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How To Choose The Best Ecommerce Pricing Strategy For Your Store

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Whitney Blankenship

Content Marketing Manager

Reading Time: 7 minutes

Choosing an ecommerce pricing strategy is often one of the most difficult decisions you can make. It calls for a delicate balance between customers’ purchasing power, product value, and bottom line.

For many merchants, this can result in going around in circles.

How do you consider these aspects and choose a pricing strategy your customers will agree to? In this piece, we’ll go over different ecommerce pricing strategies, with examples and pricing tips to help you get it right the first time.

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What is an Ecommerce Pricing Strategy?

An ecommerce pricing strategy is a set of rules you use to determine the price of the products you sell. By being methodical, you can figure out:

  • How much you spend per product.
  • How much you earn per product sold.
  • How much your customers are willing to pay.

A pricing strategy is also a marketing tactic. Sometimes discounting your prices at time-sensitive moments helps drive more sales. For example, at launch, throughout the year, or at a certain point in your product’s lifecycle.

Alternatively, opting not to discount your product pricing can be a great way to maintain the perception of value—or even adding a sense of luxury.

Either way, you should choose a pricing strategy for your ecommerce business. It will help you standardize your prices and margins across your product line.

Why It’s Important to Choose the Best Pricing Strategy

Your pricing is much more than just a number. A great pricing strategy for ecommerce businesses will minimize your costs while adding value to your customers. Price is often the most important factor in choosing a product or brand over another, thus it helps your customer make their decision.

Price does a few things for you:

  • Communicate product value: Price can help you put a value on the solution your products offer.
  • Helps you remain competitive in the market: Pricing too high means your customers can’t afford your product. Pricing too low means you’re not competitive.
  • Increases your profits: Ultimately, price serves to increase your bottom line. Naturally, you’ll be able to determine your own margin. However, it’s important to consider that balance between how much you want to earn and how much your customer can pay.

Which Pricing Strategy is Right for Your Business and Customers?

Each ecommerce pricing strategy has its advantages and disadvantages. Choosing the right one for your store is going to depend on a few things.

  • What you sell and how much it costs to source/manufacture products and market them.
  • Who your customers are, and how much they’re willing to pay.
  • Who your competitors are, and current market conditions.
  • How much margin you want to earn.

By testing the pricing strategy for your ecommerce business, you’ll be able to select the right one for your needs and tweak it as you go.

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Examples of Pricing Strategies for Ecommerce Businesses

When choosing a pricing strategy for ecommerce, there are several options to choose from. Each ranges in difficulty and have their own advantages and disadvantages.

Here’s a quick table to help compare the different pricing strategy examples for ecommerce stores:

ecommerce pricing strategy comparison table
Ecomnmerce Pricing Strategy Comparison Table

1. Cost-Based Pricing

Cost-based pricing for ecommerce is pretty straightforward. You decide what margin you’d like to earn and then add that to your total cost for sourcing your products.

Simple—but what does “cost” mean?

Roughly, you have to think about:

  • How much it costs to order or manufacture a product.
  • How much you’ll spend to market it (if you opt for paid advertising).
  • Shipping costs—both to your warehouse and to the customer.

Knowing the cost of any given product you sell will help you set prices that won’t leave you breaking even—or worse.

How Cost-Based Pricing Works:

Cost-based pricing is simply cost plus the margin you want to earn. You’re free to decide exactly how much margin you want, so there’s freedom and flexibility in your pricing.

Cost + Margin = Price

Cost-Based Pricing Example:

Let’s say you’re selling a face cream and it costs you $10 to have it manufactured, labelled, and shipped to you. You’re also spending about $5 on Facebook ads to get the word out, so factor this into the cost as well. The total cost of your face cream would be $15.

Let’s also say that you’d like to earn $15 per face cream. Your cost-based formula would look like this:

Cost + Margin = Price

$15 + $15 = $30

You would sell your face cream at $30 to earn back your cost plus your margin.

Advantages of Cost-Based Pricing:

  • It’s very simple to understand and calculate.
  • This pricing strategy example isn’t reliant on market trends/research.

Disadvantages of Cost-Based Pricing:

  • Not customer-focused, it doesn’t account for what your customer is willing to pay.
  • May not account for the value you bring, which may have you under or overvaluing your products.
  • “Desired margin” can be an arbitrary number if there’s no basis to work from.

2. Market-Based Pricing

Another pricing strategy example for ecommerce, market-based pricing considers competitors’ pricing. Thorough research into your competitors is key to this pricing strategy.

This is one of the best pricing strategies for first-time ecommerce buyers. You can appropriately gauge which prices your customers are most willing to pay.

How Market-Based Pricing Works:

You’ll need to do your homework: it’s time to see what the competition is doing. Search for and track competitors that are selling the same or similar products across a variety of price ranges. This might be time-consuming, but it’s one of the best ways to determine fair pricing for your products.

There are tools that help create dynamic pricing strategies for ecommerce that allow you to automate competitor price tracking. These tools eliminate the painstaking process of researching individual competitors. This includes tracking their prices over time.

