Ecommerce Pricing: 8 Strategies to raise your profits

Ecommerce pricing strategy

How much should our products cost?

See, it's a difficult question for many e-commerce owners since having too high prices could send our buyers away, and the low ones could cause terrible situations for our finances.

Prices are significant for customers. In Shopify's  Future of Commerce Report 2022, we found that price is a crucial factor influencing 74% of consumers. Then, when we review Vaimo's article "The Essential Guide to Ecommerce Pricing Strategies," we found that 75% of buyers say that price is one of the two fundamental factors that influence their purchase decision during the COVID times, being the fast and convenient and delivery the second most important.  

But now, what is the best e-commerce pricing strategy for our business?

Well, most things in marketing depend primarily on your target audience. When you build your buyer persona, you indagate into demographic and sociographic factors, like where they live, but most importantly, what is their amount of income. Depending on your niche, you'll figure out if your products are for every everyday customer or if they belong to more luxurious markets.

Great, you have a starting point for your pricing strategy, but then a vast factor comes to play in this equation, that is, your competitors. They sell the same products, and while you have to find out what are your differentiating traits to overcome them, prices could play a massive role in who gets more clients. Going low isn't the easiest way to win this game. In fact, as we said before, it could be bad for you, so how can we equilibrate all these factors to put a cost that makes us earn more money while we keep a good amount of customers. 

To help you define at what price you should sell your products through platforms such as Amazon or eBay, today at Codedesign, we'll present eight strategies along with their pros, cons and examples so that you can choose the ones that best suit your business. 

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Competitive pricing

In a research in 2016 by Forrester, we discovered that 74% of shoppers use search engines to look for products and compare prices in different companies. 

Nowadays, consumers have more applications and software at their mercy that allow them to compare your prices with your competitors, so you have to be careful.

This pricing strategy tells us to constantly look at competitors' prices and find a balanced option that could make our products more reachable for our customers. Competitor Price Monitoring Software like Price Intelligently and Prisync can help you with this task.

On one side, this strategy can help you overcome your competitors by offering lower costs than your customers to capture customers that care more about prices than quality. Another method you can use is to check competitors' shipping prices and offer a free shipping option to fulfill customers' delivery desires.

But there is a downside to this strategy. If you keep low prices to compete, there is a big chance that other competitors will compete by lowering costs. Ultimately, all of this eliminates the perceived value of your products, and customers will see you as not trustworthy or too desperate.

As we mentioned, this is a good strategy for customers who don't care too much about quality or brand loyalty and only want the best deal for the product.

Nevertheless, suppose you know the actual value and quality of your products. In that case, you could find a middle ground price that justifies your merchandise while also keeping a reasonable price.

Source: YouTube.

Cost-Plus Pricing

Also known as markup pricing, this strategy consists of adding a fixed percentage margin to the cost of a product. This is one of the most basic strategies, and e-commerce businesses tend to use it because its formula is easy to calculate.

(material cost + labor cost + overhead costs) x (1 + markup) = Price.

To explain better with an example, let's suppose we have a sunglasses store.

• Materials: $20
• Labor: $25
• Fixed costs: $40
• Total cost: $85

If we want to see some profits,  we'd have to sell the sunglasses for at least $85.01. Nevertheless, we know that this price wouldn't cover all the other expenses we have as eCommerce owners, like:

• Shipping Costs
• Ecommerce returns
• Taxes
• Website hosting
• Domain
• Software
• Salaries

So, if you want to see some progress, you should set a margin between 50-100%. For example, if your goal is 50%, we should sell the sunglasses for at least $127.

Source: YouTube.

Value-Based Pricing

Value-based pricing is a strategy of pricing your items depending on how much your customers are willing to pay for them. It is one of the favourite techniques for price analysts and usually generates outstanding long-term results.

Compared to competitive and cost-plus pricing, this strategy usually gets higher markups.

This strategy is used by brands that offer a plus to their product over others, which adds "value" to it. One of the factors that have become popular among these strategies is ecological products, which are in greater demand by consumers who are willing to pay for products that are less harmful to the environment. In fact, according to the 2021 Global Sustainability Study, one-third of the population is willing to pay more for sustainable products and will accept to pay 25% more premium on average.

This strategy works better for brands with colossal brand loyalty or offers luxury or status goods products.

The only downside is that it can be challenging to define this price value accurately.

Source: YouTube.

Price Skimming

Price skimming is an excellent strategy for innovative products with no competition in the market. The idea is to get them at a high price when they have no match and to decrease their value as competitors arrive.

