Retail Pricing Strategies in E-commerce: The Ultimate List
Key to success in e-commerce is the right price. Prices are going up and down constantly, and how it’s set will determine your position on the market. The right price is the one that drives the most customers and ensures your profitability and protects your market position. Depending on your desired position on the market, there are different pricing strategies that you can apply. You can choose a different one for each product or use the same one for all of them, but what you need to keep in mind is that market is alive and you will need to stay alert of all the changes and make necessary adjustments to your strategy if something isn’t selling well.
Here, we are going to mention some of the most important pricing strategies in e-commerce. Let’s see the list:
- Cost-based E-commerce pricing
- Value-Based Pricing
- Penetration pricing
- Bundle pricing
- Dynamic pricing
Cost-Based Pricing
The simplest of all strategies is the cost-based one. It’s also the most popular one in the retail industry. The math is simple here, just look at the equation.
Cost of production+Desired profit margin= Price
Cost of production includes fixed and variable costs. Fixed costs are independent of the output, while variable costs aren’t. So if you produce more than planned, fixed costs are staying the same, but variable ones are going to be higher. As for the desired profit margin, it’s how much the manufacturer wants to earn. It differs from manufacturer to manufacturer, from product to product, industry to industry, etc. This is up to them choose how much they want to get from each sale, but most of the time they’re limited by customers’ purchasing power. For example, someone is producing and selling product A for $50 (and it costs him $15 to make it), compared to someone else’s product of the same kind that costs 30$ (product cost is the same), people are going to buy the cheaper one. So the purchasing power is a big factor here.
Value-Based Pricing
In this pricing strategy, price is set based on what the manufacturer/seller perceives a consumer is willing to pay for a particular product at a particular time. The price they’re willing to pay can be different during the time. It’s the hardest strategy to implement right because it requires extensive market research and a deep understanding of customers. Companies that offer unique or highly valuable products can take advantages of this strategy more than companies which sell everyday, regular products. For example, you can’t apply this strategy to bread, but you can to a phone. It’s all about what consumer thinks of that product and how it makes him look.
Penetration Pricing
This strategy is for new products. The main thing is that a company wants to present its product to customers and attract them. And how they do it? Well, they offer the product at a lower price in the beginning. The lower price will make customers aware of the product, and they’ll start buying it. And after the initial time, the price of the product will go up. The logic is that the people will stay because they like the product, and don’t want to change it for other type/brand.
Bundle Pricing
Bundle pricing strategy is about selling more and exposing unpopular or new products to the consumers with a popular one. The best example of this strategy are deals like “Buy one, get one free”. This strategy isn’t only popular in selling goods, but in selling services as well. If you want to know more about it and learn about its advantages and disadvantages, you can read about it at this blog post.
Dynamic Pricing
Dynamic pricing offers the same price for everybody and that price is always changing due to different market conditions. Three factors that you have to take into consideration when pricing the products are supply, demand and competitor’s behavior. Since we have already covered this topic on the blog, we’re not going to repeat ourselves. You can read more about it here.
Choosing the right pricing strategy is hard. You need to consider many factors, such as costs, the purchasing power of customers, industry, etc. It’s a trial and error process, some succeed the first time, some don’t. Important thing is to keep an eye on the market and change when necessary.
Which of these pricing strategies do you find the easiest and which the hardest? Let us know, we would like to hear your thoughts.
