Unlocking Sales Potential: The Ultimate Guide to E-commerce Pricing Strategies

Determining the optimal price for your product can be a challenging task. If you set the price too low, you might reduce your profits significantly, while a price that’s too high can lead to lower sales and lost potential customers.

Implementing pricing strategies can help you choose a price that not only enhances your sales figures but also helps you maintain your market share, all while considering the ongoing market conditions.

To choose the most appropriate pricing strategy for your business, you need to acquaint yourself with the various strategy options and evaluate their psychological impact on your customers.

What is an e-commerce pricing strategy?

E-commerce pricing strategies consist of rules that aid in determining the ideal price for your products. The price you set for your product depends on various factors, such as the cost per product, the profit percentage you want to make, and the price your customers are willing to pay for the item.

However, pricing strategies may also include marketing tactics, such as discounting your prices during time-sensitive periods to increase sales figures, such as when you launch a new product.

Why is it crucial to choose the right strategy?

A survey found that 60% of e-commerce shoppers say that pricing is one of the critical factors that affect their buying decision. With the emergence of specialized apps that compare prices of the same product on different platforms, it can be challenging to set the optimum price for your product.

The pricing strategy you choose should enable you to achieve all of your long-term objectives, including staying competitive, improving your bottom line, and communicating the value and quality of the product. However, keep in mind that you may need to modify your pricing strategy from time to time to keep up with changing company objectives or shifting market conditions.

Most popular pricing strategies:

There is no one-size-fits-all pricing strategy that works for every business. Hence, carefully consider which of these ten pricing strategies will work best for your product or service:

  1. Cost-plus pricing:

In cost-plus pricing, you calculate the total costs associated with manufacturing or sourcing the product, marketing, and shipping, and then add a markup to this total cost to arrive at your selling price.

Pros: It is simple to execute and can generate consistent returns, provided your costs don’t vary significantly.

Cons: It doesn’t account for market conditions like competition or customer demand.

2. Penetration pricing:

This strategy involves introducing a new product at temporarily discounted prices to gain market share and increase brand awareness.

Pros: It can increase sales volume and attract more customers to your store.

Cons: Your customer may perceive your competitor’s product to be of higher quality, or later, they may refrain from buying the product at regular prices because they’ve become accustomed to your introductory price.

3. Dynamic pricing:

The price of your product fluctuates based on various factors like demand for the product, supply of the product, competitor pricing, or even timing in dynamic pricing.

Pros: You can take advantage of ongoing market conditions to earn higher profits.

Cons: It is not ideal for small businesses because it requires automation and machine learning, which increases costs.

4. Skimming pricing:

A new product gets released at the highest possible price in skimming pricing, and the price gradually decreases as the product becomes less popular over time.

Pros: A company can quickly recoup its sunk costs by capitalizing on the novelty of a new product.

Cons: It doesn’t work in markets where there are many competitive sellers, or where the high price of the product acts as a deterrent for potential buyers. Additionally, if you lower the price too quickly, you may offend customers who bought your product at its peak pricing.

5. Competition-based pricing:

In this strategy, the seller uses their competitor’s price as a benchmark while pricing their product. This strategy works in industries where competitors offer products that are highly similar to yours, and the only differentiating factor is the price.

Pros: You can draw in budget-conscious consumers by pricing your product consciously below your competitors.

Cons: For the strategy to work, you would need to manufacture the same product at a lower cost than your competitors.

6. Premium pricing:

With premium pricing, you again use your competitor’s prices as the benchmark. However, you would price your product above your competitors to indicate that your item is more luxurious, prestigious, or even exclusive.

To do this, you must differentiate your product in some way and offer more value than your competitors – this could be in terms of customer service or even great branding.

For example, you can buy a Timex wristwatch for $28. However, consumers recognize Rolex as a status symbol and of higher quality, so they are willing to pay $10,000 for it.

Pros: Higher prices translate into higher profit margins.

Cons: It is ineffective if your target market is price-sensitive or has other means of acquiring the same product.

7. Psychological pricing:

When deciding whether to buy an item, buyers usually look at the first number in the price. So, when you price an item at $39.95 instead of $40, more people are likely to buy it simply because the price starts with a lower number.

Walmart frequently uses this pricing strategy – you’ll find that their prices typically end at .88 to convey a lower price.

Pros: This strategy can significantly increase sales volume.

Cons: You may lose out on a few cents or a dollar of profit per unit, but the increase in the number of units sold could compensate for this loss.

Bundle pricing:

In this strategy, products are bundled together and priced lower than when sold separately.

To determine the selling price of the bundle, multiply the product price by the number of products you plan to include and then subtract the discount your consumers receive by purchasing the bundle.

This can be the same product, such as “Buy 2 get 20% off.” It can also involve related products that complement each other.

McDonald’s is one of the most well-known users of this pricing strategy, with its Happy Meals being one of the best examples of bundle pricing.

Pros: Consumers love discounts of any type, so this strategy can help you clear out the excess inventory in your warehouse.

Cons: You will need to constantly evaluate which prices are working and which need adjusting for better results.

8. Anchor pricing:

Anchor pricing shows customers how much they will save by displaying the original price along with the discounted price.

Another option would be to place the product next to a similar one with a higher price – the point is that you want to reassure the consumer that they are getting a great deal.

Amazon frequently uses anchor pricing strategies to convince consumers that they are getting a great deal.

Pros: Anchor pricing helps consumers make faster purchase decisions since they feel confident about paying a fair price.

Cons: You would need to decide upon an optimal discount – if it is too high, it may create a sense of distrust, while too low may not be enough to entice the consumer.

One advantage of pricing strategies is that you can combine them to achieve even better results. For example, you can use the anchor pricing strategy described above to help you boost your sales over a short period while sticking to the cost-plus pricing strategy over the long run.

To adapt to changing market conditions, you would do well to evaluate your pricing strategies regularly. In other words, deciding upon a pricing strategy for your business is not a one-time task. It requires constant monitoring, analysis, and evaluation before you

Stay informed with the Weekly Digest.

Sign up for the newsletter and get our latest stories delivered straight to your inbox.