Once you decide about opening up a brick-and-mortar or online store, you will lay the foundations of your eCommerce brand. When you open an online store, one of the first things you do is to think about an effective product pricing strategy. The way in which you price a product speaks a lot about the pricing strategies of your products. If your price your products or services effectively, it will also help the customers in thinking whether they are worth the investment or not.
The online products cannot be sensed or touched by the visitors. Therefore, they can only rely on the product prices, product descriptions, and product images found on an online store. If the prices are too high, the customers would demand nothing but perfection from the product they invested in. If the prices are low, the customers will find it risky to invest as they would be doubtful about the quality of your products.
What is a Pricing Strategy?
A pricing strategy is a strategy that defines the price of a product. It is defined as the method which generates the best possible price for an eCommerce product. If you are a seller, you will try to maximize profit from a particular pricing strategy. However, you should also be cautious about consumers' perspectives and market demands. If you price a product properly, it will define the value of your product within the eyes of your customers.
Image taken from Strikingly User’s Website.
If you intend to generate maximum profit, you must know that it won’t come based on any shortcuts. You must have a proactive approach related to your pricing strategy. If we talk about the pricing of products, there are numerous factors for you to look at, such as marketing objectives, target audience, brand identity, and revenue objectives. It can also be about the scope of your product, as the pricing benchmarks of other companies might come into play.
Best Pricing Strategies Today
1. Understand the Market
If you have the intention to price a product, one of the most important things to consider is the market situation. In this case, competitor analysis plays a crucial role as it enables you to check the price of the same product in other online stores. By having this approach, you will understand the different price ranges of a product, their scope in the market, and how your products fit in.
Image taken from Strikingly
Even though many online stores prefer this technique, it is best for your business (especially if you are experienced) that you don’t do competitor analysis. If you have plans to sell products to customers that are cautious with the product prices, you may have to set your prices at the bottom of your range. However, even if your selling product is high-quality, you would miss out on the profits. To a large extent, prices tell the nature of the product to the customers. If the price is low, they expect the product to be low in quality and vice versa.
2. Discuss Pricing Objectives
Simply, you can start questioning how you want to price a product. By choosing the right pricing strategy, you will be able to get the right price of a product and achieve your objectives. If your decisions are correct, you will be expected to attain profit benefits alongside it. For example, if you want to launch a new eCommerce product, you can start at a relatively low price to build market share.
On the other hand, it might make sense for you to take the opposite approach. You can set a high price so that the visitors will be aware of the quality of your products. They will check out the specifications of your products, and if they find it fitting, they may consider investing in it. If you have consistency within your pricing, there is a chance that you will have repeat customers in the long run.
3. Decide Your Costs
When you go through a tutorial on how to price a product, one of the things that will get repeated the most is the product costs. In eCommerce, there are two different kinds of costs i.e. direct and indirect costs. On an online store, direct costs can vary from time to time. If you have the intention to increase the costs, you will see the direct costs being more variable. The factors involved in generating direct costs include:
- Raw materials
- Manufacturing costs
Unlike direct costs, indirect costs tend to be fixed. The indirect costs include the following:
- Investment in developing a new product
- Employment costs
- Overhead costs (such as rents or business rates)
4. Cost-Plus Pricing
When you price a product, one of the strategies to consider is that you can determine the percentage of your overhead costs that the product needs to cover. You can simply calculate it by adding these costs together and dividing it by volume to form a unit break-even figure. You must add a margin or a mark-up to your break-even point in the pricing section. This is considered to be the percentage of break-even.
Industrial analysis, market awareness, and previous working experience all play a part in deciding the mark-up level. If the price looks high, make sure that you reduce your costs and your prices effectively. As a businessman, you must be aware of the limitations in cost-plus pricing. It will work at its best if you consider selling all the units.
5. Value-Based Pricing
As we have learned earlier, cost-plus pricing refers to how you can change prices to earn a decent amount of profit. However, value-based pricing is a little different from cost-plus pricing. If you want to price a product through this strategy, you must consider how much the customers are willing to pay. You can set a price assuming how valuable or attractive your website products are in the eyes of your customers.
6. Subscription-Based Pricing
In recent years, subscription-based pricing has also become the innovative way to price a product. Suppose you are trying to understand how to price your product. In that case, you will understand that this pricing technique will enable you to receive regular payments from your respective customers over a certain period. In this pricing strategy, you can get a membership for many years. If you use the company’s eCommerce products on a larger scale, not only their prices will go down but the company’s brand value will also increase.
Image taken from Strikingly
Subscription-based pricing has many similarities with the paid membership offered by Strikingly. If you establish a professional website on Strikingly, it will give you an additional source of income. If you bring membership status to the equation, you must make your visitors aware of the features or content they will receive after gaining the membership. For example, they should be aware of the paid-only website blogs that can be accessed by members only.
7. Freemium Pricing
If you consider the word “Freemium”, you can see that it is a combination of two words i.e. free and premium. If you want to know how to price a product through this technique, you must know about the company’s membership plans. In this pricing technique, the company provides a basic version of an eCommerce product to their customers and hopes that they upgrade their membership plans to access more features. If you are part of any software company as a permanent employee or a volunteer, you would know about the pricing of a product.
Image taken from Strikingly
SaaS is strongly related to this pricing technique because restricted membership encourages visitors to go to the full version. However, they do not consider upgrading their plans before building trust within the software. You don’t need to consider the pricing plans of any other online platform than Strikingly. After completing your registration, you are part of our free (basic) plan. Apart from the free plan, we also provide our users with Pro and VIP plans, which will allow them to see a significant improvement in their website features.
The moment you step foot into the eCommerce world, you realize that there are numerous aspects for you to consider i.e. profit margins, product pricing strategy, market research, etc. If you want to price a product, you don’t need to go through every marketing term and think that you have to master it. Sit down, have a glass of water, take a deep breath and understand the basic aspects.
Image taken from Strikingly
As an entrepreneur, you must know that pricing isn’t just about randomly putting a price tag next to an eCommerce product. You must conduct market research before coming up with the best price for your product. You can consider the pricing of a product like the game of hit and miss. After several tries, you will find the right price for your desired retail price plan. Once you get the best price for your product, make sure that you display it on your business website as soon as possible.