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Product pricing is an essential aspect of ecommerce businesses. During 2021’s holiday season, approximately three-quarters of consumers in the United States stated that the price of a product was one of the primary factors influencing their purchase decision when holiday shopping. Focusing on how to price a product by implementing a solid pricing strategy will entice your online customers and lead to increased sales and higher returns on investments (ROIs).
There are various ways to increase your online sales and earn higher profits. In today’s article, we will discuss some key pricing strategies so that you can understand how to price a product and stay on top of the market. Read on!
Strategies to Price a Product
Online sellers should make substantial efforts to learn about their target audience and requirements and price the products accordingly. However, this does not mean eliminating the profit margins and providing your customers with the most affordable price.
The key is to balance your pricing strategy through a sophisticated price management technique and change your plan from time to time, depending on the market conditions. That way, you can streamline your business operations.
Use Analytics to Understand Customers’ Behavior
Unlike brick-and-mortar shops, online sellers or companies have the advantage of using analytics software to analyze a large volume of data and generate crucial insights. You can use these insights to understand your customers’ behavior and focus on different verticals to reach prospective customers.
Whether you run a social media campaign or production promotions, you can test your product and use data to gain insights on consumers. That way, you can make an informed decision and price your products adequately.
For example, suppose you notice that Monday is the most profitable day for a specific product. In that case, you can run a social media campaign on that particular day to maximize your earnings. Remember, consumers’ shopping behavior is a vital factor you can use to optimize your pricing strategy.
For instance, if you sell women’s clothes and you find out that a specific jeans product has an enormous response on social media platforms, it means consumers demand this particular product. So, you can adjust your price for the product to earn higher profits. The formula is simple: increased demand for a product means you can elevate its price.
On the other hand, if you notice that consumers put a particular product in their carts but do not purchase it, it means the price is too high. In that case, you have to optimize the price tag on your online store for that specific product to generate more sales and achieve higher ROIs.
Statistics that data-backed price management initiatives lead to significant results such as a 2%-7% increase in business margins and a 200-350% average growth in ROI over a 12-month period.
So, using analytics software to monitor customers’ behavior on your online shop is a massive advantage that most brick-and-mortar stores don’t have, meaning you can reduce the risk of errors and make informed decisions to streamline your business processes.
Improve Your Website’s Layout
Online sellers without an attractive and easy-to-use eCommerce website will lose customers and generate fewer sales than those who invest in a high-quality website design. Remember, your eCommerce website’s layout plays a crucial role in streamlining your pricing strategies.
For example, your product description content must have a call-to-action to entice consumers and encourage them to purchase the product. Make sure you showcase the product in a “Buy Now” display or “Customer Favorite.” When you learn these tactics, you can optimize your sales and make informed decisions regarding your pricing strategies.
According to Google, it only takes customers 50 milliseconds to form a first impression of your website and the first impression can have a ripple effect on a multitude of marketing efforts.
Experts recommend using a ticking clock for prices with a temporary discount to attract customers. Many online sellers use this strategy to urge users to take action and take advantage of the offer.
In addition, you can mention the number of remaining products in your inventory on your website to encourage visitors to purchase your products before they go out of stock. That way, you can position your products as “high demand.”
Moreover, group similar products, such as makeup items, to make a mini-price comparison and highlight the most popular product. That way, you can attract more customers, retain the existing ones, and achieve your goal of higher conversion rates.
Focus on the Right Pricing Model
Choosing a suitable pricing model is an essential aspect of your price management strategy. Some online sellers use a conventional method of adding a markup to their wholesale costs. The purpose is to develop a product’s price.
Some pricing models focus on profits from selling products in large quantities, leading to higher returns on investments. Reputable online brands use value-based pricing strategies, allowing them to set higher prices due to the trust and relationship of consumers with the company. Shoppers pay more and buy an established company’s products than an online shop that sells similar products for lower prices.
Therefore, it is wise to analyze the marketplace, determine what eCommerce websites like yours are selling, and focus on their prices to make an informed decision. There are various pricing strategies, and each one comes with its pros and cons. Let us discuss the most commonly used pricing strategies. Continue reading!
A competitive pricing strategy is an integral component of your price management strategy. It is a standard method, and online sellers can use it differently depending on the products they promote or sell.
Using competitive pricing requires you to position your brand or product differently from your competitor. Make sure your product or brand position is superior to your competitor’s brand or product. Focus on the unique selling points that separate your product from your competitor’s products.
Using a competitive pricing strategy can help you for strong brand positioning, get your business noticed, and increase foot traffic to your website.
In addition, invest in a premium design, online storefront, and packaging to make an excellent impression on your existing and prospective customers. If you have a luxury eCommerce brand, it is wise to focus on your website’s design. Make sure you also have excellent onsite customer service to reduce eCommerce return rates.
