Hot Topics:

Tune Up Your Pricing Strategy

Price your products to be compelling under any market conditions.

Pricing strategy has been a pillar of online merchandising, but what worked yesterday might not work so well tomorrow. In other words, every winning recipe needs constant monitoring and, sometimes, adjustments.

Below are some key considerations for ensuring that your tried-and-true pricing strategies remain compelling and competitive in this ever-evolving online marketplace. With a bit of sensible tweaking and tuning up, you can better ensure you’re positioned to sell more, day in and day out. Here’s how.

Pricing strategy: What’s it all about?

When it comes to pricing, the marketing mavens typically point to three key approaches that have been most widely practiced:

  • Competitive pricing: This approach takes into consideration how competitors have priced like goods within the market space. The competitors then adjust prices to lure customers, most often with a “lowest price” appeal.

  • Market value pricing: This approach simply considers the currently accepted price by consumers, likely subject to change depending upon economic conditions and available alternatives. Here, sellers maintain a pulse of what the market is bearing for goods, and set their prices at, or very near, to that target.

  • Cost-plus pricing: This approach starts from a basis of the seller’s cost of goods then adds a profit percentage to arrive at a selling price. Also known as “markup pricing,” this allows sellers to project their profits by accounting for cost of goods and the remaining profit to be gained with each unit sold.

Effective pricing strategy requires you to constantly adjust to the marketplace, either in your price or pitch

The key to a reliable pricing strategy is to maintain an expectation that each strategy is subject to change, usually based upon a variety of factors, including costs, competition and consumer attitudes. Put another way, effective pricing strategy requires you never become complacently married to your chosen strategy—you’ll need to constantly adjust to the marketplace, either in your price or pitch.

Is the lowest-price strategy sustainable?

The most compelling allure for buyers is low prices. In good times and bad, consumers are looking to get the most for their money and, thanks to the Internet, have the convenience to shop the world for the best bargains.

Some business, however, have critically—sometimes fatally—affected their business by offering goods at prices so low they erode their profits to unsustainably low levels. Upon realizing they’re bleeding money, they often attempt to adjust prices up, but consumers aren’t likely to pay more where they previously paid less. They’ll often bolt for the next low-price seller.

Low prices are effective for sellers when offered judiciously—seasonal sales, special limited-time offers and so forth. This works to attract customers who will seek out the low-priced offering and, hopefully, shop among the other “regular priced” goods you concurrently offer. Rotation of these sales items, then, works to attract new and different customers to your business, who will be intrigued by the next items that are on sale (a technique that also gives return customers new incentives to shop again).

But to avoid having only the sales being shopped, sellers should alter the low-priced offerings by encouraging upsell goods as complements to the on-sale items. Equally, sales can be positioned as a bundle of complementary goods that provides an overall savings to the buyer, yet doesn’t deprive the seller from needed profit margins. Whatever approach you take, be sure to look at your low-price strategy and adjust it to keep variety in what you offer while maintaining profit to keep your business healthy.

What will you do if the market shifts?

When you can go the extra yard for your customers, they’ll often be happy to spend the extra dollar or two to do business with you

Now, in cases when the market-accepted price of goods is impacted—either up or down—you’ll need to, likewise, adjust your selling price. Naturally, if demand for what you offer spikes while supply lags among your competitors, you can and should raise your price—carefully.

Consumers are highly sensitive to exploitative pricing approaches and don’t take kindly to what they might perceive as price gouging. If you raise your price in this sort of situation, it’s a good idea to indicate a reason (demand is overwhelming, supply is difficult to secure).

Certainly, when the market bears a higher price, it would be foolish not to maximize on that. Try to incrementally raise your price, raise your price to just below what the market is bearing, and consider occasional sales or special offers to still offer the lure of a bargain for highly sought-after goods.

Conversely, if the market is no longer bearing the sort of price you originally projected, you can respond in several ways: keep your price unchanged and see if the market value bounces back, drop your price in kind with market value while ensuring you’ll not take a loss, or discontinue the particular item from your offerings.

Can you effectively convince buyers to pay your price?

As you approach the tuning of your pricing strategy, consider again what you offer, the value it presents to customers and other aspects of how you present it that also benefit your buyers. You can maintain a set price—maybe even a bit higher than competitors—if you’ve established a quality and service level that has established a loyal customer base that you can depend upon. If you offer fast (or free) shipping, after-sale support, welcoming returning policies and loyalty incentives (extra perks, discounts), you could stand to set your price more flexibly than what the market might usually impose. When you can go the extra yard for your customers, they’ll often be happy to spend the extra dollar or two to do business with you.

As a final point, recognize that you can adjust your price strategy at any time. Rather than wait to react to a market condition or change in customer sentiment, you can test different strategies whenever you believe you have opportunity to boost sales and increase your customer base. Call that sort of tuning “preventive maintenance,” the kind that can keep your business running at top efficiency, year in and year out.

About the author

Dennis L. Prince
Dennis L. Prince has been analyzing and advocating the e-commerce sector since 1996. He has published more than 12 books on the subject, including How to Sell Anything on eBay...and Make a Fortune, second edition (McGraw-Hill, 2006) and How to Make Money with MySpace (McGraw-Hill, 2008). His insight is actively sought within online, magazine, television and radio venues. Opinions expressed here may not be shared by The Online Seller and/or its principals.

  • Anonymous

    Great
    post and loved reading it. I have heard somewhere that good quality come with
    a good price. People have to keep that in mind…



Newsletter Signup

Subscribe!