There is an endless number of people who’d love to tell you how their business succeeded with a particular pricing/marketing/advertising strategy. I’m not saying that you can’t learn lessons from other businesses’ success stories, but the question is, can you benefit from following their advice? You can, or even, you should test whether their tactics work for your business. But if they don’t, there is no point in insisting on them.
Not every business can benefit from the common strategies that work well for most businesses. Your business may have unique characteristics and problems that require somewhat uncommon solutions. An out of common pricing strategy can do wonders for your business, and here we’re about to learn 5 of them.
If you’re ready, let’s dive in.
Free Plus Shipping
If an online store doesn’t charge a fee for the products but asks for the shipping cost, then it pursued a free pricing strategy.
Of course, it’s not for all types of e-commerce stores, but there is a rationale behind it.
Some retailers buy insanely cheap from suppliers, let’s say, 30 cents for a unit, and profit from the shipping fee. Or, as a part of a dropshipping strategy, a producer can pursue this strategy for low-cost products.
Some stores add the production cost to the shipping fee and make it seem like they don’t charge the price, but dishonesty never brings desirable results. Instead, it negatively affects the public opinion on the safety of online shopping.
One thing you must be aware of is that consumers tend to overestimate the correlation between price and quality. Therefore, a free product may lose its value in the eyes of customers.
Pay What You Want Pricing (PWYW)
The pay-what-you-want strategy is a good fit for businesses that trust their product quality and are confident that costumers will pay a fair amount of money. You can question how confident one can be when it comes to other people’s decisions, but some companies managed to profit with this strategy. Of course, it carries risks.
Let’s say you have niche products/services with a loyal customer base. Rather than setting fixed prices, you can let customers decide what to pay. This strategy may resolve the devaluating effect of a ‘free’ product.
Furthermore, it helps you build a strong trust relationship with customers. However, we can’t assume people will give your products what they deserve, but you can always test it and see what it brings you.
You can also set a threshold price that’ll prevent freeriding. It’s a risk-free version of PWYW.
Prestige (Premium) Pricing
For the e-commerce businesses that mostly compete on price, prestige pricing is an unusual strategy.
Instead of competing on price, some businesses set prices much above the market average and try to create a superior image among competitors. If you’re selling Rolex, the target customers enjoy the exclusiveness of the product, and an expensive price tag contributes to it.
In other cases, new market entrants use premium pricing to cover the costs of starting a business.
Flat Rate Pricing
All of us are familiar with one-dollar stores but not with the e-commerce versions.
This website offers one-dollar bargains for sundries, but the tactic could be applied to more expensive products.
If your product line is homogenous to some extent, flat rate pricing can reduce the time spent on pricing decisions. Service businesses benefit this particular strategy more than retailers.
Research shows that price consistency is one of the four factors that contribute to the fairness of a price. Flat-rate pricing is the most consistent pricing strategy that’ll positively affect consumer perception.
Everyone talks about the importance of big data, but very few actually use it. There is a reason for it.
Collecting big data is difficult, and analyzing it is even more painful. Big players like Amazon invest millions of dollars into big data analysis to develop an in-house dynamic pricing engine that makes 2.5m changes every day.
Big data analysis reveals each customer’s willingness to pay, the price point that’ll turn them off, and many other differences in their shopping behavior. Using this data, companies benefit from personalized price offerings that prove to be much effective than conventional pricing methods.
However, in 2002, Amazon was caught by customers offering different prices to different customers. Their policy was harshly criticized, and their experience set an example for every SMB. People are becoming more and more sensitive about data privacy, therefore, personalized pricing could alienate a large number of consumers.
On the other hand, segmenting the target market could drastically improve sales. The solution might be an open pricing policy. Rather than secretly testing different prices on different consumer segments, be transparent about your pricing decisions. For example, students are financially worse off than working people. They may not afford your products/services and giving them discounts shouldn’t bother other customers.
A Quick Wrap-up
Conventional pricing strategies can work very well for most of the e-commerce businesses, but they may not work for you. Perhaps your business needs different solutions to its problems. Rather than insisting on widely used methods, you can try uncommon pricing strategies and see if they work or not. However, they carry risks that could seriously impair your business. We’ve tried to explain the ways they could be beneficial, but we also want you to be cautious. Here are the five uncommon pricing strategies:
- Free Plus Shipping
- Prestige Pricing
- Flat-rate Pricing
- Personalized Pricing