Below Competition Pricing
Below competition pricing is a sophisticated method to undercut your competitor’s price and position your product for the best deal. If you want to get the most out of this strategy, we recommend negotiating with your supplier for a lower wholesale price.
Likewise, reduce your operating costs, focus on an effective marketing campaign, and highlight the market value. Remember, this type of pricing strategy can become a sticky situation if your competitor companies try to lower their price, leading to price wars.
So, the most effective way to take advantage of “below competition pricing” is to price a product temporarily, allowing your online visitors to feel more enticed. That way, your customers will buy your product without getting accustomed to the bargain rates.
Above Competition Pricing
Above-competition pricing is another effective price management strategy for eCommerce owners. It is an excellent way to increase your sales and earn higher profits. However, this type of pricing strategy works if you have a fast-moving inventory.
So, as a seller, you must justify higher prices with different factors, including exclusivity, improved customer service, scarcity, and boosted brand experience. For example, jewelry is an industry that uses above competition pricing.
However, if you have an online jewelry shop without a luxury image or brand reputation, this type of pricing is not suitable. Reputable brands command higher prices due to their excellent brand equity.
For instance, if you sell diamonds, you may not beat your competitors in quality, but your customers will still pay more due to your brand reputation, trust, relationship, and loyalty. Brand value is an essential aspect of an online company. So, focus on developing your brand image if you want to price a product higher and increase your profit margins.
Psychological pricing is a practical approach many online sellers use to play with consumers’ minds and encourage them to purchase specific products. It is about using tricky marketing methods and using a pricing strategy that entices your customers without lowering your prices.
For example, if you sell shoes on your online shop and set a price of $29.9 instead of $30, your customers will think that the product is affordable. On the other hand, if you price a product at $50 instead of $49.9, your customers will feel that you have set a higher price. So, it is a mind game, meaning you must learn these tactics to get the job done adequately.
Most consumers prefer products’ prices that end in odd numbers like 5, 7, and 9. These numbers trigger impulse buying, giving your customers an impression that they will receive the best deal. The most common way online sellers take advantage of this technique is by changing a product’s price from a whole number to an odd number.
For example, instead of setting a price of $10, you can price the item at $9.99. Research shows that “9” is the most effective number that triggers impulse buying among consumers. Customers’ brains interpret $9.99 as $9 and round down, making them think of it as a better bargain price.
A growing body of research evidence shows that charm pricing can increase sales by 24% to 30%, depending on how carefully you use it. In addition, according to a research study conducted by the University of Chicago and MIT, “9” is the best number to take advantage of the charm pricing strategy.
Focus on a Reference Price
When you include a reference price compared to your product’s real or actual price point, it has a substantial effect on your consumers. A reference price, also known as the anchor price, is contrasted with the current price. So, visitors to your online eCommerce site will perceive it as a better deal.
For example, you sell women’s t-shirts online, and you notice that the original price is $20 and the sale price is $15, but the final price is $17. So, this is an anchoring effect, making a customer base his/her decision on the actual anchor price.
Because consumers know that the product’s original price was $20, they will take advantage of the discount and purchase it. However, if the reference price is the same as the actual price, you will repel your customers, making them reluctant to buy your products.
Bundle pricing is an effective way to sell multiple products. You can use this strategy to make each conversion more substantial on your eCommerce website. It is crucial to give a lower rate for your customers to buy products together instead of purchasing them individually.
Although some sellers find it challenging or ineffective to move the inventor, many find bundle pricing valuable because their customers perceive it as more significant for saving money. So, when customers purchase bundled packages, they spend more money.
At the same time, they think that they have saved money. We believe it is a win-win situation for your business and customers if you implement this strategy correctly. Executing the bundle pricing strategy requires planning and effort.
For instance, you have to include several bundle options on your eCommerce website, especially on the product page. Likewise, inform your customers on how much they will when they buy a package.
For example, if you sell a smoker grill, you can present a bundle package that would encourage your online visitors to purchase it. When a customer purchases a new grill, he/she will need other tools and equipment to cook a meal.
These include grill cleaner, charcoal, spatula, and grill table. Therefore, we recommend including these items in a single package and pricing a product with reasonable profit margins. Similarly, when you sell a baby hygiene product, such as a shampoo, most mothers will also look for baby soaps, moisturizing creams, towels, bathing sponges, etc.
When you bundle these items in a single package, you can entice your visitors and streamline your business operations by selling more. As a result, you will generate more revenues and earn higher profits.
How to price a product? It is a common question asked by many online businesses and eCommerce site owners. You can follow the tips and tricks given above to effectively optimize your price management strategy and price a product.
However, choose the one that best fits your needs and can attract high-paying customers. You can switch from one price strategy to another based on the market situation and your business conditions.