which is the lowest price at which we can sell our products.
If you add these figures together, you will arrive at the base price.
The next step will be to research the pricing strategies used by the competition and do some market research.
Take the time to identify your main competitors and make a note of the price of their products.
In fact, make a list of all the prices you find for products similar to yours.
Once you’ve figured out their prices, your goal is to calculate the average price at which your competitors are selling their products.
Doing so is extremely simple. Just add all the prices together and divide the sum by the number of prices.
So, if you check the prices of 10 competitors, and take note of 20 prices, you will have to add them all together and divide by 20.
Don’t worry, we’re almost there.
At this point you will have two digits. Your baseline is the price of your competitors .
Let’s say your base is $ 20, and your competitors’ chosen price is $ 40, which means you can set the selling price of your products between $ 25 and $ 40. Regardless of the price you set, if it is within this range you will still make a profit.
Once this is done, you will be ready and have one of the most comprehensive and effective pricing strategies.
It’s not too difficult, is it?
Advantages of value-based pricing strategies
A value-based pricing strategy is right for both the brand and the customer.
This can help improve customer retention, and when you consider that acquiring new customers typically costs five times more than buying existing customers, it’s clear that this is one of the most attractive pricing strategies.
Disadvantages of value-based pricing strategies
The only real downside to value-based pricing strategies is that it can sometimes be difficult to price “value”.
Ultimately, the value you provide is only worth the price people are willing to pay.