Ecommerce Pricing Strategies

Last Updated on July 7, 2023 by IS Back Office

When it comes to ecommerce pricing strategies deciding a retail price strategy is often as straightforward as alluding to MSRP’s (the manufacturer’s suggested retail price). However, you are gambling with your trust.

This gamble could cost your Business Brand in the long run. If you follow this method, you have to truly ensure that the manufacturer has in fact done all the work required to determine the MSRP.

However, for new and scaling business organizations, choosing the amount to charge for your items is a touch more perplexing. Eventually, clients aren’t pondering what your potential costs of goods are. They’re thinking about what an item is worth, which is actually an emotional decision.

Correct, how much your customer will pay for the item that they are purchasing from you has very little to do with your costs and has more to do with the esteem your “Brand Message” generates.

The Science of Ecommerce Pricing Strategies

Ecommerce pricing strategies are simply the methods that an ecommerce Brand utilizes to affix a retail price to their products. Basic financial metrics come into play such as the costs of goods, production costs, labor costs and more.

A retail price will often get finalized once revenue goals are determined. In addition, you have to look into the future to the point in which you actually have loyal customers. From this perspective, you can determine other metrics such as average order value (AOV) and lifetime customer value.

What ecommerce pricing strategies are not, however, is a race to zero and a hope to make it up with volume.

Simply put, if the retail price of your product is too high (especially when there is no true value), as well as if your retail price does not match your Brand Value, you’ll risk creating unhappy shoppers, abandoned carts (where the customer changed their mind and did not complete the purchase), lost sales and begin the dreaded process of building a bad reputation. At the same time, if the retail price of your products or services are too low, not only will you lose out on profits (profits that are needed to put back into the business to continue building it), you may end up leaving very little room for increasing margins later.

There are multiple ecommerce pricing strategies and you should really do your homework when it comes to this. Matter of fact, a lot of companies hire a pricing analyst, especially for new products and services that do not yet exist in the marketplace. For the purposes of this article, here are the basics of a few strategies that most commonly used.

Competitive Ecommerce Pricing Strategies

Competitive pricing is simply when you set a price for your products or services based on what your competition charges. Consumer affordability is often built-in and this results in making products or services more accessible to a wider group of customers. We would like to point out that it is not good practice to attempt to market to everyone on the planet. Once you know exactly who your target demographic is, value based pricing is a good starting point.

Value-Based Ecommerce Pricing Strategies

Let us assume that your Brand Message is on point and your customers are interested in buying from you because they want to support what your company represents. You can analyze a competitors product and determine what their customer is paying for it. Next, determine all of the ways that your product is truly different from the competitors product that you are measuring against. We need to demonstrate immediately that a critical step for this to work is to make sure that your marketing can truly demonstrate these differences. Next, with these key differences in place, determine a value of these differences. Add up the positive values and subtract any negative values. The following is a basic point to make but it must be made; make sure that the final number that you arrive at is actually higher than your costs. Contact us for help.

Price Skimming

Let’s be clear, if you are considering this option, your company is more than likely heavily financially backed. This is a strategy often utilized by larger technology brands such as Apple for example. This method puts focus on offering a small amount of high-end products, heavily marketing them, creating a “halo effect” (the tendency for positive impressions of a person, company, brand or product in one area to positively influence one’s opinion or feelings in other areas), and then capitalizing on the results. Once these early adopters have come and gone and competitive products begin to emerge, the next thing you know, your retail price points begin to drop. 

Market Penetration Pricing

Market penetration pricing is actually a marketing strategy. It needs to be carefully thought out, planned and executed. This pricing strategy is often used by a business to attract customers to a new product, service, or Brand. A lot of companies will launch their business by offering a lower price at the initial stages. This lower price can help a new Brand penetrate the market as well as potentially acquire customers away from your direct competitors. Once your target demographic is familiar with your brand, and your competition is no longer an issue, you can raise prices, introduce SKU’s that have more value as well as more profit, create bundles and more to increase the average order value to thereby maximize profit margins. Book your free consultation to see if we can help.

Choose your ecommerce pricing strategies wisely. Building a Business Brand is a marathon and not a sprint. If you are at this stage, you should already have your business team members in place. We would love to be part of your team going forward.