In an online world, where you may be competing among different brands, setting a competitive price that is profitable as well is a tough decision. Online buyers tend to search for products at various online stores and compare prices. They may go for the product that suffices the quality or features they need at a reasonable price.
The merchant may be worried about recovering cost and increasing profit, and the additional expenditure of digital marketing, hiring SEO agency and social media advertising. But, the end user only compares the prices despite the money and effort you put in. The struggle is real in accumulating every possible cost of acquiring, manufacturing, and hosting each product unit so that a reasonable profit margin can be added accordingly. To help you easily set up a product price, we are sharing some of the widely used pricing strategies in this post. It may assist you in defining a sale price that is equally beneficial for the consumer as well as your business.
Cost-plus pricing technique is among the simplest methods of setting the price of the product. It has been in practice for a long time as conventional business are still applying it in routine. You can observe a shop nearest to your residence that is following the same pricing model that was adopted the day it was opened before a few decades. The popularity and ease of this pricing made the internet entrepreneurs and businessmen apply the same to their online stores as well.
Cost-plus pricing model, as the name suggests, is calculated by summing the basic product cost plus a profit margin and come up with a sale price. It includes cost price per product as these are often ordered in a pack of 12, 50, or 100. The shipping and handling cost per unit is derived, and then the additional cost to sell the product is added as well. Once the cost price is calculated, a percentage of profit is added and the product is labeled with a cumulative price.
For any business, pricing a product can be a difficult decision because there are various direct and indirect expenses that have to be taken care of. This pricing strategy is easier to implement for small businesses as they don't have different forms of expenses that need to be addressed. But, for a medium to large enterprise, it can be tricky to calculate an overhead for a unit. For example, if a warehouse accommodates 3,000 units of the vehicle, how will you distribute the expenses incurred in rent, lighting, security, fueling, etc. It requires a dedicated cost accountant in place to come up with an accurate cost price.
Tier or bulk pricing is one of the innovating ways of engaging customers and encouraging them to shop more. It is often termed as dynamic pricing as the price of the product changes as soon as the customers opt to order in a large quantity.
Dynamic pricing works with the basic economic principle of demand and supply. It allows you to increase or decrease product prices as soon as the demand fluctuates in the market. It can also be utilized to remain competitive in a locality or region. Working in a competitive market demands you to price your products in line with the existing businesses in the market plus keep an eye on the new entrants in your target market. Dynamic pricing methodology gives you the freedom to escalate or diminish prices to retain a stronghold in the market.
Bulk pricing is not only effective in surviving the virtual clash, but also in increasing sales and revenue. If well documented in your online store, it can help you maximize sales by various kinds of discounts and special deals. You may find various tools for e-commerce platforms such as Magento pricing calculator that automatically reduces price if the customer shops a higher amount or quantity of product. The creation of discount rules makes it easier for the user to avail discounts without contacting the website itself.
Doing business online and ignoring the market is like fighting in the battlefield without keeping an eye on the opponents. In the real world, when we plan to start a business, we have a limited market to study. On the internet, your market changes rapidly as new businesses evolve quite soon. Some of them are well equipped with stock or others might be working right from their living room. So, you need to be alert to the growing market trends and competitive prices other retailers or service providers offer.
Market-based pricing is quite different than cost-plus pricing. It requires the business owners and managers to study the market, compare the rates offered by competitors, and then adjust prices to capture a fair share of the market. So, it is a kind of reverse engineering in setting a selling price for your product.
The implementation of a market-based price also takes into account the quality and uniqueness of your products. For example, if you have to introduce something really remarkable to the online community, you can price it higher even after reviewing that a low-standard product of the same category is available at subsidized prices. If you consider there is no match for the effort you put in rendering a service and you are above average then go with cost-plus pricing. But, if the quality of your store items is normal, then allow discounts and rebates to easily penetrate in the market.
Price skimming technique is one of the influential pricing strategies used by businesses to set up a brand. A high product price often communicates supreme quality and excellent customer support. But, this strategy is not fruitful for every business. The enterprises that come up with innovative products, new services, or something really amazing are quite successful in reaping the benefits of this strategy.
Price skimming strategy is about introducing a product with a higher price to grab most of the profit in the first phase, and then reducing the profit margin lower and boost the sales. People pay higher for a product that is entirely new as they don't have another object to make a comparison. They like and need it, so pay the higher amount.
There are countless methods of pricing a product you are about to launch, but select one among them is different. A pricing strategy has to be unique as your product quality, labor, effort, and passion to serve the community is priceless.
The web entrepreneurs are coining different strategies for
their passionate ideas as they are quite sure about the success and fame of
their end product. If you are searching for different ways for pricing a
product, you can get a variety to select from. Study each of them, learn pros
and cons, and implement the one that best suits the nature of your business.
Asad has a collective experience of over 7 years in the Digital marketing industry and is currently working for GO-Gulf, a Dubai based eCommerce web design company. As leading executive for GO-Gulf, he has specialized in search engine optimization, conversion boosting and keyword targeting. You can reach him on LinkedIn.