Ecommerce pricing strategy: Tips to use it to maximize your profits
When joining any ecommerce field, pricing strategy is always one of the most essential things you should focus on. This is because it will greatly determine your business performance, specifically in terms of revenue and profit. If you’re planning to launch an ecommerce store yet don’t know which ecommerce pricing strategy should apply, Arrowtheme will assist you. In this blog, we deliver you several outstanding and smart tips you need to know to maximize your profits. So, let’s explore them right now!
What is an ecommerce pricing strategy?
An ecommerce pricing strategy is one of the most important strategies in any business’s field. This is because it will assist you in determining the price that will optimize earnings while also remaining appealing to customers. Simply speaking, you can understand this is a logical equation that you apply to figure out what the optimal pricing for your product is.
Besides, if you don’t have an ecommerce pricing strategy in detail, the risk is that you’ll end up with no sales. On the other hand, you can’t gain profit as expected if you underprice them. As a result, as an ecommerce business, you need to devote effort to determining the optimum pricing approach for your target market.
What is the best way to choose an ecommerce pricing strategy?
Make your ideal consumer profiles more precise
A hypothetical description of the type of firm you wish to sell to is referred to as an ICP that stands for ideal customer profile. You are describing a company that’s likely to buy your products, stick with you, and refer you to others.
In addition, you will need to pick out specific features of your ideal customer to create this profile. In most cases, an ICP will include “firmographics” such as:
- The size and history of the company.
- Revenue and budget for the business.
- The type of business.
- Geographical location.
Moreover, keep in mind that you shouldn’t mistake between an ICP and a buyer persona, which is a group of people within a firm who are defined by demographics including role, function, seniority, and income. Not only that, ICPs help you match your pricing strategy with current and future consumer needs, as well as increase revenue by targeting the correct customers. Everyone in the company, regardless of department or team, should have a common concept of who the ideal customer is. Below, we will instruct you some simple steps to generate an ideal customer profile.
#1. Determine ideal characteristics
In terms of both desire and financial means, your ideal consumer should already be in a position to purchase your goods. You want them to be a prosperous, growing company with a strong network so they can spread the word about your benefits to others. Market data can be used to inform the profile for new e-commerce businesses, while established businesses will already have lists of customers who rank highly for value and loyalty.
#2. Do some market research on your intended audience
Utilize information from existing customers with whom you’ve had positive encounters to determine what makes them a good client and a good fit for your company. What’s more, inviting people to discuss why they value your services is a great way to start a conversation. Of course, you should tell them why you’re asking and how you plan to improve. In addition, you might also give participants a prize if they participate. Not only that, you should also remember to look at both positive and negative feedback in order to look for common trends in consumer data.
#3. Construct a behavioral profile
It’s time to look for trends using this data. You will surely want to find out more about the high-value clients you’d like to recruit. Create a profile of their requirements, reactivity, and emotional bond with the business. It’s also a good idea to include information about their preferences, such as preferred communication channels and social media platforms. Additionally, your ideal customer’s surroundings, pain spots, and requirements should now be crystal evident to you. Then, you can utilize your ICP to evaluate new prospects by going over a checklist to see if they have any similarities to existing customers.
Make a strong case for your one-of-a-kind selling proposal
As you may know, it’s a big challenge for any e-commerce company to stand out among the crowd. However, you must distinguish your business from your competition in at least one component of your service. This is your unique selling proposition that stands for USP. For anyone who doesn’t know USP, this is something that makes potential customers have to keep an eye at your products instead of competitors. For more detail, thanks to USP, you can easily express your principles and demonstrate to customers how you can provide this specific benefit, and only you can do it.
Furthermore, it is easier to settle on a pricing plan when all departments have a clear understanding of the USP. In case you can create a unique service and ensure it can’t be found anywhere else, you can charge a premium. In most circumstances, however, you should rival prices.
Examine the behaviors of your customers
Firstly, customer behavior encompasses both their purchasing patterns as well as the elements that impact their purchasing decisions. Hence, analyzing these behaviors and beliefs will assist you in aligning your company with the thinking of your customers. The more the digital world develops, the more customer’s behaviors as well as demands increase. Following that, the desire for faster service is increasing, from faster websites to next-day delivery choices, posing issues for retail inventory management.
Nowadays, the amount of online shoppers increases more and more. This is because people have embraced internet shopping not only because it is convenient, but also because it is less expensive. Nevertheless, there are some habits that do not alter. For instance, putting an ecommerce pricing strategy at $19.99 instead of $20 is still a smart strategy for attracting customers. Not only that, you also have an appealing e-commerce website that will convey a high-quality, trustworthy image to maximize your profits.
Additionally, you should keep in mind that in e-commerce, psychological pricing can be used in a variety of ways. We will take a simple example. Between two similar shoes with identical pricing, clients will find it difficult to choose. But, if one is slightly cheaper than the other, they are more likely to buy the cheaper item. Because it appears to be a comparative deal. Furthermore, customers can also get a better sense of value by putting luxury products next to lesser options.
