The price of a product influences 74% of customers. Shopify store owners use e-commerce pricing strategies to price their products for maximum sales and profit. If your prices are too high, you risk losing sales, but if prices are too low, you risk losing profit.
Here is a list of the top five e-commerce pricing strategies you could use to boost your sale
1. Competitor Pricing
The competitor pricing strategy is low-risk and straightforward because it looks at your competitors’ prices. You would then price your products similar to theirs. This pricing strategy takes into account consumer behavior, but it does not take into account the perceived value of the product.
Advantages of Competitor Pricing
One advantage of competitor pricing is that it is easy to implement. With some basic research on your competitors and how they priced their products, you can price your products similarly.
Another advantage is that there is less chance of failure. Pricing your products similarly to your competitors makes it hard for things to go right.
A third advantage of competitor pricing is that it can be used with other pricing strategies. By using value-based and cost-plus pricing, you can come up with your final price and compare that with your competitors’ prices. If your price is too high, you can adjust it.
Disadvantages of Competitor Pricing
A disadvantage of competitor pricing is that it is not a long-term strategy. Although competitor pricing is a good starting point if you are new to the market, your competitors’ marketing strategies may change, resulting in them changing their prices.
Another disadvantage is that if your competitors make mistakes, you follow suit. This could hinder your future sales and profitability.
A third disadvantage of competitor pricing is that it does not create differentiation. Because you are pricing your products similarly, you will blend in with your competitors, which could affect your customer base.
2. Value-Based Pricing
A value-based pricing strategy involves pricing a product based on what your customers think it is worth. This strategy can result in higher markups and higher profits.
Advantages of Value-Based Pricing
An advantage of this approach is it builds a loyal customer base. Value-based pricing focuses on customer values, allowing you to meet their needs.
A second advantage of value-based pricing is that it increases profitability. If you have fewer competitors, you can mark up your products higher, making more profit.
One last advantage is that it increases the perceived value of your products. Setting higher prices can increase customers’ perceptions of the product’s value.
Disadvantages of Value-Based Pricing
Besides being high-risk and costly, a disadvantage of value-based pricing is that this strategy can be challenging in a saturated market. It can be difficult to compete on value when you have many competitors.
Also, perceived value fluctuates. Customers may perceive a product’s value as high today, but that could change shortly after.
Another disadvantage is the difficulty of setting prices. The value-based pricing strategy is based on market research, which can be time-consuming and costly.
3. Bundle Pricing
Bundle pricing is when you offer multiple products for one price. Buy-one-get-one and upsells are common with this pricing strategy.
Advantages of Bundle Pricing
One advantage of bundle pricing is that it lowers marketing and selling costs. Marketing more than one product at a time reduces marketing costs.
Another advantage is personalized pricing. Customers are more likely to continue to buy from the same business if they cater to their customers.
Yet another advantage of bundle pricing is that it speeds up the transaction process. It wastes time to process one transaction at a time, but with bundle pricing, this process is sped up, leading to better customer retention.
Disadvantages of Bundle Pricing
A disadvantage of bundle pricing is that it can affect popular products if it is not done correctly. You could lose profit if you ignore how well certain products sell.
Another disadvantage of bundle pricing is barriers to entry. If customers do not want all the products in your bundle, they may make a purchase elsewhere.
A third disadvantage is that customers may decline the package. Some customers are looking for a specific product, and if you do not allow them to buy the products separately, they may leave your store without making a purchase.
4. Psychological Pricing
A psychological pricing strategy involves ending your price in an odd number, offering installment plans, etc. This method dates back to the 1880s and is still used today. Psychological pricing is a tried-and-true method.
Advantages of Psychological Pricing
Some of the advantages of psychological pricing include:
- It simplifies the decision-making process.
- It attracts more attention.
- It can increase sales.
- It helps you compete in the market.
- It can save you time and money.
Psychological pricing can entice customers to buy your products and buy more than they came for.
Disadvantages of Psychological Pricing
Depending on your psychological pricing technique, it may rely on demand. If the demand is not there, this becomes a disadvantage.
Another disadvantage is the possible loss of trust from your customers. If they realize you are using a psychological pricing strategy, they may feel deceived, which would cause them to lose faith in your business and not return.
Since psychological pricing strategies are mainly used in the United States, it loses effectiveness in global markets.
5. Cost-Plus Pricing
The cost-plus pricing strategy includes everything that went into making the product, including material costs, labor costs, overhead costs, and profit margin. With this pricing method, you can sell your products for more than the cost of production or handling.
Advantages of Cost-Plus Pricing
Some advantages of cost-plus pricing include its ease of use, reliability, and ease of understanding, as well as the requirement of little market research.
Disadvantages of Cost-Plus Pricing
Some disadvantages of cost-plus pricing include the fact that pricing does not necessarily correlate with customer value, efficiency can be reduced, and competition is not considered.
Choose the Right E-commerce Pricing Strategies for You
Determining the e-commerce pricing strategies you will use for your business takes time and research. Some strategies are better than others, but it all depends on what you want for your business.
When you do choose your pricing strategy, you can use our apps for pre-orders, discounts, or wholesale pricing. Website on Demand is here for you.