This is a complete guide to increase your eCommerce revenue by testing 18 different pricing techniques.
In this in-depth guide, you’ll learn:
- What eCommerce pricing techniques are
- Why pricing strategies are important
- 18 pricing methods you can test on your own store today
- and much more
Let’s jump right in.
What Is an eCommerce Pricing Strategy?
A pricing strategy is much more than simply choosing a random price and then listing your product at that price.
An eCommerce pricing strategy involves creating a well-thought-out plan. This plan will help you determine how to accurately price your products to increase sales and profits while remaining competitive.
Furthermore, the best eCommerce pricing strategy for you depends on what type of products you’re selling, product demand, competition, and much more.
Let’s talk about why pricing strategies are so important.
Why Are Pricing Strategies Important?
Your eCommerce pricing strategy is one of the most crucial aspects of your business. Picking a random number based on nothing is not going to help you reach your revenue goals. Without a pricing strategy, you risk pricing your product too high and not converting any sales. The same could be said about pricing your products too low and then not making any profits.
However, the optimal eCommerce pricing strategy is different for every online store. In addition, even as your business grows, you may need to adjust and evolve your pricing strategy.
This is because growing businesses will often have a higher true cost per order as well as higher acquisition costs. For this reason, you need an eCommerce pricing strategy that will help you scale your business to exponential heights.
Even if your eCommerce business is currently profitable, there are always opportunities to further improve profits if you continue re-evaluating your pricing strategy and improving it.
In essence, your eCommerce pricing strategy is an incredibly important marketing tactic that enables you to find the perfect middle ground. This middle ground is where you provide value to your customers, but you’re also optimizing your profit and growing your revenue.
Factors That Affect Your eCommerce Pricing Strategy
No matter how big or small your business is, there are factors that will determine the best pricing strategy for your eCommerce store.
Let’s take a look at all the factors you need to consider before setting your product prices.
What Are Your Costs?
When finding your eCommerce pricing strategy, you’ll need to factor in your product, labor, shipping, and marketing costs.
For your business to be sustainable and profitable, you must charge a price that covers all your outgoing costs while leaving enough room for a profit. As your eCommerce business grows, there will be economies of scale that you’ll need to keep in mind.
This means that there will be a lower cost per unit as you increase your production levels.
What Is a Fair Price?
In terms of pricing, there’s a key difference between a ‘fair’ price and a ‘low’ price. Low-priced products make your products seem more affordable than your competitors. However, you can achieve fair prices when you ensure your products or brand have an extra edge over your competitors.
For this reason, it’s imperative that your business has a USP, or unique selling proposition. Nevertheless, your USP could be the fact that your products are so inexpensive. This is the strategy that online fashion retailers like SHEIN and FashionNova used to take over the eCommerce space.
What Are Your Competitors’ Prices
Although several factors will determine your pricing strategy, you must also look at the prices set by your competitors. I recommend researching their prices and any tangible or intangible extras they offer. After conducting your research, you can position your prices relative to your competitors.
What Is Your Commercial Objective?
Think about what your commercial objective is as a company. This will help you navigate any pricing decisions you choose to make.
Ask yourself:
- What is my ultimate goal for my brand and products?
- Do I want to be luxury retailer like Louis Vuitton or Snowpeak?
- Do I want to create a chic fashionable brand like Anthropologie?
- Is a budget-friendly brand like FashionNova or Zara more in-line with my goals?
Identify your specific objective and keep it in mind as you determine your pricing.
Who Are Your Customers?
This step accompanies the previous step of defining your commercial objective. As such, you’ll need to identify the target market that’s willing to pay for your products. This is because all your hard work will be for nothing if you don’t have any potential customers.
Think about the disposable income your potential customer base has. For instance, some customers are willing to pay a premium for specific products, while others may be more cost-conscious.
What Is Your Value Proposition?
Lastly, it’s essential to identify your brand’s unique value proposition. Ask yourself, what makes your business genuinely different?
In order to stand out amongst your competitors, you’ll need a pricing strategy that reflects your brand’s values.
For example, Allbirds is a company that competes in the highly saturated shoe industry. However, Allbirds has differentiated itself by focusing on offering comfortable shoes made out of merino wool and other innovative materials.
Through its unique selling proposition, Allbirds has been able to carve out a niche sector in the highly competitive shoe industry.
So, find out what your business does better than anyone else and factor it into your product pricing strategy.
18 eCommerce Pricing Techniques To Boost Your Revenue
Now it’s time to dive into the fundamentals to determine the best pricing strategy for your store. However, it’s important to know that there is no simple equation that allows you to find the best price for your products.
Finding the most optimal pricing structure for your store will require testing as well as trial and error.
Let’s discuss 18 eCommerce pricing techniques to increase your store’s revenue.
