If you've got the right online pricing strategy, then you have the perfect equation for driving sales. Here are 5 different eCommerce pricing strategies that will help you find the sweet spot in your online business.
Remember the price elasticity of demand theory from Economics 101?
It says there is adaptability in your pricing based on available inventory. You have the power to adjust product prices based on how many you have in stock versus how many your customers want. Your online pricing strategy will change based on customer demand.
That means you need to be flexible when it comes to pricing your products.
The secret to finding an online pricing strategy that works is learning to recognize eCommerce trends and choosing the online pricing strategy to work with it.
Start implementing these five online pricing strategies right now! And the best part is that each online pricing strategy is interchangeable depending on customer demand and the needs of your online business:
Competitive Online Pricing Strategy
A competitive online pricing strategy involves setting a price based on what the competition charges for similar products. You'll end up with a narrow gap between cost and profit.
Competitive strategies are warranted if your competitors are selling similar products. Remember to study the eCommerce marketplaces your customers might be shopping on, like Overstock, Amazon, eBay, Etsy, and Groupon.
Competitive eCommerce strategies mean you will be selling at a loss -- but here's a trick to get your money back:
- Bundle your products. One hot item may sell at a loss, but the margins on the less popular products bundled together will create balance.
- Sell more with auction listings. Listing your products at auction will put them in front of more customers. If you're selling your products on Tophatter, scroll down to learn how to optimizing online sales by auction.
- Minimize loss with a Name Your Price Campaign. Name Your Price is a new way to sell on Tophatter. Shoppers can name their own price, but sellers can set thresholds to auto-reject lowball offers.
Price Penetration Strategy
The #1 rule for price penetration strategies is start low. Sell an item for as little as you can afford. As sales grow, systematically increase the price to meet demand.
Best Times to Use Price Penetration Strategy:
- When you're working with a new products and you aren't sure how it will perform.
- When you want you products to appear high in search listings
- When you have a high volume of products
As your inventory hits top search results, you'll be selling at the ideal price for maximum profits. You're able to sacrifice the first few rounds of sales at a low price in order to sell a lot of items for top dollar later.
Price Testing Strategy
Social experimenting is a fascinating way to discover your online pricing sweet spot. If you like experimenting, try this price testing strategy with a little A/B testing to find your perfect product price.
What is A/B Testing?
The easy answer is it's the comparison of two versions of a web page or application to identify which is the best. For eCommerce, you're going to compare two or more price choices for a product.
A/B testing is NOT about moving the most units. Instead, you want to evaluate which price generates the most profit.
For example, moving 20 percent fewer units because you're selling at $9 instead of $5 is an excellent idea if the overall profit is higher.
Ideally, you'll change the price of your products over a fixed period of time, and hopefully with a nearly equal number of impressions.
Low Price Leader Strategy
The low price leader strategy is a common go-to, even if it is one of the least profitable online pricing strategies. Many eCommerce sellers will undercut everybody else instead of choosing a competitive price point.
There are two problems to keep in mind when trying to be the low price leader:
Top Two Risks with Low Price Leader Strategies:
- There will almost always be someone who can price lower than you, which can hurt your bottom line.
- Consumers will often question the quality of products that are priced too low.
Choose this online pricing strategy only if you've done the research and know it will work. Remember: the race to the bottom hurts you and the competition.
Good/Better/Best Merchandising Strategy
Good/Better/Best Merchandising isn't technically an online pricing strategy. But it is an effective eCommerce merchandising strategy that you can combine with your top online pricing strategy to find the most profitable price point.
How does this online pricing strategy work?
Buyers love choices. So give them options, such as colorful shirts at a lower price. Then offer the more desirable items, such as black and white shirts, at a higher price.
This online pricing strategy caters to those looking for premium items. It encourages price-sensitive buyers to purchase the less desirable but more re-sellable options. By pushing both ends of the spectrum, you can capitalize on both a varied inventory and segmented buyers.
Auction vs. Buy-Now Listing Optimization
Once upon a time, auctions averaged about a 5 percent difference from buy-now listings. But by 2009, there was a 16 percent difference in prices! On Tophatter, we sell 90 percent of our products at auction.
This significant difference continues to grow, which demands a better understanding of product pricing and performance from all eCommerce retailers. The most important things you need to know are these three key differences between online auctions and buy-now product listings.
Top 3 eCommerce Auction Facts from Tophatter:
- A good shipping price will widen your margins. When you set shipping below $5, it typically performs well. Free is even better.
- Aim to increase your sales rate as well as your average sales price. The average sales price should be higher than the target price. If the average price lower than your target price, update your shipping and starter bid to increase your price per sale.
- Review campaign performance every week. Tophatter suggests aiming for a sell rate of 60 percent or higher after 10 scheduled auctions. Anything less means you need to switch to a buy-now pricing schedule.
Ready to Start Your Successful Online Pricing Strategy?
Pricing your products will require a little problem solving on your part. There's always a bit of estimation and experimentation when it comes to online pricing, but these proven techniques will help inform your online pricing strategy decisions.
Your successful online pricing strategy gives you a significant advantage over your competitors, so consider these options carefully when designing the pricing strategy for your eCommerce business.
Michelle Lievense is a long-time business and marketing consultant who enjoys helping businesses and brands, particularly through her writing, craft and implement successful business strategies. When she isn't tapping her keyboard, she's hiking the Colorado Rocky Mountains with her dog, snuggling next to her cat with a favorite book, volunteering, skiing, or scuba diving.