Pricing Strategies: Find Out Which One Suits You The Best

Posted By: editor
Posted On: 31 Dec, 2021

Case in point: when customers have multiple options to choose from, the price can be a potential deal-breaker. However, a low price is not always ideal, as the product might see a healthy stream of sales without turning any profits. Similarly, when a product has a high price, an e-tailer may see fewer sales and price out more budget-conscious customers, losing market positioning.

So, using the right pricing strategy is essential to help e-tailers scale their business, and grow revenue, thereby profits.

Although product pricing is a challenging task, there are ways to identify the right pricing strategy that suits the business.

Here, we will discuss various pricing strategies that e-tailers should be aware of and the factors they should consider while picking up a pricing strategy for their products.

 

E-commerce Pricing Strategies:

 

Cost-plus pricing: This strategy generates profits by adding a fixed percentage margin to the cost of a product. It is business-focused rather than customer-focused.

Competition-based pricing: It is based on offering better prices than the competitors. It is most often used for commodities. It is a great option to attract cost-conscious customers as they are willing to give up brand loyalty to save money.

Value-based pricing: It focuses on figuring out the maximum amount a customer is willing to pay for the product. Value-based customers focus more on quality and fairness than anything else.

Price skimming: It is a strategy where a product’s initial price decreases over time. Price skimming is popular for tech products that become less valuable or obsolete as innovative technology is introduced. As newer product models become available, older models become cheaper to purchase.

Loss-leader pricing: It focuses on selling products at a loss to entice customers to purchase a subsequent expensive product offering. The cost of the loss is made up when customers purchase additional items that are needed to make the sold product functional. The extra products can be purchased at the time of the initial sale or later.

Dynamic pricing: It is all about flexibility; prices can increase or decrease at any moment due to constant changes in demand and competition.

Premium pricing: The price of a product conveys its value. Premium pricing is a strategy used to price valuable luxury or high-cost items.

Anchor pricing: This strategy gives customers a reference price point (the anchor) when researching products. It attracts customers looking for a discount or a deal. It also can spark a sense of urgency. By referencing the higher anchor price point, customers will feel the need to make the purchase right away or miss the deal. It is often used for bundles or subscription orders by highlighting the cost savings a customer gets when they buy more or subscribe, rather than making a one-off purchase.

Though there are many pricing strategies as discussed above, choosing the right pricing model depends on several factors, such as target audience, stage of the company, brand reputation, value proposition, demand, and competition. Let us look at them in detail.

 

Factors Affecting Pricing Strategy:

 

Target audience:

Customers are the most crucial factor in deciding how to price products. Developing buyer personas can help e-tailers better understand their potential customers. By knowing the demographics, traits, disposable income, and buying habits of their target audience, e-tailers can create a pricing strategy that fits their business.

For instance, some customers are more cost-conscious and look for cheaper deals. They do not mind waiting to grab those deals. Some customers are comfortably well off to pay a premium price for certain products. The other set of customers live for the day and purchase the products whenever it comes to their mind.

Stage of the company:

The stage in which the company is in plays a key role while deciding the price factor. For instance, for start-ups, where they do not have in-depth knowledge about customers or the market they are operating in, cost-plus pricing is a good start.

Unique value proposition:

Another crucial step is to find out what gap in the market the products are filling. E-tailers must find out what they are offering that nobody else does and see it as another factor that contributes to the pricing. For instance, if it is a unique/ niche product that solves the customer pain point, e-tailers can command higher prices.

Competition:

Studying competitors’ prices is also a big part of a pricing strategy. It can help guide e-tailers and establish limits. For instance, if the product offered is mature enough, e-tailers need to price the product by considering competitors’ prices. Else, they would lose the customers to the competition.

Brand positioning:

E-tailers must price their products depending on how they want to be perceived by customers: as a discount e-tailer, a high-end brand, or something in-between. For instance, high-end brands use premium pricing where their perceived value is much higher in the market.

Product demand:

Product demand is one of the most significant factors that can affect pricing strategy. Product demand primarily depends on consumer purchasing behaviors, which change over time and are never predictable. So, the pricing strategy must be flexible enough to attract consumers based on product demand. One can keep up with market demand by tracking real-time changes in buying behaviors and trends. Price skimming strategy works based on the demand of the product. For instance, when Apple launches its iPhones, it prices them higher initially to capture the affluent consumers and early adopters. Over time, Apple lowers the prices of its products to attract a greater share of the market.

 

Conclusion:

 

Product prices play a crucial role in the success of an e-commerce store. Having said that, not every pricing strategy will work for every kind of product offered by an e-commerce store. Every brand must do their homework and decide what works best for their products and target customers.

 

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