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Imagine this Scenario
You are a customer. You went into your favorite store. The moment you entered, you started gazing through different stalls. You touched a couple of products to feel its texture. And you found your perfect match. You grabbed it. You loved it. But the only thing that’s standing between you and the t-shirt is the price tag. You flipped it, and you saw the price, and it was like, “Oops! It costs a lot.” What next? You moved on and didn’t buy the product.
That’s what happens on online marketplaces as well. That’s why cart abandonment is such a common issue with eCommerce marketplaces. This is why a good pricing strategy in eCommerce is crucial for its growth. Here are some pricing strategies used by different marketplaces. This is a holistic approach.
So, let’s begin and learn about different pricing strategies that might be a game-changer for you.
This method requires a company to write their unit product costs. And set a target profit margin. The formula used here is (Material cost+labor cost+overhead cost)*(1+Markup)= Price. Some common costs of most eCommerce include domain, website hosting, rent (if you have an office space), sourcing products, platform fees, returns, refunds, and shipping, along with marketing budget and salaries.
Many eCommerce companies lose track of their unit costs and often fail to apply this strategy. The task here is to develop the right profit margin to maximize the profits. There are usually two risks involved in this approach. Either the pricing is too cheap, which undervalues your products, or the pricing is too much, which causes a loss in competitiveness.
Two major factors play a role in this: competitor prices and customers’ willingness to pay. For instance, customers are willing to pay a higher price if you are selling diamonds. However, the same won’t be applicable in electronics.
In today’s world, when customers don’t care about your cost or profit, they mainly focus on what value your product provides them. They pay for its utility.
So, if you believe your product is worth it and you start overcharging it, you will automatically reduce your customer base. And if you begin undercharging your products, it will erode your profit margins.
This is why you need to estimate the exact price your customers will be willing to pay for your product without losing your profit margins. Value-based pricing ensures that your customers are happy about the pricing of your product.
They are looking for some value in exchange for this pricing. This usually helps improve your brand image. Thus, enhancing your brand image and ultimately improving your results and outcomes. However, its practical application is quite complex.
Customers, however, get to know that your products are the best quality, eco-friendly, and hard to come by. For this, you need to know about the value of the product. This is why market research is crucial for this pricing strategy. You have to monitor market changes continuously to find the best pricing for your product.
If you want to maximize your profits and stand out, you must chase your competition. This means you need to review their strategies and analyze their plans. Tracking competitive pricing is a must in any business. However, it becomes quite an essential entity in this particular pricing strategy.
You have to monitor your competitors’ prices and set a relative price in this strategy. You can either set the same or lower pricing. Otherwise, your customers will buy from them instead of your eCommerce store.
This model only works if you are selling identical products. But this has quite a downside since it can erode your profits. For instance, if your competitor is pricing a product at $400, and you set the price to $380, they can further lower the price to beat yours. In this case, you will lead to a loss-loss situation. This can never be a permanent solution for your pricing structure.
With time, sellers often understand their customers’ preferences and perspectives. These insights help form a strategy that works for you and your customers. Many believe it is a part of neuromarketing as well.
For instance, you are quite aware of the strategy where pricing ends with 9 or .99 instead of 0 or .00. This is because customers feel that the product isn’t too pricey by doing so. Customers usually get tempted when the pricing doesn’t end with 0 but a number like 7,8,9. Many businessmen also refer to it as charm pricing.
Name your Own Price Based Pricing
Opting for any of the pricing models mentioned above means you aren’t charging customers when buying products from your marketplace. However, what if you throw in a surprise and set this amazing pricing strategy? In this, you allow your customers to name their prices for the items they wish to buy. A lot of organizations like Buyr.com are using it and are still earning better profit margins. Are you intrigued?
In this strategy, sellers give an opportunity to the buyer to set the price they wish to pay. However, the transaction only completes if their price is equal to or higher than the set price of the seller, often never revealed to the customer.
In this concept, the seller lists the threshold prices for the product that a buyer can never see. Once there is an offer for the item, they check whether it’s at par with the set price. If it’s like that, the transaction takes place. If it isn’t there, the buyer again tries to bid higher to match the pricing. The model is similar to reverse auction.
eCommerce is a challenging niche. You have to mix and match various strategies to make it work. Besides the ones mentioned above, there can be many other strategies like subscription-based pricing models. No single pricing strategy is good enough.
You need to review the market and make changes accordingly in your pricing structure to earn and maximize your profits.
Consider different factors like business type, product cost, customer demographics, customer perspectives, and your bottom line when deciding your ultimate pricing strategy.