Once you have a range of competitor prices to work from, you can take the average of those prices for your baseline price. From that average, compare your competitors’ average price alongside your costs. How much margin will you receive?

Average competitor price – Cost = Margin you can expect

Now you know how much you can realistically charge for your product and how much margin you can expect.

Market-Based Pricing Example:

Let’s say you’d like to apply this market-based pricing example to a stainless steel cooking pan, which costs you $25 total to produce. Your competitors fall somewhere between $40 and $60 per pan, averaging at $50. You’d be able to price your pan anywhere between $25 and $50.

Average competitor price – Cost = Margin you can expect

$50 – $25 = $25

Therefore, you could easily set your price to $40 to be on the lower-end of the market. This would undercut your competitors with more advantageous pricing for a comparable product.

Advantages of Market-Based Pricing:

  • You know you’re selling your products at a price that’s appropriate for the market.
  • This ecommerce pricing example sets a price your customers will deem fair.

Disadvantages of Market-Based Pricing:

  • Don’t attempt a race to the bottom—someone can always undercut your prices.
  • May end up with less margin, meaning you’ll need to sell more to match competitor margins.
  • Doesn’t account for the unique value your products/brand brings.

3. Value-Based Pricing

Value-based pricing is slightly more abstract and theoretical among ecommerce pricing strategies. However, it includes the value you bring your customers within the price, which is fair for both you and your customers.

How Value-Based Pricing Works:

In order to use value-based pricing, you have to start from your baseline, which is cost. Once you know what the total cost of sourcing your product is, you compare it against your competitor’s average price. Now, consider the unique value that you provide, and attribute a number to it.

Value is essentially your USP (or unique selling proposition). How do you add value to your customers? It’s important to consider the value your brand brings to pricing, whether it’s through unique materials, a killer support team, fast shipping, or something else.

Competitor Average – Cost = Margin

Margin + Value + Cost = Price

So let’s go back to the stainless steel pan, your cost is $25 and your competitor average is $50. Your typical margin would be anywhere between $25 and $50 if you wanted to offer something comparable to your competitors.

However, let’s say you offer a 10-year guarantee with your cookware. It doesn’t make sense to align your prices alongside competitors who don’t offer something similar. So you’d put a number on that value and price accordingly.

Competitor Average – Cost = Margin

$50 – $25 = $25

Margin + Value + Cost = Price

$25 + $10 + $25 = $60

Advantages to Value-Based Pricing:

  • Fair to the customer, but also accounts for the unique value you provide.

Disadvantages to Value-Based Pricing:

  • Value can sometimes be abstract, and thus difficult to attribute a number value.

4. Bundle Pricing

Bundle pricing is when you take a bunch of different products and add them together. You then offer them for a price that’s often lower than the price of purchasing each product separately. This is helpful for increasing average order value (AOV) and increasing the perceived value of your products.

How Bundle Pricing Works:

The idea is that you offer a discount in exchange for purchasing more products from your store. You want to increase the perceived value without taking too hard a hit in your margin. Getting bundle pricing right might take a bit of testing and tweaking, as you’re dealing with multiple costs, margins, and prices.

(Product price x Quantity) – Bundle Discount = Price

This can be the same product, such as “Buy 2 get 20% off.” It can also involve related products that go together well.

Bundle Pricing Example:

Maybe in addition to the 16-inch stainless steel pan you offer, maybe you have a 10-inch version of that same pan, plus glass lids for both. If you’re selling your 16-inch pan at $50, and each lid is $20 extra, it would cost a customer $130 to buy both pans and lids.

Let’s break it down:

Product Price Cost Margin
16-inch pan $50 $25 $25
16-inch glass lid $20 $10 $10
10-inch pan $40 $20 $20
10-inch glass lid $20 $10 $10

The total cost comes out to $65, meaning your total margin is $65, and your customers would pay $130.

Unless, of course, you offered a bundle that would make the offer more attractive at $100, which would still leave you a sizable margin at $35.

If this offer is attractive enough, you’ll be able to sell more of these bundles and eventually erase the margin loss that comes with the discount. What’s more, if your costs include shipping to the customer, you’re likely to save even more by shipping all of these products together.

Advantages of Bundle Pricing

  • Easy way to increase AOV.
  • Aides in product discovery.
  • Fewer individual packages to ship—making shipping worth your while.

Disadvantages of Bundle Pricing

  • Lowers overall margin per product.
  • Difficult to balance between value and discount.

Wrap Up

Deciding on an ecommerce pricing strategy is far from a simple task. It means striking the perfect balance between what your customers are willing to pay, the value your brand offers, and the margin you want to earn.

Any of the above pricing strategy examples are completely valid choices for ecommerce. You can even combine a few of the strategies to find the one that works best for your store.

With a bit of research and tweaking here and there, you’ll be able to find a pricing strategy that will resonate with your unique value and your customers’ wallets.

If you want to get more out of your pricing strategy, a great way is to lower your overall costs. With email marketing earning a $42 per every $1 spent, it’s a great way to get the most bang for your buck. Try Omnisend free for 14 days and see just how much you can earn from a great email marketing strategy!

Special thanks to our friends at Omnisend for their insights on this topic.
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