Setting the right pricing strategy for your eCommerce business is the first and foremost important step, but it’s far from simple. If you want to determine the best prices, it will require some time. That’s just the way it is, regardless of your experience level.
However, this pricing journey can be especially tricky if you’re stepping into the eCommerce waters.
Soon enough, you’ll become aware of many factors affecting the customers’ purchase decisions. The price is one of the most important, if not the most important.
It is easy to get lost in a sea of different strategies. Of course, having the help of a price monitoring tool, such as Price2Spy, is always a plus.
In this post, we presented the three most common pricing strategies. Still, you’ll see how they differ, and you’ll probably be able to figure out which one you could use.
Let’s jump into it!
What is a Pricing Strategy?
First things first. Before deciding on the strategy, we need to take a step back and explain a pricing strategy.
A pricing strategy is a set of methods that you can use to define the most suitable price for your product. Of course, you need to attract potential customers first. But, if your price is not well set, they will leave before purchasing.
Price is always important, but in the case of an eCommerce store, even more. In the online environment, the price is continually changing. That’s another obstacle to be overcome. Prices can’t be too high, but also not too low. So, let’s briefly overview the most common pricing strategies.
Cost-based pricing is a strategy that involves setting prices based on the company’s costs. Usually, those costs include producing, distributing, and selling the product. This strategy is also called floor pricing since it’s the lowest price companies can set and still profit.
A downside to this pricing strategy is that it doesn’t consider demand or competition. If a competitor can make the product by investing less, he’ll earn more profit even if you two have the same selling price. Since you’re mainly following the production costs, your price may be lower or higher than the rest of the market.
As the name says, this pricing strategy uses competition prices as a benchmark. Of course, your price may be lower or higher than this. A lower one means more selling units and making a smaller profit. On the other hand, with higher prices, you have the opportunity to earn more. However, that may be risky since the potential customers might withdraw.
As you can see, this pricing strategy is pretty simple. If you have a reasonably solid grasp of your product’s quality and target audience, this method will most likely never fail. After all, your competitors are successfully using it. Therefore, there’s a slim chance you’ll make some fatal mistake.
Two previous strategies are easier to set since the criteria are more precise. But, the value-based pricing situation is more complex and difficult to predict. This strategy is based on predicting the value that your future customers set for your products. In other words, you need to foresee how much they will be willing to pay.
You may not want to hear it, but customers don’t care how much something costs you to make. They only care about the value they’ll receive by buying your product. Therefore, you’ll need to invest a lot of time into research. Getting to know your customers is necessary to predict (to some extent) their behavior.
This strategy will push you to become better. You’ll need to develop higher quality products and have outstanding customer service. On the other hand, it will take time.
All pricing strategies are two-edged swords. What some customers might see as a benefit, others can see as a disadvantage. Therefore, you must always keep in mind who is your targeted audience. They are your end goal, so your pricing strategy must always be aligned with customers’ needs.
If you think all this is easier said than done and you’re starting to get lost, the right help is just around the corner. With Price2Spy’s 30-day free trial, you’ll see that running a successful business is not so difficult.
How was your journey of finding the right pricing strategy? Share your experiences in the comments below.
Misha Krunic is the founder and CEO of Price2Spy. With a rich career in IT and eCommerce, he founded Price2Spy 9 years ago when there were only two competitor companies in the world market. Since then, Price2Spy has been one of the world’s leading price monitoring tools, with over 650 satisfied clients worldwide.