Price Testing: How to Test Different Prices Without Alienating Customers

Product pricing changes are a process that can look risky and scary for many business owners because you can never say for sure how your customers might react to the new price – and how that will impact your bottom line. But price testing might be the one they are looking for. 

Some entrepreneurs would rather stick with the same prices that worked for them in the past. It looks like the safest decision. Yet, is that really a long-term solution? The online market is changing rapidly. Many of those changes can have an impact on the price of your products – be it new competitors, new products, new production costs, new industry regulations, or one of many other factors.

Keep in mind that pricing affects everything – from profit to brand reputation – so it pays to know when and how to conduct price adjustments.

And that will be the topic of this article.

When should you change the pricing of your products?

The perfect answer to this question doesn’t exist. However, here are some common reasons why businesses look to adjust their pricing:

Higher costs

The costs of your products will grow together with the development of your business. The reasons for that can be different. For instance, over time, you will want to upgrade your range with better products. That will automatically raise the costs you have.

Another reason could be the usage of the “value-added” products which includes any sort of product or action that will allow you to increase your margin. For example, everyone who buys your shoes will get a shoe cleaner for free.

Inflation

Inflation is something that impacts the entire world. For example, it can happen that fuel price suddenly jumps. That won’t directly influence the price of your product. Yet, your transport costs will automatically become higher. Besides that, the purchasing power of your customers can decrease. Or your customers might take more time before purchasing to find out whether the price is worth it. That’s why you need to carefully choose the method of price testing.

For instance, it would be a much better decision to keep the same prices or to raise the prices slowly and wait to see what is going to happen with the prices in the future. Sacrificing profit is a good move only if it will ensure that you won’t lose your customers.

Retailers can also track your competitor’s price moves and find where you position your business. During the inflationary period, it can give you great insights into your competitor’s strategy. Price tracking tools allow online retailers to price their products accordingly and win new customers without losing any to their competitors. 

Adjusting prices to competitors

Adjusting prices to competitors is a very common reason why business owners decide to change the price. Let’s say that your direct competitors offer similar/same products for a lesser price. In case you are a powerful brand, it is okay to keep the higher prices. However, when you are just starting, you will likely have to adjust to the current situation.

People are simply not ready to pay more for the products of unfamiliar brands. Chasing money in this situation is not going to bring good results.

But remember that knowing what your competitors are charging is one of the best practices. You don’t necessarily have to change your prices. But competitors’ prices show you the overall market based on pricing dynamism.

How to conduct a product pricing test?

Picking the right moment is only one factor that leads to successful price-testing. What matters more is how you approach the whole process. Here are a few steps you should follow to achieve good results.

Determine your goals

The first thing you need to do in price testing is to determine is why you want to change the price of your products in the first place. Is there a good reason for that? Some e-commerce entrepreneurs raise the prices only because they want to earn more. Wanting a better profit margin is a perfectly acceptable reason, but it can’t be the only one, especially not in a highly competitive space.

Let’s say that your goal is to improve the delivery time of your products. Currently, buyers need to wait for 7 days before they get their orders. You want to reduce the delivery time down to three days. There is a transport company that offers these conditions, however, the current profit margin you have cannot cover the increased transport costs. This means you probably need to conduct a pricing change test and see how this affects your sales numbers.

Raising prices only because of profit, without any added value or a valid reason, often won’t end as a result you will like.

Choose similar product groups for testing

Now that you have your “when” and “why”, the next question is – “which prices should I change?”

Many business owners think that a simple  “A/B price testing strategy” is all they need in price testing. However, this method is risky and we will touch on the reasons why towards the end of the article.

Instead, you can test the waters using similar group products as a sample.

Let’s say that you need to raise the price of your high-selling product. Logically, this is a risky move because it can reduce the number of buyers. In this case, you will have to think “out-of-the-box”.

Choose a product from the same group that is not so popular among your customers. See how they will react to the changes you made. If you receive a lot of negative feedback, that usually means it is not the right moment for a price change.

Some e-commerce owners want to speed up the testing process by making one or more landing pages and driving a lot of traffic towards them until they feel they have a relevant sample. If you do that, make sure you are consistent with your landing page designs. Remember, you’re doing this to test the pricing, not different design choices and their impact the conversion rate.

The pricing strategy you will use will reflect on the success of your pricing changes. Here is a quick overview of the most common pricing strategies you can use to calculate new prices you want to test out.

