Philip Kotler defines pricing as the only element in the marketing mix that produces revenue; while the other produces cost. It’s a fact that pricing is a very powerful marketing weapon that can boost sales. Why? There are various factors that influence consumers in making a purchasing decision but most of the time it all boils down to the product price. Here we will discuss the 4 best eCommerce pricing strategies to increase sales.
Table of Content:
- ECommerce pricing statistics
- Value-Based Pricing: Price = Product value perceived
- Premium Pricing Strategy: Price above the competition
- Anchor Pricing: Showing the difference in prices
- Segmented Pricing: Consumer-based pricing
Today consumers have various options to shop too. Gazing through stalls from one store to the other only to find the right item at the right price is ancient history now.
With the advent of technology, customers can browse online through apps and social media to find what they’re looking for. Therefore, if you’ve still not used the right pricing strategy, you might unwittingly tank your business.
To emphasis it further, here’s a list of statistics to help you understand the importance of pricing:
- The most important store features driving the purchasing decision (80%) is competitive pricing. (Source: Hubspot)
- Around 90% of eCommerce shoppers are masters of hunting deals. Thanks to technology and comparison shopping engines consumers get alerts in multiple items from multiple stores. (Source: Prisync)
- Price comparison engines are a key part of the e-commerce marketing stack, as they constitute around % 20 of e-commerce traffic for all sorts of product categories.(Source: Prisync)
Most of the time it all comes down to how you want your brand to be perceived by the end-users. Do you want to be perceived as a business that sells below the competition, or gain respect by selling at the right value price?
To help you get the right attention, here we’re going to share 4 best eCommerce pricing strategies to grow your online business:
1. Value-Based Pricing: Price = Product value perceived
Value-based pricing considers the value that the end consumer perceives of a product. It ensures that the customer is willing to pay a price which is quite equivalent to the value they’re receiving through it. With this strategy, you can use economical principles of demand and consider other internal information as well as external factors for pricing.
This type of strategy considers all market factors such as your target audience, product specifications, and market research to create a price that is flexible and supports your brand image.
The best way to unlock this information is through customer communication. Ask your customers what key features of the product they value the most – is it the quality of the material? The battery life? Durability? Once you understand the core feature of your product, assign an amount reflecting how much it is worth. Instead of assigning the amount for every single feature, just calculate the value of the features that make your product different.
Apple is a classic example of pricing in reflection on the value of its products. From its earliest days, Apple’s pricing mirrors the simplicity of their products and the ease of use for the customer. This built customer value over the years and now the majority of tech products used over the globe are Apple’s. The sleek design that makes Apple products different from its competitors, the familiarity with iOS and macOS, and other software and hardware integration that makes Apple products work well are just some of the key factors that favored Apple in creating and maintaining brand loyalty.
Just like Apple, value-based pricing can strengthen your brand name and improve customer relationships for you too. When customers realize that they’re paying the right amount for the value perceived from your product, they’ll be happy to come back to you and buy again.
2. Premium Pricing Strategy: Price above the competition
With premium eCommerce pricing strategies, you set the price of a product higher than the competition to establish it as a high-quality product in the minds of the consumers.
The strategy is also called skim pricing but unlike skimming, it involves setting prices high. Luxury brands often play with the premium price strategy as the marketing managers know that the brand name is enough to ensure that their product is better than any competitor’s products available in the market.
When should you apply a premium pricing strategy?
Setting up a premium pricing in just your early stages can be sensitive to your brand’s reputation. We’ll recommend you first develop a strong customer base and product demand in the market. Once your company has established brand loyalty, figure out the areas where you can maximize profit – like where the customers will be happy to pay more, or where there is no other substitute in the market. See where you can apply premium pricing to your business.
Brands like Fitbit have identified themselves as a premium brand from the very beginning and entered the market with above-average prices. The company captured the wearable market for high-quality and high-end devices using premium pricing.
However, FitBit also has a big name behind it i.e., Google. So it doesn’t necessarily mean that premium pricing at the very start of your business may prove good for you too.
3. Anchor Pricing: Showing the difference in prices
Anchoring is a “cognitive bias” to rely heavily on the initial piece of information offered (the “anchor”) when making decisions.
Anchor pricing is a strategy of making a product that you first offered seem cheaper when put alongside another similar product. Remember that a product is never “cheap” or “expensive” unless it is being compared to another product.
When it comes to purchasing a product, people have an “anchor” price that allows them to value that product.
For instance, look at how Madewell uses anchor pricing to increase the sales of their products:
They’ve put similar black leather boots together but one costing way more than the other. See how one pair of leather boots cost $795 while the SIMILAR looking pair of boots are a steal at $600? You don’t need to spend that $195 extra to get a great pair of boots.
Smartly placing premium products along with less expensive products helps generate a clear sense of value for potential customers who will see the lesser expensive option as a steal-deal in comparison.
4. Segmented Pricing: Consumer-based pricing
Not all your customers would expect a similar price for a product. Some may find the product price way too much, while others wouldn’t mind spending a few bucks more for a similar item. This is where you, as an eCommerce retailer, can benefit from.
Setting more than one prince for a product to different types of consumers, irrespective of its production and distribution costs being the same, is called segmented pricing.
For instance, you can take advantage of price disparities between different geographical regions by offering a different price structure in each region.
Let’s say you have a product worth $20.
Some of your potential customers may see it as too expensive considering the value of that product. There will be a set of other potential customers who may be willing to pay $5 extra. If only you set the price at $20, you will be losing money from customers who won’t purchase the product at that price as well as from customers who are willing to pay more.
What you can do is segment price into three different categories, $15, $20, and $25. This way you will appeal to customers looking for cheaper and also get extra revenue from customers who can pay more.
Once you’ve made changes in your pricing strategy, it is wise to measure and test the success of it to see if the strategy works for you or not.
Which eCommerce pricing strategies suits the best for you?
For most eCommerce stores, pricing acts as a powerful marketing tool that can help them boost sales. Failing to use the right eCommerce pricing strategies and you can eventually tank your business.
Not all of the strategies that we mentioned here can be implemented at once. Taking one step at a time to strategize and experimenting with the right idea and measuring the results over time can be the best approach.
Be aware of your target audience and your competitors to see the changing behaviors of the market to choose the best eCommerce pricing strategies for your business.
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