An effective pricing strategy holds the power to either break or make your e-commerce business. Implementing the correct pricing for your products online is similar to playing a game with high stakes, extreme competition, and no specific rules. When planning to start an ecommerce business, do you prefer setting lower prices to beat the competition by risking your profits or setting higher prices but risking several new customers?
Selecting the appropriate price for your e-commerce products can help you gain several customers and create loyal and regular buyers, boosting your business’s growth. This article will help you learn the pricing strategies to leverage when starting an e-commerce business to boost your overall brand growth.
Understanding The E-Commerce Pricing Strategy
A pricing strategy in e-commerce is a process followed by retailers and e-commerce business owners to leverage the right price for their products. This procedure includes considering revenue, goals, and production costs, as well as lifetime customer value and average order value.
Pricing strategy not only includes discounted or lower-priced products but goes beyond them. It helps you acknowledge what pricing will result in the highest customer retention, customer acquisition, profits, sales, and conversion rates. Therefore, the pricing strategy you implement eventually influences a customer’s purchase decision.
Pricing Strategies For An E-Commerce Startup
Some of the most effective pricing strategies that any e commerce web site owner must implement for profitable revenue and brand growth include the following:
1. Dynamic Pricing
It is a pricing strategy under which online stores or companies constantly adjust their prices each day to enhance sales and optimize margins. This strategy focuses on implementing variable prices instead of fixed ones. Hence, you need not decide on a particular price for a specific season but rather adapt to fluctuating market conditions.
2. Competitive Pricing
How do I start an ecommerce business with the right strategy? Well, for startups, competitive pricing is one of the most common pricing strategies in the e-commerce market. Under this strategy, e-commerce owners decide their prices based on those of their competitors.
This strategy is basically used by businesses that function in competitive markets or with several competitors selling a similar product with little or no difference. This strategy does not always aim to undercut the competitor; instead, it decides prices related to the competitors. To implement a competitive pricing strategy, you must perform in-depth manual research, which needs ample time and hence stands challenging in the fast-paced e-commerce market at present.
3. Premium Pricing
E-commerce businesses implement a premium pricing strategy when they are willing to raise their prices above their competitors’ prices. This can be aligned with branding and messaging, explaining to customers why their increased prices are justified. In order to implement a premium pricing strategy, sellers must come up with a combination of unique offerings, a strong brand image, and innovative and unique products.
4. Price Discrimination
Price discrimination is also termed differential pricing. It is a strategy implemented by an e commerce platform to enhance its profits by setting different prices for various customers for the same service or product based on their characteristics. The major objective of this strategy is to maximize consumer surplus and gain additional profits based on individual customers’ willingness to pay.
E-commerce platforms willing to implement this strategy must collect a large amount of data about customers, including their purchase patterns, browsing history, geographic location, and demographic information. This data is then used to segment customers into multiple groups based on their behaviour, preferences, and purchasing power.
After customer segmentation takes place, prices can be implemented based on the characteristics of different segments.
Therefore, the profitable results of price discrimination strategies in e-commerce businesses depend heavily on algorithmic pricing systems and sophisticated data analysis. By utilizing market conditions and customer data, companies can optimize their pricing to boost revenue and profits.
5. Value-Based Pricing
Value-based pricing is a powerful pricing strategy. It requires in-depth information about the market and the value of the products you are offering to customers. Sellers can implement value-based pricing to structure how customers review their products. Is your brand willing to provide the best value for customers’ money or establish itself as a luxury brand? Based on your goals, set your prices accordingly.
Conclusion
While you plan to build online store, your pricing strategies evolve and adapt over time. With updated pricing strategies and market conditions, you can stay competitive in the market while fulfilling your customers’ needs. As you plan, create, implement, and present your pricing strategies, ensure that they benefit both the business and the customers equally, gain the trust of the consumers, and generate profits.