Tips of ecommerce pricing strategy you should know to maximize your profits
#1. Putting your pricing strategy to the test
The first tip in this topic is testing your ecommerce pricing strategy before putting it into practice. First and foremost, there are no simple rules to follow when it comes to price. And, because so many aspects of pricing are unique to your firm, its products, and its customers, you’ll have to experiment to discover the correct level. Besides, as you may know, altering the price of a few things by a tiny percentage is unlikely to have much of an effect unless you sell on a large scale. Therefore, you should make more major modifications when testing your ecommerce pricing strategy in order to learn more from the outcomes.
#2. Set the prices end in .99
Are you intrigued by $99.99 instead of $100? Although there is no big difference between them, 99.99$ will create a better mentality for customers when purchasing anything. What’s more, this can be a perfect strategy if your customer is price sensitive. Also, $99.90, $99.97, and so on are some of the other options. Even at far higher price points, the same idea can be applied.
#3. Price sorting order – Ecommerce pricing strategy
Coming to another tip you need to know if you want to maximize your revenue with ease – pricing sorting order. For more detail, with this strategy, as a store owner, you can choose the order in which products are displayed when clients visit product category pages or search results on a website. Moreover, pricing from high to low can boost average order values while lowering revenue. However, pricing from high to low can be extremely effective in situations buyers are very likely to purchase. In addition, because people usually tend to read from top to bottom, this sorting order ensures that they will find a product that interests them at a greater price first. As a result, if they are satisfied with the products at a high price, you will gain more profit when buyers are highly motivated.
In reality, it’s possible that the concept of the price point is more important than the actual price. Then, this is the reason why when you apply the discounting ecommerce pricing strategy, customers will feel that they are getting a good deal. As a result, this will increase their buying possibilities. For more detail, the usage of discounts and offers in some competitive industries means that you are taking a risk by not having deals themselves.
#5. Way to display discounts
Retailers have alternatives when it comes to how to display a discount. For more detail, you can indicate the discount’s value or express it as a percentage. If an item costs more than $100, it’s generally more useful to highlight the monetary value of the discount. Moreover, saving $30 on a $150 item sounds more appealing and is easier to grasp than saving 20%.
#6. Pricing up – Ecommerce pricing strategy
Increasing the price of a product might sometimes have a negligible effect on sales. When a 50% discount is cut to a less generous 30% discount, for example, some experiments demonstrate no effect on sales. Best of all, even if sales don’t change, the retailer’s profit margins and margins improve. In addition,eEven if it reduces sales volumes, pricing up can be a smart choice.
#7. Price anchoring
On ecommerce sites, ‘price anchoring’ is also a popular strategy. When a reasonably priced item is displayed next to a similar, higher-priced one, it appears to be a more acceptable pricing. For instance, in case a buyer initially sees a higher-priced TV, the other prices will appear to be greater value, even if they are also somewhat pricey.
#8. Channel-based ecommerce pricing strategy
As you probably know, some websites, particularly those that are listed on price comparison sites or use affiliates, may also offer varying costs for different marketing channels. In fact, this might be a special bargain with another website, or a higher price to pay the purchase costs.
#9. Choosing the appropriate pricing levels
Setting a pricing can be an arbitrary task if you are not selling other people’s products with a pre-determined retail price (RRP). Then, some businesses will set an initial price and then apply markdown guidelines as the product’s life cycle progresses.
The following are some of markdown rules:
- Check whether each product is attaining its goal to sell through rate after being online for a set amount of time (STR).
- Maintain the price if it is hitting or exceeding the STR.
- If the STR target is not met, reduce the amount by a certain percentage. This is determined by how close the product is to reaching its sales goal.
Additionally, there are a variety of reasons why items fail to sell. For example, bad visibility, a lack of demand, poor product photos, confusing or erroneous product specifications, or negative consumer reviews could all be contributing factors. Although price reductions are a good way to boost demand, you have to pay attention to other variables. This is because it will easily cause poor sales.
#10. Ecommerce pricing strategy by category
In ecommerce, differentiating price strategies by category is also quite common. Retailers, for example, may make a little profit on electrical items like laptops. But, a larger profit on accessories like cables, software, and bags. As a result, retailers will frequently use KPIs like “attach rate” to drive extras sales, with “customers also buy” recommendations.
#11. Customer-based pricing
As you may not know, customer-specific pricing can be an effective strategy to encourage certain behaviors. For instance, recurring purchases or higher order values.
Besides, loyalty programs, for example, can be used to reward returning customers by providing discounts or other benefits, such as free shipping.
To sum up, as you can see, in order to come up with a reasonable ecommerce pricing strategy requires store owners to spend a lot of time researching, especially studying customer psychology. Arrowtheme hopes through our blog, you will gain smart tips to boost as many profits as you can. Aside from this topic, you should refer to many other aspects of ecommerce, in particular, Ecommerce themes. For instance, Magento themes, Shopify themes and WordPress themes. Not only that, you can also explore our best Ecommerce development services.