Pricing your eCommerce products comes with a balancing act. It is about more than putting a low price because it won't generate any profit despite steady sales. Similarly, you cannot put a high suggested retail price on your products because it will result in lower sales and eliminate budget-conscious buyers. Consequently, you will experience a loss in the market position.
Regardless of which firm you belong to, it would help if you did your homework. Production and business costs, company trends, revenue targets, and competitive pricing all play a role in your pricing strategy. Pricing a product is about more than just analyzing the correct number for your retail product. It is the most crucial component of your eCommerce strategy and must be given special attention.
Unlike humans, numbers follow a specific pattern and remain logical. Although you must perform calculations to finalize your keystone pricing, you must take the second step and move beyond data analysis and calculation of numbers. The art of pricing products also shows how human behavior influences price perception. If you want to implement your suggested retail price, you must come up with various pricing strategies and their psychological effect on customers.
What is a Retail List Price?
The suggested retail price of a product is usually related to the markup of the invoice cost. Since you are the business owner, remember that the invoice price reflects the retailer's price to the wholesaler. It excludes the costs of running the business and selling products. The profit margin on a retail store is calculated by adding the retail markup with the invoice price (retail price) to account for the external costs of conducting business operations (rent and utilities).
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The manufacturer's suggested retail price (MSRP) stabilizes the product pricing across the retail store. In this case, the products are sold by identifying price points around how much the manufacturer wants the product to be sold for. MSRP is the way to go if you are selling high-ticket products, such as vehicles, electronics, or luxury clothing.
The retail price is the exact price at which the manufacturer sells its products to retailers and wholesalers. Alternatively, retail price involves a profit margin that includes selling costs, not part of invoice pricing. If you are a product seller or a manufacturer, ensure that you finalize a suggested retail price that reflects the value of your products.
Choosing the Right Pricing Strategy for Your Business
1) Cost-plus Pricing
Many business owners and clients believe that cost-plus pricing (markup pricing) is the only way to identify the suggested retail price. This strategy puts forward all the contributing elements for the unit to be sold, including adding the fixed percentage onto the subtotal.
Many retailers and manufacturers usually find a cost-plus pricing strategy to be simple and a time-saving way to price products. For example, let's assume you own a hardware store providing many items. It won't be wise to analyze the value to the customer of every bolt and washer.
2) Competitive Pricing
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Let's assume you are selling an eCommerce product similar to others, such as peanut butter or shampoo. As a business owner, you should also analyze what the competitors are doing regarding the suggested retail price and make any necessary adjustments. By taking this approach, you are doing competitive pricing. Competitive pricing is all about studying other players in your field. You can use the following three approaches while conducting the competitive pricing strategy:
- Co-operative Pricing
In cooperative pricing, you match your competitors' price value. If your competitor increases the price by one dollar, you can hike your price in the same way. It is similar to how people price their products at the gas station. The weakness of this approach is that it leaves you unable to make optimal decisions for yourself as you are too busy with the things done by others.
- Aggressive Pricing
Aggressive pricing introduces an entirely different approach to cooperative pricing. For example, if your competitors increase their prices, you take the bold decision and keep it constant. Similarly, if they are lowering their price, you take the extra step by lowering your price even more. Hence, you send a message to your competitors that regardless of their actions, they better keep your prices the same, or they will face the consequences.
Since this approach is about making bold decisions, it is only for some business owners. An established business usually flies above its competitors with a healthy profit margin. The safest marketing trend with this approach is the consistent lowering of prices. However, your business can risk financial trouble if you see a sharp decline in online sales.
- Dismissive Pricing
If you are a leader in your market and selling premium products or services, you can consider the dismissive pricing strategy to estimate your suggested retail price. In this approach, you price according to your analysis and don't get influenced by what your competitors are doing. The difference between dismissive and aggressive pricing is that despite making bold decisions in both of them, you are still studying your competitor's actions in aggressive pricing. Ignoring your competitors' actions can even boost your status regarding marketing leadership.
Is dismissive pricing sustainable in today's eCommerce world? It can be if you believe you can understand your customers properly, with accurate pricing and relevant information. On the other hand, ignoring your competitors will not be the most clever idea because you will be left exposed to the surprises in the market.
3) Price Skimming
Companies tend to consider price skimming to estimate their suggested retail price when introducing new products with no competition. They go with a high price initially but lower it with time. For example, let's assume that you are selling televisions. If you have introduced a new type of TV, you will put a high price to tap into the market of technology experts. The high price will enable you to recover some of the development costs.
Eventually, when the sales decrease, the manufacturer reduces the suggested retail price to establish a price-sensitive segment of the market.
4) Penetration Pricing
Penetration pricing can be the ideal strategy to finalize your suggested retail price if you set a low price to build your customer base. For example, a lower price can make your product stand out if you belong to a market with many similar products and customers sensitive to price. You can motivate your customers to trust your brand and build product demand. Eventually, it increases the volume of online sales and reduces your unit cost.
Companies may tend to consider penetration pricing strategies to establish a technology standard. Some gaming console makers, such as Xbox and PlayStation, use this approach to offer low prices for their machines. They understood that most of the money was not made from the consoles but from the games.
5) Value-based Pricing
In value-based pricing, the suggested retail price is based on how well it is suited to the customer's demands. If you prefer value-based pricing, you can gain an advantage over your competitors in the following ways:
- Price is better in the eyes of the customers
- Price brings more profit, which allows you to grow your business
When a price isn't working for you, you shouldn't just lower it without doing homework. Instead, it would be best to study how your price can correspond with the customer value. You have to alter the market to suit it better. You can determine a value-based price for your products by going through the following steps:
- Pick a product comparable to yours and see the price tag set by your competitors.
- Identify ways in which the product can be different from the comparable product
- Add all the positives and deduct any negatives, which generates the financial value of your product.
- Ensure that your customer value is higher than your costs.
- Justify your prices to the customers, which may result in an argument with them.
Build Your Retail Store on Strikingly
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To make your retail business successful, you must rely on more than just a physical store. In today's day and age, your retail store must have a professional website next to it to keep your productivity going. With a professional business website, you can keep up with the business trends. There is no better website builder than Strikingly to help you build your retail store. Strikingly enables you to build your retail store within minutes without needing expertise in website development.
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Apart from website development, Strikingly also helps you with subscription-based pricing. After building your website, you can use our paid membership subscription function. Since you are the website owner, you must clarify how much value your subscribers will receive as members. For example, they can get access to paid-only material and other benefits.
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Strikingly's website-building process is reminiscent of a freemium pricing plan. Apart from other premium services, Strikingly provides a free basic plan after completing your registration. This is a fantastic approach because once customers use our web builder service, they are delighted with it. They want to keep using this web builder service with additional benefits, such as Audience Plan for live chats and domains for custom addresses.
Being a business owner, it is easy to lose focus while finalizing your product prices. For example, you must consider competition, production costs, customer demand, industry demand, profit margins, etc. The good news for you is that you don't need to master all of these things at once.
Since you are the business owner, you should take a deep breath, identify some critical numbers (such as profit margins), and determine what is the most important for your company. You can start your pricing strategy by identifying what you require. Eventually, this will help you determine the best suggested retail price plan.
It would be best if you also remembered that the pricing of products is an iterative process. You will need to come up with the correct product price on your first attempt. Identifying the right price may take several attempts and various studies, but it's okay. Being a business owner, you should understand the complications of retail business and get on with it.