This strategy is used by most technology giants such as Apple or Sony. For example, when Sony released its latest console, the PlayStation 5, it was aware of the sensationalism generated by this new product and that its fans would be willing to queue to be the first to obtain these consoles and pay ANYTHING for them.

Then, when the PS5 has been on the market for longer, and perhaps other companies have released new consoles, it will lose value, but it will remain the same at a competitive price since its demand will probably continue to be high.

This is also used in times of holidays when those who sell it raise their prices while the holiday fever begins, and then, when they are no longer relevant, they begin to lower their costs to make a profit.

As you can see, this strategy is suitable for businesses that offer high-demand products since, like PlayStation gamers, they'll do whatever it takes to be the first ones to play.

Nevertheless, as you just read, this is a strategy for big companies like Sony or Apple. A small business can't skim prices as they are rising, and people may not be ready to pay that much for emergent talents.

Price Skimming

Penetration pricing

This technique is entirely different from price skimming and is about entering a crowded market through lower prices. Once you excel at this, you can gradually increase your costs. The bad part of this is that by offering such cheap things, people can perceive that your products are not of quality.

Bundle Pricing

As its name suggests, bundle pricing consists of complementary grouping products together to offer a kit set for a discounted price. It is an excellent strategy if you sell in a highly competitive niche on platforms like Amazon. When you use it, you get the opportunity to increase your average order value by offering clients all the items they need in a single purchase.

For example, if you sell Canon Cameras, you can offer a bundle offer with a tripod, lights, lenses and any other item that adds to the photographer's experience. This can increase your sales, but it could decrease your profits if you don't do it correctly, as you have to carefully measure the value of the different products within the package.

Bundle Pricing

Psychological Pricing Strategies

Isn't a product that costs $20 the same as $19.99? Most consumers would not hesitate to buy for just a penny less. This is considered the psychological price, a practice that has yielded promising results since the 1800s. In the book "Priceless: The Myth of Fair Value (and How to Take Advantage of It), author William Poundstone affirms that psychological prices - also called charm prices - increase sales by 24%, compared to prices ending in even numbers.

Although reducing prices by a penny is the most common practice, the anchor pricing technique is also similar, which consists of lowering the previous prices and the current "offer." This gives consumers the urge not to miss a deal, so many will not hesitate to miss out on that bargain. 

You also need a good domain rating score.

Read to find what's the good CPC in your industry.

Source: YouTube.

Loss-leader pricing

As its name suggests, loss leader pricing is a strategy that consists of "sacrificing" a leader to earn more income from the other purchases that will come from it.

Let's illustrate it better.

If one day you go to a market without the intention of buying a lot, but you see that the milk is exceptionally cheap, say $1.06, this incredible offer will probably make you want to buy it even though you did it a moment ago not like much. However, as a result of this purchase, you need more food to accompany this milk, so you start buying cereal and some chocolate drinks, and in the end, you end up spending $50 on other products.

The owners sacrificed the milk by lowering its price, but they made you buy more.

This strategy is also used by video game stores, which sell relatively lower consoles, knowing that their primary source of income will come from the video games you will buy throughout the useful life of this machine.

This practice, when done well, can increase the customer lifetime value of your e-commerce, and you can also mix it with the bundle to recover more profit by offering some extra packages.

However, if you fail to hook your customer with this, you will most likely lose revenue by sacrificing the price of your excellent products, so this tactic should be used with caution.

Read this guide to find why voice search optimization is so crucial today.

Here is a complete guide on Amazon listing optimization and check these amazing listing tips.

If you have any thoughts on traditional marketing methods, then check this amazing blog on digital marketing vs traditional marketing.

Final Thoughts

Although all these strategies can generate good results in the short or long term, the best thing you can do is mix them properly so that they adapt to your work model. In this way, you must be flexible to know when to adopt a strategy or abandon another so your online business can continue.

Some experts allegate that although the price is a huge factor, the value your customers perceive from your brand plays another key factor in their purchase decision. As Eric Dolansky, Associate Professor of Marketing at Brock University, told BDC said:

"How much the customer is willing to pay for the product has very little to do with cost and has very much to do with how much they value the product or service they’re buying,”

In several parts of the article, we saw that lowering prices is a big "NO" for your business since, contrary to what you might think, low prices detract from your company. It does not make you earn more money. Therefore, the correct thing is to choose a strategy that asserts the quality of your services and simultaneously maintains an accessible but competitive price.

At Codedesign, we have experience as an agency for platforms such as Amazon, so if you need help with your eCommerce, rest assured that we will be your best allies so that your sales are boosted to another level. Contact us, and let's do some business!

Until another article, see you!

Feel free to contact us to see the unprecedented growth of your business.

Feel free to contact us to see the unprecedented growth of your business.

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