Ecommerce is a highly competitive trade. Online stores are neck to neck with each other. In such an environment you need to work out on pricing strategies to gain a substantial market base. We stress on the word ‘strategies’ as you will work out a model which is beneficial to you at the same time attractive to the customers. Pricing too low and you will be out of customers’ radar and pricing too high would mean very few sales. Here we shall take a look at some of the tried and tested pricing strategies.
Know The Demand
Even before you start with the pricing strategies you need to judge the demand of the products in the market. You don’t need to hire an expensive market research firm for this can use the social media or make a sample study among your friends and relatives.
Know Your Cost
Before you price a product on your store you need to take into account the variable costs along with the price of the product. This includes cost of maintaining the site, shipping and your salary and that of your employees. The price of the product should cover all these expanses and still live you with some profit.
Positioning Yourself
Are you going to position your store as a discount or luxury one? If you are aiming for the former category then you need to price your products lower than your competition even if they would be a marginal lower pricing. You can compare the prices in other stores using tools such as Google Shopping. To be a part of the luxury segment you will have to offer exclusive products or launch them before your competitors.
Once you know these three things you can start with the pricing strategies. Here are some of the pricing strategies that you can try.
- Cost Plus Pricing – This is the most popular pricing technique. Here you sell the product by adding a small pricing margin to the cost of good and variable cost. However keep in mind factors such as slump in sales while pricing.
- Target Return Pricing – Here you price the products keeping the return-on-investment (ROI) factor in mind.
- Penetration Pricing – Here you price the products lower than all your competitions to gain the market share. You might make losses in this so you need to strategies well to break even in time and sustain this pricing model.
- Pricing Based On Value – This model of pricing is purely based on the value that it creates to the customers. For instance if a product is priced $100 and saves customers $500 in a year they would consider it high on value. At the same time pricing something $100 where the customers know its development cost to be $10 is asking for too much.
- Pricing Challenge – Offer a pricing challenge to the customers where you offer them huge discount if they find products cheaper anywhere else. This is playing into their phycology. Only a few customers might take up the challenge while for the majority you have instilled confidence in their minds.
This post has been contributed by Mr. Ashish Mittal, General Manager – IT at Daffodil Software Ltd. Ashish has 10+ years of experience in web development and is managing magento ecommerce portals development nowadays. He can be reached on Facebook here.
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