1. Cost-Based Pricing Strategy
Cost-based pricing is one of the most straightforward eCommerce pricing techniques. This strategy focuses on your business rather than your customers. As such, the price you set is based on the profit you want to make and not how much a customer would be willing to pay. For this reason, you’ll need to continue adjusting the pricing until you find the sweet spot that allows you to maximize your profit margins.
So, add together the cost of your products, including shipping and marketing. Then, add the profit margin you’d like to achieve, and this is your selling price.
For example:
- Product cost of goods: $10
- Shipping: $5
- Marketing: $3
- Total cost: $18
- Required profit margin: $10
- Your selling price: $28
2. Competitor Based Pricing Strategy
Competitor-based pricing is another straightforward eCommerce pricing strategy. With this technique, you’ll need to spend some time researching your competitors’ pricing habits. I recommend finding all the similar products at every price point, high or low, so that your research covers a full range. Then, take the average price of all the products you found.
As such, if the average selling price of one of your specific products is $30 and your total product costs are $20, your potential profit per unit sold is $10.
This strategy is perfect for eCommerce beginners since it’s uncomplicated and an efficient way to find a reasonable price.
3. Value (Consumer) Based Pricing Strategy
Value-based pricing is a combination of cost-based and competitor-based pricing techniques. Since this strategy is based on the value you’re providing your customers with your products, it’s a bit more complex than the previous strategies.
As such, value-based pricing involves finding a fair price for both you and your customers. For this reason, this is a great strategy that can build brand loyalty if you put in the effort to conduct research.
So, determine the lowest price you can sell your product for. Then, subtract that number by the average selling price researched previously. The number you’re left with is your potential profit.
Afterward, you’ll need to decide if you want to sell the product for the average selling price and take the calculated profit. Or, you can decide if you want to add your USP, which increases the product’s value, price, and profit.
Example:
- Lowest selling price: $15
- Average selling price: $25
- Your potential profit: $10
Add value with USP:
- New value-based selling price: $30
- New value-based potential profit: $15
4. Dynamic Pricing Strategy
Dynamic pricing is simply another way to say flexible pricing. So, providing a certain amount of flexibility on your prices will allow you to set the best price in relation to demand and competitor fluctuations.
As such, you can drop your prices so that you are the cheapest seller if your competitor raises their prices. If your competitors run out of stock and demand is high, you can raise your prices to take advantage of the situation. This is a common supply and demand strategy.
However, you will need to regularly monitor your competitors’ pricing when deploying a dynamic pricing strategy.
5. Loss Leader Pricing Strategy
If you’ve ever been shocked by unbelievably low product prices as you’re shopping online, they are likely using a loss leader pricing strategy. You may wonder how the business could be making a profit with such low prices.
You’ll be surprised to know that they likely aren’t making a profit on the low-priced products. Instead, they are using low-priced products to get customers to use the website and find a variety of other products. The loss leader pricing strategy is proficient because once customers are hooked in, they may browse other products and purchase additional items.
For example, let’s say a teeth whitening company is selling a teeth whitening kit for $15 and refills for $10. Although they aren’t making any profits on the teeth whitening kit, the profits will be earned from returning customers purchasing refills.
This pricing strategy is best suited for eCommerce businesses selling products that have easy ‘add-ons’ or something that requires a repeat purchase.
6. Price Skimming Strategy
Price skimming involves charging the highest initial price that customers are willing to pay. As the demand of the first set of customers is satisfied and competition enters the market, you can lower the price of your products.
This way, you can attract another, more price-sensitive segment of customers into your store. As time goes on, you can continue lowering the price of your products to attract even more segment groups.
The price skimming technique is popular among technology companies that sell smartphones, televisions, and computers. This is because these types of customers are willing to pay a higher premium for the latest and greatest tech products.
7. Bundle Pricing Strategy
Product bundling is highly practical for eCommerce stores because it allows customers to purchase everything they need at a discounted price. As such, if you notice that customers commonly purchase certain items together, you can list the items in a discounted bundle to increase demand even more.
This strategy aims to increase the average order value (AOV) of your store. You’ll achieve more significant revenue by increasing the average order value while keeping the number of orders per day consistent.
For example, let’s say you have an eCommerce store selling soccer equipment. As such, you can put cleats, socks, and shinguards in a bundle to form an easy-to-purchase set of soccer gear at a discounted price.
8. Penetration Pricing Strategy
Penetration pricing occurs when a business enters a new product market with below-average product prices. If you’re looking to use penetration pricing with your new product, you’ll need to set your product price lower than your competitors.
This way, you can lure your competitors’ customers into your store. Penetration pricing is effective because all online shoppers love sales, discounts, and markdowns. According to Software Advice, discounting is a top pricing method for 97% of retailers across all sectors.
9. Keystone Pricing Strategy
Keystone pricing is when you mark up your products by double the price they cost you. For example, if your product costs $10 total, including shipping (if you offer free shipping) and marketing, then you would price the product at $20.
