Many smaller ecommerce businesses find it difficult to decide how to price products online for their goods or services. It is crucial to the success of any business that their price points are correct. If you get your pricing strategy wrong, you could create issues that your ecommerce store may never be able to fix. This guide will help you with methods to determine the correct price for your products.
Where do ecommerce stores go wrong with pricing?
With the large landscape of the internet, it can be hard to judge your audience and what type of money people are willing to spend on certain goods. If you own a physical shop, it is a much easier process. You can analyse your local surroundings and target customers by looking at age, gender and average earnings of the locals. Online pricing problems are a less simple situation as the audience could be global. There is no clear-cut customer demographic. Effective pricing comes down to a logical and qualitative rationalization between many factors. This can make it confusing for an ecommerce store owner to work out how to price products.
Under-pricing your ecommerce goods
You would think that under-pricing your items would have a beneficial effect on sales, especially in a period of economic decline. Online business owners often think that selling volume is more beneficial to their store. However having a price point much lower than competitors is actually a mistake. Many visitors may consider your items as “cheap” – and not in a good way! Consumers want to believe they are getting good quality for their money and driving down prices is not the way to do this.
Overpricing is a more obvious problem when it comes to declining sales. With Google at the touch of a button, many customers will check out your competitor’s prices before making a purchase on your site.
Pricing checks that will work for your ecommerce store
A fundamental and the most simplistic principle of pricing is that you need to cover your business costs and also make a profit. That means you need to know how much you are spending upon your business. It is not just the cost of a product that you need to consider, a complete run down of overhead spending is required. This may include your monthly Shopify store fee, POS charges, website design budget, PPC campaigns, marketing, shipping, storage rent, packaging and labour. There certainly is lots to think about when you bundle it all together.
The most effective way of pricing your product or service is value-based pricing. This looks at the overall benefit that your customer is receiving from buying a product. The factors that may affect this value include the time that you are saving your customers, rarity of the product you are selling and how hard it is to stock (meaning less companies may have it in stock.)
Ultimately the prices that you charge in your ecommerce store will be mixture of cost based and value based analysis. This process of determining the appropriate price for selling goods or services is a learning curve. It’s important to remember that you may start charging the wrong price. Yet it is how quickly you rectify that situation that will matter the most. Therefore monitoring your prices is key to success.
How to monitor your ecommerce prices
A key component of getting your prices spot on is careful monitoring of your store. It is just not enough to look at how profitable your store is overall. Products must be broken down one-by-one to see if they are working or not. You should be considering what price you buy the goods, how much you sell them at and what quantity are sold. When you have this information together it should be more obvious which changed you need to make. Weeding out the bad products with little profitability is half of the battle.
Social media is one of the most important parts of any ecommerce setup. Your customers are there waiting to voice their opinion. So why not use it? By asking for feedback your brand looks more in touch with the people that matter: customers. If you do not want to hold this feedback on a public forum then you could always ask for feedback by using your newsletter to do so.
Checking out what is going on with your competitors is also a good tip. You should be logging on daily to check out their social media updates, offers, web design, collections, check out, delivery and more. This is not directly to do with price, this is to do with trust. Customers do not mind paying a bit more if they are ordering from a reliable brand that they trust. So make sure that your audience has full trust in your brand, not theirs!
How to RAISE your ecommerce prices effectively
So you have done all the hard work monitoring your prices and competitors. If you have a product that is selling well, in a high volume, then it might be time to raise the price by a small amount. Yet there are a few risks associated with hiking the prices up in an ecommerce store. Firstly, you must be able to confidently update all social networks and other information sources about a price change. Secondly, you want to make the price change subtle as not to upset the more regular customers. Finally, you need to decide on the timing of when it will be suitable to do this. It is always a bad idea to rise prices in a time of economic downturn. We recommend that 15 percent should be the highest increase at a single time. If you have had to raise prices because the cost price of your product has changed, there is no harm in explaining the change in price to customers as your competitors will (more than likely) have to raise prices too.
How to LOWER your ecommerce prices effectively
If your products have not been selling in volume, you may realize that you have missed your target customers by pricing your products for too high a price. Before admitting defeat and lowering the price of your stock, it may be worth thinking of a different approach. You could choose to set up a discount code to see if that will boost sales. Free gifts or combined buys would work well too. This needs to be advertised on your social media and submitted to voucher code websites. Lowering your prices too hastily could lead to customers feeling less trust and belief in the worth of your products.