An integral part of running an eCommerce business is to set the perfect price for your products. This entails picking from a host of pricing strategies and sticking to the most profitable and viable one(s).
Arriving at the correct product prices requires analytical thinking, market research, and a lot of math. And in a highly competitive market, the right price can make or break the potential sale of your goods and services.
Every seller would ideally like to maximize profits with each sale. However, it might not be the best way forward. To help you pick the perfect pricing model, we’ve enlisted 8 pricing strategies for you to choose from.
Finding The Perfect Price With These 8 Effective eCommerce Pricing Strategies
1. Cost-Plus Pricing or Keystone Pricing
As far as pricing strategies go, this pricing strategy involves setting a high mark-up or simply doubling the manufacturing cost of your product.
The high price thus set can help maximize profits on your products.
In situations where your product has slow inventory turnover, significant shipping or handling cost, or is scarce in its availability, keystone pricing might be the right strategy.
However, in situations where the same product is easily available with other retailers, your sales might suffer owing to the higher price.
2. Target Return Pricing
Target return pricing is basically when you set a target on the return of investment (ROI) on your product.
Your desired rate of return combined with the manufacturing or acquisition cost will help you arrive at the target return based pricing.
While this may not maximize profits, target return pricing strategies will help achieve ROI.
The drawback of this strategy is that it does not consider competition pricing or any other scenario which can help you establish the correct pricing for your product.
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3. Value-Based Pricing
Value-based pricing helps decipher the price of your products or services based on their market value.
You can arrive at the price basis the value your products bring to your customers.
When it comes to eCommerce pricing strategies, this pricing strategy is very effective as it considers the demand for your product and pays attention to what a customer wants and needs.
Pricing your product basis what the customer would want to pay is effective in driving more sales and building stronger relations with the customer.
4. Competitive Pricing
Competitive pricing or Economy Pricing refers to setting a price for your product lower than your competitors.
This can be achieved by cutting down on costs for marketing and promotions.
Among the myriad eCommerce pricing strategies, this strategy is especially effective for selling to price-conscious customers, who can easily be converted owing to lower costs.
While this pricing strategy has competitive advantages in terms of price, make sure that you do not lower prices to the extent where it turns into a loss-making venture.
5. Bundle Pricing
Bundle pricing involves selling your goods or services as a package at lower prices than they would cost if sold separately.
Commonly observed in grocery stores and home essentials, bundle pricing also works on apparel and other clothing accessories.
Bundle pricing is one of those eCommerce pricing strategies that can be used for a variety of eCommerce businesses.
This is effective to sell products that are unsold or in less demand owing to a higher price.
Bundle pricing may not work well for products that you want to sell more individually at their actual price.
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6. Penetration Pricing
Penetration pricing is extremely effective for brands or products that have newly entered the market and are looking at gaining market share, and for existing ones with the same goal.
Also known as discount pricing, penetration pricing strategies involve setting a temporarily low price or promotion price on the product in order to gain market share and attract price-conscious customers.
While this method has clear competitive advantages in terms of price, do keep in mind that penetration pricing strategies may not be very effective if you’re entering the market with a unique product.
In such a scenario, you can resort to price skimming, which involves entering the market at a higher price and then gradually lowering the prices as your competitors catch up and the demand is less.
7. Psychological Pricing
This pricing strategy appeals more to the emotional side of a customer than the rational side.
You must have observed products being priced at 999 instead of 1000, or ending in odd numbers instead of a round-up to the nearest multiple of ten.
Psychological pricing strategies give customers a sense of saving money on the product and help increase your sales.
For instance, price skimming is also a type of psychology pricing.
8. Premium Pricing
A very effective pricing strategy for luxury products or services, premium pricing strategies essentially stand for selling at a price which is higher than the market standard.
The high price or premium must be justified by higher quality, scarcity, or exclusivity.
Correct marketing and branding have a major role to play in retaining premium pricing.
eCommerce pricing strategies are not limited to the ones listed above.
However, we have charted out the ones that are more commonly used on by eCommerce businesses and online stores globally.
Always remember, following a singular pricing strategy throughout your product lifecycle may not be the best solution.
Also, what works for one product or brand may not work for you.
It is therefore critical that you correctly analyze your product as compared to the market, understand your target customers, and accordingly arrive at the right pricing strategy.