This simple technique makes it easy for you to calculate your profit margins on each of your products. As such, you may need to modify your pricing as time goes on. For example, if you receive a lot of add-to-carts on your products but no sales, you may need to consider lowering your prices or offering an enticing discount.
10. Premium Pricing Strategy
A premium pricing strategy is used for more expensive or luxury products. This technique aims to reflect the status and quality attached to your products and brand with a high price point.
If your product is considered luxurious or premium, this pricing strategy can be highly beneficial because of its high profit margins. Furthermore, a premium pricing strategy allows you to define your target audience, attract influencers, and help with PR.
However, your brand status must be at a level where it’s feasible to charge higher prices for your products.
11. Anchor Pricing Strategy
Anchor pricing is when you discount your product but show the original cost right next to the discounted price. For example, if a product originally costs $100 and is discounted to $75, the price would show a crossed-out $100 with $75 right next to it.
This strategy allows your customers to psychologically understand how much they’re saving when purchasing the item. Since discounts are vital for eCommerce stores, customers will feel as if they’re getting a fair price. Anchor pricing provides the customer with the confidence needed to make a faster purchase.
However, you’ll need to find the ideal discount percentage for your specific audience. Discounts that are too high may seem untrustworthy, and discounts that are too low won’t look enticing enough. For this reason, it’s important to find a middle ground that offers the best of both worlds.
12. Charm Number Pricing Strategy
The psychological pricing strategy goes all the way back to the 1880s when Victorian shop owners chose to end their prices with a nine. For example, a $10 product would be priced at $9.99 or $59 instead of $60.
This type of pricing is known as a charm price, and its goal is to emphasize the perceived value to your customers. Although several theories discuss why charm price works, the fact remains that round numbers are psychologically more appealing to shoppers.
Psychological pricing isn’t exactly a way to determine the best price for your products, but it will help you increase sales in the long run. If you do choose to deploy this pricing strategy, you’ll need to keep the last two digits the same on all your products.
So, if you list a product a $4.99, use the .99 notation for every other product as well.
13. Volume Bundle Pricing Strategy
Another way to increase your average order value is to deploy a volume bundle pricing strategy on your best-selling products. For example, if you have a product that customers typically buy two or more of, you can entice others to do the same.
So, you can price the bundles as such:
- Buy 2 get 10% off
- Buy 3 get 15% off
- Buy 4 get 20% off
As you can see, this example shows how volume bundling discounts can increase the AOV of your eCommerce store. Rather than only receiving $20 in revenue from a single product, you can get $36 in revenue if they purchase two.
The increase in revenue is worth the loss in profit margin per unit because the profit margin for the total order will outweigh the profit from purchasing a single product.
Psychological Pricing Techniques To Further Boost eCommerce Revenue
After you use one of the strategies above to price your products, you can use several psychological pricing techniques to further attract conversions.
Let’s discuss these now.
14. Show Prices in Small Fonts
Your brain indeed confuses visual size for numerical size. If you see $100 in a large font, it likely feels more expensive than it actually is.
As such, you should display your prices in a smaller font so that they seem numerically smaller than they are.
15. Expose Visitors to Any High Number
Research has shown that nearby numbers influence the reference price. For example, one study sold music CDs on a boardwalk in West Palm Beach. An adjacent vendor switched the price of a sweatshirt between $10 and $80 every 30 minutes.
They found that the $80 sweatshirt increased the sales of CDs because it made the CDs seem cheaper. However, this anchoring effect works with any number.
For example, you can display numbers on your eCommerce website such as:
- Join our community of 100,000+ happy customers
- We donated $250,000 to charity
- Order #8494818
As you can see, all of these numbers boost your store’s social proof and legitimacy.
16. Shower Higher Prices Before Lower Prices
Online shoppers are more likely to choose an expensive product when you list the products from high to low prices. This is because the initial higher-priced products establish a reference point.
As such, customers will begin to feel as if they are losing too much quality as they opt for the cheaper products on your website.
17. Mention the Increase From the Discounted Price
The majority of discounts emphasize the price decrease: “Now 40% Off!”
However, the reverse framing, “Was 50% Higher”, is more persuasive because it shows a higher numeral.
So, try mentioning the increase from the discounted price with the discounted products in your store.
18. Provide a Reason for the Discount
Every time there is a discount on your store, you should explain why. For example, it can be a Holiday sale, one-year anniversary sale, or so forth. By giving visitors a reason for the discount, the discount will seem temporary and create a sense of urgency.
Conclusion
I hope you enjoyed this updated guide to eCommerce pricing techniques in 2022. Remember, successful price testing is reliant on collecting enough data before deciding if it’s an optimal price or not.
Now I’d like to hear from you: Which pricing technique from today’s guide are you going to try first?
Are there any pricing strategies I forgot to mention?
Either way, let me know by dropping a quick comment below.