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eCommerce Pricing Strategies – How To Price Products in 5 Easy Ways

When you invest your time and money on an eCommerce website, merely selling products is not the key. As a businessperson, you need to work on your eCommerce pricing strategies.

No doubt, everything has to be profitable. A layman can tell that the selling price has to be more than the cost price to make profits. However, is it that simple?

Will pricing your products randomly help you to build a sustainable eCommerce business? Certainly not!

Overpricing can lead to low conversions, and customers swaying away from your products. On the other hand, underpricing will not fetch you the deserving profits. Hence, it is important to price your eCommerce products perfectly.

If you are reading this article, then it surely means that you are just starting with the eCommerce business. So, it is our responsibility to keep things simple and effective. Larger eCommerce businesses can hire financial experts to help themselves.

5 Most Effective eCommerce Pricing Strategies For Your Business

1. Cost-based Pricing

Cost-based pricing is a simple and most commonly used strategy.

Cost + Desired Margin = Price

But is it that easy? For eCommerce, it is trickier than the normal retail pricing because there are many hidden costs that sellers fail to consider. In offline businesses, every payment is visible and noted.

However, in eCommerce, maintenance of the website or marketplace adds up to your cost of manufacturing.

Your server costs, domain cost, developer cost, and even the external tools that you use add up. Apart from the website, you need to pay taxes because every transaction is monitored in online business.

Since shipping is also your responsibility, you end up bearing the logistics. Some eCommerce websites ask for delivery charges separately while others add it in the pricing. In one of our articles about individual eCommerce strategies, we discussed how giving free shipping is more appealing for customers than paying separately.

Food Delivery platforms give you a complete breakdown and add their commission. For a customer, the bill varies according to the price of the products.

In short, consider all the costs and then proceed with the pricing of individual products on your eCommerce website.

2. Target Return Pricing

Target return pricing is a riskier strategy for small businesses and individuals. It is a strategy where the eCommerce store will set a price that would give them profits only if a specific quantity is sold.

It requires serious calculations and confidence to sell a specific amount of products. This is the reason why eCommerce giants like Amazon and Flipkart operate on target return pricing strategy.

According to the Economic Times, Flipkart’s revenue increased by 43%, but losses went up by 69% in FY2019. Similarly, Amazon Retail India reported a loss of Rs 127.4 crore in FY2019.

It is evident that they are making heavy losses, and the cost of customer acquisition is high. But they know that they will be profitable once they sell their target quantity.

Image Source: Christian Wiediger on Unsplash

In the offline market, DMart and Walmart operate on a similar strategy. All these companies work on mass selling and thereby eradicating all the competitors.

3. Value-based Pricing

Value-based pricing is where the customers feel the right value for handing over the money to buy your products.

Rolex sells the watches, and so does any other brand. Similarly, Nike sells the shoes, and so does Gucci. But what makes the price difference so high? The brand!

People are willing to pay for some brands while not for others. The brand value plays an important role here. The way brands make their customers feel will decide the brand value.

Heavy research is required in this strategy to figure out customer demographics, persona, and product preference analysis.

Another factor plays when there are high demand and fewer suppliers. It can lead to high value-based pricing.

For instance, Business Insider reported that the prices of hand sanitizers hiked by 53% in the USA during the coronavirus pandemic due to high demand.

4. Competitive Pricing

Competitive pricing is the most common strategy in any market. From road-side vendors to large companies, it is visible everywhere.

Pick up your nearest competitors and spy on their pricing strategies. Once you get all the data, price your products equal to them or less than them.

However, there are very high chances of facing losses if your cost is higher than your competitors.

It can be a possibility that your competitor is operating on a bulk scale and thereby reducing their costs, but you are starting at a smaller scale. In such cases, it is better to stand out from your competitors and go with the value-based pricing strategy.

A competitive pricing strategy can help you gain market share rapidly because India is a price-sensitive market.

5. Real-Time Price Optimization

Real-time prize optimization is the best strategy for eCommerce websites to implement along with other methods. It involves reducing or increasing the prices of your products based on the ongoing situation or time.

Many eCommerce websites hike the prices when they see that their competitor’s product going out of stock. That fetches all the customers of competitive eCommerce sites to their websites, eventually boosting the revenue.

Some stores even automatically set the prices based on demands. Uber or any other taxi service keep optimizing their cab charges based on time and availability. Although it is not an eCommerce store, technically they are selling something online.

Another way is to implement the festive sales. We have a dedicated article about boosting eCommerce sales during festive seasons. It discusses the real-time optimization of your prices due to the festivals. Many stores declare heavy discounts on Black Friday and Cyber Monday in the USA.

Popular hosting services are giving away discounts for Black Friday.

Summing Up

Stay competitive. Your shoppers are smart. Test pricing and figure out what helps to scale your profit margins. Leave room to improve if you need to.

eCommerce is all about adapting and improving regularly.

Steadily building your store and tweaking prices will help customers get the best out of their experience with you.

Do you want more traffic on your eCommerce website or planning to build one?

We are determined to work on such projects and generate revenue. But the only question is, will that be your eCommerce business?

Let’s Work Together

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