If you have an ecommerce business, at some point you’ve probably questioned whether you’re pricing your products correctly. “Are my items priced too high?” or “Could I be charging more for my most popular items?” are questions that can dramatically change the direction of your business. As a result, setting your product’s prices is one of the most exciting and complex exercises you’ll have to undertake as a business manager.
When evaluating your store’s prices, it’s important to understand the different pricing strategies that exist but you also need to be prepared to test those different strategies. For most businesses, finding the optimal pricing strategy requires several iterations and often involves a lot of experimenting.
This week, we’re going to be looking at three common strategies you can use to help your business become better at setting prices.
Value-Based Pricing Strategies
The price you’d be willing to pay for a car is different than how much you’d be willing to pay for a bottle of water. Similarly, what you’d pay for life saving medicine is considerably higher than what you’d pay for a t-shirt.
The above examples are extreme, but they all highlight the concept of value. When it comes to the average consumer, most people are willing to pay more for your products if they believe it will bring them more value than a competitor’s product.
The best way to highlight your product’s value is to identify a Unique Selling Proposition or USP. A USP helps you to stand out from your competition and gives your customers a reason to choose you over your competitors.
To use a value-based strategy it’s critical to identify what makes your products different and make sure that feature is as visible as possible for every visitor who comes to your website. When done successfully, consumers will start to associate your brand with something exclusive and as a result you’ll be able to charge a premium for your products.
Cost-Based Pricing Strategies
One effective (and extremely common) pricing strategy that merchants use is something called cost-based pricing. This strategy revolves around pricing your products based on the wholesale price you paid and then adding a markup. When an ecommerce owner starts up their business, this is generally the first approach they use. While this method is the simplest pricing strategy it still requires testing, you will need to look closely at what you’re selling and experiment with different markups to find out what people are willing to pay.
Taking some time to research what similar products are selling for online is a great way to understand what you can charge. Next, compare this price to what your manufacturer charges and you’ll get a much clearer view what markup makes sense for your products.
Psychological Pricing Strategies
“No one likes to be sold to, but everyone likes to buy.”
This saying explores an interesting paradox that exists amongst modern consumers… Even if someone is looking to buy a product, they don’t want it to be sold to them, at least not explicitly.
To overcome this issue, there are a wide range of psychological pricing strategies that you can use to subtly remove barriers and encourage them to follow through on their purchase. One of the most popular such strategies is something called Charm Pricing.
At its core charm pricing is very simple, you establish the price you want to sell your product for and then round down to ensure the last digits of that price are 9s.
$10.00 becomes $9.99, $100 would be $99, and so on.
This strategy works because although the decrease in price is virtually non-existent to the consumer, it gives the impression that the product is considerably cheaper than it actually is. Human brains naturally gravitate to the first digit and will often make their comparisons on that alone.
As we mentioned earlier, while all these strategies can help you sell more products, when it comes to creating your business’ own pricing strategy, data should be the foundation. Use the above ideas to help identify competitive price points for your products but always be willing to experiment to identify new trends and opportunities.