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3 Pricing Strategies That Every Ecommerce Company Should Know

 

Imagine that you are inside a shop! Can you recall the actions you took and the feelings that evoked during this process?

Well, most probably you took your time to wonder around the store to find something that caught your attention, such as a t-shirt, a shirt, a pair of jeans or whatever item this shop was selling. You quickly hold them on and imagine yourself wearing them. You smile. You want to make these items yours. So, the next step is to find their price tag, turn it around and check how much it costs.

And it costs a lot. This was exactly what you feared of and now you start playing scenarios in your mind. If you buy this amazing item, you most probably must save money from other activities in your free time. Not wanted to do so, you give up and leave the shop disappointed.

The above is a quite common offline shopping story no matter what type of products a shop sells. Have you ever thought if the same experience progresses differently in e-commerce, namely while shopping online?

Actually, online experience seems to progress a lot differently as you don’t need to flip the pricing tag. Prices appear in front of your eyes right away along with the product name, its description, its photo etc. It therefore becomes evident that online pricing of products becomes one of the most important qualifiers when you start searching a specific product in an e-commerce website.

What do you think… Do your customers care about your online pricing?

The answer is pretty simple. Online pricing matters to each and every customer.

Let’s see some findings that will show you how much and why you should care about your online prices:

  • More than 60% of online shoppers worldwide consider online pricing as the very first criteria affecting their buying decision.
  • Around 90% of online shoppers are quite savvy on searching deals and invest time for that before deciding on making a purchase. This time is measured to be around 10 minutes per every purchased item.
  • Price Comparison Engines and websites are a crucial part of e-commerce marketing, as they form around 20% of e-commerce traffic for all sort of product categories.

From the above it can be inferred that e-commerce companies of any size from all around the world should focus their attention on online pricing management operations and view it as a team sport, rather than under the management of few people in the company.

If taken seriously and managed accordingly, companies would see that online pricing can act as a marketing tool and in turn, have a major impact in the conversion rates of product pages.

Let’s take a dive and see how you may start caring about your e-commerce pricing in your website as much as your customers do and start getting most out of it!

1. Cost-oriented e-commerce pricing

cost oriented pricing

Any ecommerce company should be aware of its costs and one of its pricing strategies should be cost-oriented. This pricing approach requires the company to be able to identify its unit product costs for each of its products, set a target profit margin for each of those products and then, price the products as the sum of the unit costs and the target margin.

It may sound too obvious but most of the ecommerce companies seem to lose track of their unit costs and fail to apply this strategy, missing the balance between their unit costs and product prices.

The main reason behind this miss is that unit costs differ for every company and the environment the company operates in. This means that the unit product cost is not defined only by the cost an ecommerce company pay to the supplier of that product, but it is also about all the associated operational costs that a company has in order to deliver that specific product to its end-consumer.

In more detail, the target profit margin should be the one that will maximize the total profit gained for an ecommerce company. The target profit margin does not depend on the company, still it depends on the market and the buyer personas.

However, cost-oriented pricing should be the basis for other strategic online pricing approaches and should by applied in correlation with them, as on itself it can either undervalue a company’s products or undermine its competitiveness depending on both the calculations and profit targets.

2. Market-oriented e-commerce pricing

market oriented pricing

An ecommerce company, like any other company in any industry, is not alone in this world and in its market. There are tons of active companies in the same industry and therefore, they directly compete with each other.

From the above it is made clear that a company cannot only focus on its costs while creating a pricing strategy, but attention should be given to the market competition. Consumers care a lot about online prices and they compare your prices with your competitors. This makes it even more clear, that market-oriented pricing is a necessity for every business.

The major advantage of market-oriented pricing is that it sometimes indicates an increase in pricing opportunities where your prices might be low compared to the competition. Furthermore, the implementation of a market-oriented pricing strategy can help online companies achieve a sustainable and unbeatable competitiveness.

However, while identifying a company’s pricing strategy both cost-oriented and market-oriented pricing should be taken under consideration, for not having loss-making price points for some or all of its products.

3. Consumer-oriented e-commerce pricing

consumer oriented pricing

Customer centricity is a very important aspect of every commerce activity and it should come first no matter what. Therefore, pricing decision making should not be an exception to that.

To offer customer centric price-points to your targeted audience, you should be able to answer these 2 questions:

  • What is your e-shop’s unique selling proposition?
  • Who are your customers?

The answers to these questions will help you obtain a solid self-awareness for your company and the value it offers to consumers. After that, a company can easily identify whether a slim margin can work, or how important is the placement of the prices next to the product and most importantly it will be able to make better decisions in similar pricing arrangements.

To conclude…

The pricing approaches mentioned above are the 3 most core strategies and they are depended on each other. The case here is that you do not have to choose one and neglect the others. They work best when applied in a combined way and when they help company’s growth.

Original Article Written by Prisync!