Cost-plus strategy

Cost-plus pricing is the most direct way of finding the right price for your product.  It’s a traditional pricing model back in history. 

Let’s say that you are selling handmade products. There are a few different products (read ingredients and packaging costs) that you need to make the final product. After that, there are costs of transport and taxes that you need to add to your price. Finally, you need to add a percentage of the entire amount (margin) to determine the final price of your product.

Keep in mind that some factors can indirectly change your cost-plus strategy. We already mentioned one – gas price. That will increase the price of transport services you’re using which will directly influence the price of your product. That’s why many ecommerce businesses separate shipping prices when they sell a product on their website.

Competitor-based strategy

Following the trends of absolutely everything is crucial in the ecommerce world. This especially includes tracking the prices of your main competitors. You need to have a clear picture of the prices that all competitors offer to their customers. That will help you to determine how high or low your prices can go.

However, actively tracking prices from multiple competitors for various products is easier said than done. You can work with competitor price tracking tools that automatically inform you when there is a price change. You can take immediate action if necessary and offer competitive prices. This can help ecommerce retailers to maximize their sales and profit margins.

Dynamic pricing strategy

Did you know that price is a key factor influencing 74% of consumers? 

If you want to win new customers you should consider adopting dynamic pricing. For the definition, it’s a pricing model considering factors such as supply and demand, competitor’s price, seasonality, time, and market trends. 

It is one of the most effective and most-used pricing strategies in ecommerce. Dynamic pricing is only powerful when you start applying it. You can set flexible prices based on currency market demand and dynamics. The best way of doing it is to ensure that you always keep track of your competitor’s prices and observe the reaction of your customers. Some of your customers might be more reactive to your price changes and you can increase your sales. 

Value-based strategy

Value-based pricing is only possible if you combine internal and external data before you use it for price testing. This strategy requires analyzing the needs, mindset, and purchasing power of your clients.

Value-based pricing is not possible without clear feedback from our customers. Social media is a good place to start researching how much customers value your products. After that, customer reviews and customer surveys are your best bet to gather relevant info. The feedback you receive will tell you if some products are too expensive or if they bring so much value to your customers that you can raise the prices without any repercussions.

Measure results actively

Follow the statistics you get on Shopify or any other ecommerce platform you are using. To ensure that price testing works you should track how many sales you have made from the moment you changed the prices. Check if your changes decreased or increased the number of average sales you were previously making.

It is important to do that every single day. As we said, start with only one group of products. If the buyers react in a way that negatively affects your bottom line, that means you might need to try another strategy.

Common mistakes business owners make when doing product price testing

Making mistakes in the ecommerce space can be very costly. That’s why we thought it’s important to highlight some common pricing-related mistakes ecommerce store owners are making.

Lowering the price to a minimum

Lowering the price of your products will probably lead to a bigger number of sales. Yet, would that bring you a better profit?

In case you want to attract more people to buy your products, you can reduce your price temporarily through discounts. For instance, the jacket you sell will go with a 20% discount until the end of the month. That will attract people to buy it, but it will also convince them to check other products you sell. This move will potentially raise your profit together with the number of sales that you make.

Straight A/B testing

This sort of testing is maybe good for web designers and web developers. They can make two different designs of landing pages and check how small changes impact the overall conversion rate.

However, A/B testing your pricing page is a risky move for ecommerce stores as some customers could justifiably perceive it as discriminatory, and decide not to buy from you altogether.

Same margin for each product

The value of the product you sell determines the margin you will set for it. Keep in mind that not every product is equally valuable in your customers’ eyes and that its value can change over time. For instance, a jacket will be more valuable in the winter than a t-shirt. In this case, the margin of a jacket could be twice the amount of the margin of a t-shirt.

P.S. This is just an imaginary example and can be very situational. Calculate margins and markups for different products to see where you stand. After that, you can use value-based pricing to estimate if you could raise pricing for a product with very low margins.

Conclusion

Price is strongly connected to value. If you think you can provide enough value to justify a higher price, you can increase it. If you think you could earn more with a slightly lower price that would attract more buyers, decrease it.

Just don’t do it on a whim – have a reason, plan, and pricing strategy in place.

That is the only way to safely do price testing in your online store. When you improve your brand and become a leader in your industry, it will be much easier to change your prices as others will have to follow your actions; not the other way around.