If you have just launched your own eCommerce store, devising an effective pricing strategy for your products can be tricky, especially when you to take your competitors into account. Setting a price for your products can be challenging, as you need to give customers a satisfactory price, cover expenses, and still make a profit.
Pricing your products too low or too high can have undesirable consequences for your online business. To help you get the right start, here’s a guide to the three most effective eCommerce pricing strategies, written in collaboration with PayU, an eCommerce payment solutions company.
1. Cost-based eCommerce Pricing Approach
This pricing strategy is one of the popular pricing models in the retail industry. What’s great about this strategy is that it’s very simple. It allows you to set prices without having to do extensive customer or market research and guarantees a minimum return on each product sold.
You simply work out the cost of the product you are selling, and then you can add a markup to get your desired profit margin. Remember that what a product costs you encompasses the purchasing price from a wholesale merchant or producer and the operational costs for each product. Other costs may include fees for shipment, warehousing, and human resources, to name a few. The markup you add should be enough to cover ongoing expenses and should enable you to make a profit.
2. Competition-based Online Pricing Strategy
With the competition-based pricing strategy, you simply set your pricing similarly to what your competitors are charging for the same product. The eCommerce market is getting bigger, therefore you need to keep an eye on what your direct competitors are charging for a specific product because it’s essential to know how where you stand in comparison with your competition.
3. Value-based eCommerce Pricing
This is the most complex pricing strategy because you set the price based on the value buyers to prescribe to the product rather than on the actual cost. It not only requires market research but also customer analysis. You have to study your best customers, examine their reasons for shopping online, understand which product features they view, and analyze whether the price is important in their buying decision. A value-based eCommerce pricing strategy can result in more profit, both from each product purchased and overall sales.
There are many other pricing strategies you can use for your eCommerce business. You need to figure out which model will be the most effective for your type of business offering. A successful online pricing strategy can give your online store a competitive advantage over competitors, in the same way, that accepting payments online does.