You’re about to launch your ecommerce store. You’ve got your product, your website, and even your marketing strategy all ready to go.
But there’s one thing you haven’t fully considered, and it’s a big one: product pricing.
This often overlooked aspect of starting up an ecommerce store is of the utmost importance because pricing affects every aspect of your business. What you charge for your products determines your overall revenue and what expenses you can and cannot afford. By extension, it also helps determine your profit margins.
So establishing an ecommerce pricing strategy that can be modified as your store grows and matures is essential.
In this blog post, we’ll review several ecommerce pricing strategies and share some of the top product pricing tips out there.
Why product pricing matters
Like almost everything in business, product pricing is really about the psychology of consumption.
To illustrate this, Prisync shared some stats that highlight the importance of price from a consumer perspective:
So, clearly, product pricing is a very important consideration of your overall business plan.
Luckily, however, it’s not something that needs to be set in stone. In fact, quite to the contrary, product pricing should remain flexible and ever-changing over the lifetime of a product.
Automated adjustments to the prices of products sold online, also known as dynamic pricing, are becoming increasingly common. Amazon, for example, changes prices for its products about every 10 minutes, depending on fluctuations in consumer demand.
While it would be completely unreasonable to expect small or medium-sized ecommerce stores to employ such tactics, this fact illustrates the broader point that ecommerce pricing strategies can (and should!) change as demands change.
4 types of ecommerce pricing strategies
So, where do you begin?
A good place might be to brush up on some of the established ecommerce pricing strategies out there.
Let’s review four of the most common pricing strategies:
1. Prestige pricing
Prestige pricing, also known as premium pricing, is a tactic that encourages sales by ascribing an element of exclusivity and, well, prestige, to a product. Ecommerce store owners using prestige pricing strategy do so by setting their products at artificially high price points.
In this way, consumers perceive quality and luxury that may or may not actually be there. Regardless, they’re more willing to pay a premium for these products.
Think about some of the world-class luxury products out there. Whether they’re cars, perfumes, clothes, or technology products, if they’ve successfully positioned themselves as luxury brands then the prestige pricing model works.
It’s worth noting that prestige pricing can only be implemented in certain industries. If you’re selling clothing, apparel, or accessories, for example, you could potentially position your brand to fit into a prestige pricing model.
2. Price lining
Price lining occurs when you have multiple products in a “line” that are set at different price points. Implementing this tactic means that, unlike with prestige pricing, your products are accessible to a wide range of socioeconomic consumer profiles.
A line means that your products are all similar in composition but perhaps differ slightly in quality.
An example of a retailer that offers price lining is Apple. Each model of the iPhone, for instance, decreases in price as it ages. Therefore, Apple’s product line of smartphones is accessible to many shoppers with differing budgets.
3. Price skimming
Price skimming is an increasingly common strategy in ecommerce these days. It occurs when a company lists its products at the highest possible price and then lowers them as demand wanes.
Price skimming requires keeping your fingers on the pulse of consumer demand, so to speak.
It is most useful with products whose industries are not yet flooded with competition. A product that utilizes newly-invented technology, for example, might benefit from a price skimming strategy.
Tesla is a company that has profited greatly from this, especially when it virtually had a monopoly on electric and self-driving cars.
If the products you’re selling in your ecommerce store are using newer technology, or, perhaps, have recently become legal, consider employing a price skimming strategy.
4. Penetration pricing
Alternatively, penetration pricing sets product prices very low to start. With time, the strategy dictates that prices should gradually increase as the product gains momentum in the market.
Having very low product pricing when starting out can allow a fledgling company to “penetrate” the market in a way that it wouldn’t be able to otherwise.
Then, once the company has some brand awareness, prices can correct themselves, thereby increasing.
The power of 9
Consumer psychology studies indicate that products that are priced just below a whole number – for example, $29.99 as opposed to $30.00 – perform much better.
It’s no coincidence that so many of the products you see in retail stores are priced this way.
In addition to $29.99 feeling significantly cheaper than $30, it’s been proven that consumers are mesmerized by the number 9.
A University of Chicago study showed that the same product listed at three separate price points – $34, $39, and $44, respectively – performed best at the $39 price point by a long shot.
Even though $39 is $5 more expensive than $34, this price was, for some reason, still more appealing to consumers. That’s what they call “the power of 9.”
That being said, regardless of the pricing strategy that you employ, consider incorporating the “charm strategy.” In other words, including the number 9 somewhere in the product’s price to charm your potential customers into making a purchase.
A 9 in the price might just be the difference between a sales conversion and a bounce from your website.
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Author: Michael Arnold
Michael is a freelancer from New York City. When he isn’t writing about how Kliken unleashes the marketing, you can find him reading, writing for pleasure, or traveling the globe.