The pandemic changed everything in e-commerce. The number of ecommerce sites in 2020 and 2021 doubled.
Globally, there are between 12 and 24 million ecommerce sites in 2023, and new ones are being launched every single day.
So, if you thought the ecommerce market wasn’t competitive–think again.
Once you accept this fact, there’s one question that comes naturally:
How to stand out?
There are many things that will make your store more competitive than others. Some of these include:
- Good products
- Great user experience
- Customer reviews
- Ecommerce pricing strategies
In this article, we’re focusing on the last one. We’ll explore the top ecommerce pricing strategies for your store and share tips on choosing the right one for your business.
Let’s get started!
What Is an Ecommerce Pricing Strategy?
The process through which an online store establishes the cost of its products or services is known as an ecommerce pricing strategy.
It encompasses a collection of strategies that assess market demand, competition, production, and delivery costs, as well as overarching business goals, to identify the most profitable way to price a product.
There are many different types of e-commerce pricing strategies, from straightforward ones like cost-based pricing to more complicated ones like penetration pricing and value-based pricing.
8 Must-know Ecommerce Pricing Strategies for Your Ecom Store
Now, let’s take a look at the various pricing strategies you can implement in your ecommerce business.
A pricing technique known as "cost-based pricing" bases prices on the expense of manufacturing an item or providing a service.
This tactic entails figuring out the overall cost of manufacturing, which includes both variable expenses like labor and raw materials and fixed costs like rent and machinery.
The store then calculates the final selling price by adding a markup to the overall cost.
Competition-based pricing involves modeling prices based on the prices set by competitors.
With this strategy, prices are compared to those of competitors' products and changed as necessary.
As an ecommerce store owner, you may find it difficult to draw clients if your products are more expensive than competitors' products. On the other hand, if your prices are lower than competitors, this might attract more new clients.
Value-based pricing is a pricing strategy that involves determining prices in accordance with the value that customers perceive a product or service to have. This method considers the advantages the product or service offers to the consumer and the price they are prepared to pay for those advantages.
For instance, a luxury car company may charge a higher price for its vehicles than a mass-market manufacturer because luxury brands are valued more highly by consumers.
Setting a low starting price for a new product or service is part of the penetration pricing strategy. This strategy aims to increase market share and draw in new clients.
This tactic is frequently by ecommerce stores entering a new market segment or by stores with new products on the market.
Setting a high initial price for a new good or service is called price skimming. After a while, the company gradually cuts prices.
In the early phases of a product's lifecycle, when demand is high, and customers are willing to pay a premium price, this strategy seeks to maximize profits.
Offering a number of products or services at a discounted rate compared to the cost of each one separately is known as bundling. This strategy is frequently used to encourage buyers to buy multiple items at once.
Psychological pricing strategies
Setting prices that appeal to consumers' emotions and perceptions is a key component of psychological pricing methods.
This strategy frequently entails employing "charm" pricing, such as $1.99 instead of $2, or pricing that ends in "9" (for example, $9.99 instead of $10).
This strategy aims to make clients feel like they are getting a better bargain and to make it seem that the price is lower.
Consumer-based pricing is a way of setting prices that considers the customer's willingness to pay. This method takes into account things like the customer's budget and the product or service's market demand.
As an ecommerce store owner, this strategy can help you set appealing prices for the client and be competitive in the market by being aware of their wants and budget.
Premium pricing strategy is a pricing method where a product is priced significantly higher than its competitors in the same industry. This approach is based on the idea that customers perceive high-priced products as more valuable and of higher quality than those with lower prices. As such, premium pricing is often used to differentiate products from their competitors in a crowded market.
The goal of premium pricing is to target consumers willing to pay a higher price for a superior product or service. This group of customers is often referred to as high-end or luxury consumers. Premium pricing is a common strategy in the luxury goods industry, as well as in other areas such as technology, automobiles, and high-end fashion. Premium pricing can also be used to create a sense of exclusivity and status, enhancing brand equity.
How to Choose a Pricing Strategy for Your Ecommerce Business
With so many pricing strategies to choose from, it can be difficult for store owners to know which one to adopt. Keep reading to find out the steps of how to choose a pricing strategy for your ecommerce business.
1. Define Your Goals
Establishing your business objectives is crucial before deciding on a pricing plan. Do you want to grow your market share or optimize your profits? Are you introducing a brand-new product or attempting to boost sales of one that already exists? Your pricing plan should support the objectives of your company.
For instance, you might want to think about introducing a premium pricing approach if you want to increase your profits. To do this, you must charge a premium price for your item or service in order to convey a sense of high worth.
On the other side, if you want to boost sales, you might choose to use a value-based pricing approach, where you provide your goods for less to entice clients who care about getting the most for their money.
2. Know Your Niche
While deciding on a price approach, it is important to understand your niche. You must know the target market's buying habits and readiness to pay for your products. You can select a price strategy that is specific to your niche market with the use of this information.
A premium pricing strategy, as opposed to a value-based pricing strategy, might be more successful if you sell luxury goods, for instance.
Luxury consumers are willing to spend extra for high-end goods and could consider a low-cost item to be subpar. On the other side, a value-based pricing strategy might be more successful if you sell things that are less distinctive or simple to replace.
3. Consider Working with Professionals
Working with pricing experts can provide a lot of value for your store because selecting the best pricing approach can be a difficult task. These people can assist you in analyzing pricing-related market trends, consumer behavior, and competitive issues. They could also help you develop a pricing strategy that fits your company's objectives and target market.
Best examples of ecommerce pricing strategies
Get inspired by some of the best ecommerce pricing strategy examples we’ve come across.
Apple uses the price skimming strategy as its ecommerce pricing strategy. They release rumors even before their products are announced.
There has already been enough anticipation built up before the announcement is finally made to tickle the buyer's appetite.
You may have noticed in the news how expectant purchasers of the newest iPhone model camped up in front of the retailer. Weeks before they even received the phone, some people would prepay for their model.
Netflix serves as the ideal illustration of penetration pricing done correctly. People frequently voice their frustration when their Netflix subscription costs increase or after their free trial period expires. However, they are entirely okay with paying the higher membership fees for the never-ending supply of high-quality media content without ads, despite the rare complaints.
For Louis Vuitton, the product's value is exclusively based on the reputation that its emblem has built up among consumers.
LV has never backed away from pricing its products in a range that results in a very elite market, making it a classic and excellent illustration of premium pricing. All of this is true despite the product's very simple appearance; the brand, which is imprinted all over the bags, is what drives sales.
Sephora is famous for its makeup & skincare sets, which makes it the perfect example for bundle pricing.
Purchasing a bundle will save you a lot of money compared to buying each product alone.
Sephora is a pro when it comes to creating bundle sets. Currently, they have around 30 bundle offers on their US website.
Implementing pricing strategies in ecommerce stores is crucial for increasing conversions and sales. By democratizing the price, businesses can offer a fair and accessible pricing model that attracts a broad range of customers.
It's essential to experiment with various pricing models and track their impact on customers to determine which strategy works best for a particular business. Furthermore, businesses must consider the value of the product or service they offer, customer expectations, and competitors' pricing when deciding on a pricing strategy.
Overall, ecommerce store owners must prioritize pricing strategies to create a favorable pricing environment that can boost conversions and sales and help to differentiate them from other competitors.