Getting the pricing of your product right is a critical factor for success when it comes to ecommerce. It will provide you with the profit you need and give the customer the feeling of value.
Some ecommerce merchants don’t spend much time on pricing and offers because they fail to see how beneficial it can be or view it as more boring than other marketing tasks.
Here are some tips courtesy of Chris from RepricerExpress that all sellers should be considering when deciding what price to set for their goods. Not all the points mentioned in this post will apply to you, but you should be able to find one or two ideas that you can consider for your business.
To avoid setting your price too low, you need to factor in all the costs involved in getting your product to market. If you’re selling on Amazon then ensure you factor in fees and FBA charges (where applicable).
When setting your pricing strategy, you’ll need to consider what sort of profit margin you’re aiming for. For example, if costs and fees are £10 and the profit you wish to make on the product is 30% then you’ll want to price your product at £13 (£10 + £3).
Price higher at first
A popular strategy is to price high at first, leaving room to lower prices later if sales aren’t healthy enough. If a new product is launched, consumers may be willing to pay that bit more for it, ensuring you can maximise profits early on.
Buy now—not later
Some ecommerce sellers will communicate with buyers that prices will increase to create urgency and encourage them to buy now (and not later). This tactic also works when you want to shift stock quickly.
Price high or low?
Low prices will usually result in more customers and visitors to your site, better conversion rates, higher customer retention plus an increased likelihood they will leave a positive review and tell a friend. However, being the cheapest can sometimes be perceived as low quality.
High prices will usually result in higher profits per purchase. You may be able to increase your prices by a small amount and get the same level of sales but at a better profit margin. People will tend to buy items they perceive to be of higher value.
One option isn’t better than the other — it all depends on your business model. Consider the below factors when setting your product price:
• What the customer is willing to pay.
• What your competitor charges.
• What your product visibility is like.
• Expected product sales volume.
Analyse your customers
Using market research tools such as surveys to find out how much your customers are prepared to pay for your goods or services can be beneficial.
You can also use A/B testing to see which price yields you the greatest profit. Another option is to test different prices on different days. Depending on where and what you sell, a loyalty program might make sense.
Analyse your competition
Ask yourself where you want to position business in relation to your competitors. Under-pricing can hurt your profits but overpricing can result in low sales as buyers can easily compare your prices to your competition.
On Amazon, competition is intense, so you’ll want to be competitively priced at all times in order to have a shot at winning a share of the Buy Box.
Customers love free stuff, so consider offering free gifts and incentives to increase sales. Information is a great thing to give away because it costs next to nothing and can have incredibly high perceived value—think of valuable information that your customers would love to have.
Another idea is to offer something small for an irresistible price, just to get something into the buyer’s shopping cart in the hope that they’ll buy other items from you.
Companies make prices look lower by hiding the decimal points, e.g. costs only £149 instead of costs £149.00. £9.99 is also perceived as being much lower than £10.00.
Interestingly, people find it easier to understand fractions than percentages — so it’s better to say, “half price” than “50% off”.
If it works once…
If you have an offer or pricing strategy that you know worked in the past, use it again.
Increase prices gradually
Have a plan to strategically increase prices over the next 2-5 years. Around 5-10% is a good target.