One thing is for sure. Every ecommerce business wants to find the most profitable price to attract its target customers and increase its market share. There are a vast number of pricing strategies that you can choose to implement. Optimal/optimum pricing is all about finding the price point that brings you closer to your business goals, whether it is to increase your profit margins, foster loyalty, match competitors, or establish a premium brand.
What is Optimal /Optimum Pricing?
Optimal or optimum pricing setting, or optimizing your prices to achieve the best possible outcome, which is finding the best competitive price that maximizes your profits beyond your costs. But the question is: how do you find the optimal price for your products and services? The main goal here is to find the price point that allows your online business to thrive and be competitive enough to keep customers returning. Merchants can start determining the optimal pricing for their products by creating a checklist about their business goals, competitors, operational costs, product demand, and the value they deliver.
How to Determine the Optimal /Optimum Pricing?
Start by defining your business goals. Do you want to increase your profits or expand your business internationally? Goal lists will differ from business to business. The point of defining goals here is to figure out later the steps required to achieve optimal pricing. For example, if you want to promote a new product line, your business goals can be covering your production costs, increasing your brand awareness, and becoming a dominant player in the market.
Speaking of covering production costs, if you are pricing your products solely based on your product costs, you are missing the competition. Be aware of the players in the market. If you want to outmaneuver your competitors, there are ways to do so: one is to price your products slightly lower to lure customers into your store, and the other is to focus on your value propositions. The first approach makes sense if your products have high price elasticity of demand.
For example, if you are a consumer electronics brand that sells hair stylers, customers may switch to a cheaper alternative if they find the products offer similar benefits. Otherwise, if you think your products are niche or you have a powerful brand image and service, you can still apply premium pricing, and there will be people who are willing pay for your products. The same consumer electronics example for hair stylers applies here as well: people can pay more for a Dyson or Shark Ninja because they are also paying for the brand.
How to Find the Optimal /Optimum Pricing for your Ecommerce Store
As we mentioned before, there are several ways to achieve optimal pricing, but there are also several points to consider when maximizing profits.
Calculate Your Costs
You need to be aware of how much it costs to produce your products. Remember, you should also include costs such as employee wages, service costs, packaging, ads, fees, and administrative costs in your calculation. As a result of this calculation, you will have a price baseline for each product that you can’t sell below. After you calculated your cost, the next step is to get to know your competitors and customers before deciding on the selling price.
Conduct Market Research
After you determine your business goals and know your costs, the next phase in finding the optimal pricing is understanding the market you want to operate in. Identify your competitors, their prices, promotional activities, social media, etc. Basically, you need to collect all necessary information to establish a benchmark and identify the techniques you need to implement to price your products. This way, you can create a profitable action plan.
Know Your Audiences
Another point to consider before finding the optimum pricing is getting know your customers. How much are they willing to pay for your products and services? If you have a major competitor that your audience prefers, you need to consider a workaround to outperform them, whether by elevating your services, rebranding your store, launching a marketing campaign, or lowering your price points. Consider asking your target audience what they care about most in the customer journey, such as whether they care about quality or getting good value for their money. This way, you can position yourself in the market.
Watch Your Past Sales
Look at how your prices have performed in the past. Check out your traffic and sales before deciding on your optimum price. If you had high traffic but low sales, your prices might be too high, or you might have other problems that cause customers to leave your website. Conversely, if your sales are too high but you can’t keep healthy stock levels, that’s really bad news. You might be losing your profits. After evaluating all the pain points, you can set or adjust your product’s prices, keeping in mind that optimal pricing is the sweet spot where your price points bring you the most profit with healthy conversion rates.
Do Price Testing
After you implement optimal pricing, review your decisions by testing. Price intelligence tools, like Prisync, can help merchants at every step in finding the optimum pricing. That is because price monitoring tools help you gather all your competitors’ pricing information instantly, so you can understand how they position themselves in the market and how to counteract, aiming to set the most profitable price with necessary adjustments.
Some of the Optimum Pricing Strategies
Dynamic Pricing
Dynamic pricing is a pricing approach that allows merchants to set flexible prices based on demand fluctuations, competitors’ prices, and seasonality. This way, businesses can respond to market changes dynamically, as consumers often compare prices across multiple sellers before purchasing. With dynamic pricing, you can target different customer segments with different purchasing power, categorize your products, and apply pricing strategies specific to each category.
Competitive Pricing
Competitive pricing is a strategy of setting product prices with competitors’ prices in mind, meaning that the merchants need to assess competitors’ prices before setting optimum prices and offering deals to their customers. Based on your business goals, you can set your prices equal to, slightly lower than, or slightly higher than your competitors’ to increase your profits. This way, you can stay competitive and maintain sustainable business growth.
Ladder Pricing
Ladder pricing refers to offering different versions of a product, but each of the products needs to have a different set of features and benefits at various price points. The key point here is to justify the differences between the offers, since customers are unlikely to upgrade to higher versions unless they see a clear added benefit. For example, a SaaS company can offer basic service with limited features, a mid-tiered option with a team plan, or a full premium service with unlimited features, each at a different price.
Conclusion
Setting the right price for your ecommerce store has been one of the most challenging aspects of running an online business. Yet after you find the optimum pricing, these challenges come with rewards: profits. Generating the most profit is not always about being the cheapest option on the market. It is about reaching your business goals, keeping your prices dynamic, expressing your value, and achieving customer satisfaction with your pricing. If you have determined your optimal pricing by considering your costs, audience, and market, and have used an intelligent tool to help you benchmark those steps, you are now closest to sustainable growth for your brand.
