Many people think that the key to more sales is selling products cheaper but profitable pricing needs a lot more thought. If prices are too high the profit margins will be good, but you won’t sell many. If prices are too low, sales will be good but you might not make enough money to justify the expense. So what is the sweet spot and how do you decide what prices to list your products at? Remember other factors come into play such as the types of customers you have, the size of your market, competitors’ prices and many other elements.
Here are some strategies to help you get started on pricing your products for profitability.
The most important step when pricing your products is to evaluate your costs. Carefully analyse all of the expenses associated with producing and selling each product. This includes raw materials, labour, shipping, marketing costs, etc. Once you have determined your total cost for each item, you need to add a reasonable profit margin that will make it worthwhile for you to keep offering this product.
Keep an eye on what competing businesses are charging for similar products and services. Use their prices as benchmarks so that you can adjust yours accordingly if need be. However, don't feel like you must always offer the lowest price – quality should also play a role in setting your prices!
You can also offer package deals that combine several of your products or services at a discounted rate. This can be an effective way to move slow-moving inventory and attract more buyers.
Offering different price points for the same product can help you target different segments of customers. For example, you could sell a basic version of a product at one price point, while offering additional features or better quality versions at higher price points.
Think about what makes sense to your customers when pricing your products. Many consumers are willing to pay extra for unique, high-quality items that they perceive as valuable. On the other hand, budget shoppers will look for the best deal possible. Consider the needs and wants of your target market when setting prices accordingly.
Knowing who your customers are can be a great help in setting appropriate prices for your products. For example, if you sell luxury items, then you may want to charge more than other stores because people who buy such items usually expect higher prices anyway. On the other hand, if your target audience is budget-minded shoppers, then reasonable prices will be very important in attracting them to purchase from you.
Once you have settled on a pricing strategy, don't forget to review it on a regular basis in order to ensure its effectiveness over time. Make sure that all of your costs are still accurately reflected in your products' prices, and adjust as necessary to remain profitable and competitive with other businesses.
Online retailers need a pricing strategy, but for inexperienced retailers, it can be a real headache. It can take a lot of trial and error before you figure out your prices.
Everyone has heard of the manufacturer’s Recommended Retail Price (RRP). This is basically a guide price suggested by the wholesaler and if you go with this price you will achieve a reasonable profit margin.
Pros – You don’t have to think too hard and if you achieve any sales, you enjoy a decent profit margin.
Cons – You won’t be competitive if everyone else prices their products at the same level.
Large stores use anchor pricing all the time. Anchor pricing means establishing a high price as a reference point and then reducing the selling price so customers think they are getting a good deal.
Pros – if you set your anchor price very high, the customer thinks they are getting the deal of the century and you have a sale.
Cons – Online price comparison websites makes this a hard strategy to pull off because most people have a good idea of what they should be paying already.
Loss leaders are a common pricing strategy. The rationale behind this is that you sell some of your products at a heavily discounted price in order to attract traffic to your store. The extra traffic should lead to more sales in other categories.
Pros – It’s a great way to boost sales if traffic is a bit sluggish.
Cons – The more you use this tactic, the more likely customer are going to expect super low prices all the time.
Consciously pricing your prices a bit higher than everyone else’s sounds counterintuitive but it can make your products feel a bit more exclusive. People will often pay more for the same product if it is perceived to be a ‘premium’ product.
Pros – This pricing strategy will have a knock-on effect on everything else you sell, which should give your brand a boost.
Cons – Above-competition pricing won’t work if there are too many other similar products for sale at a much lower price.
Ever wondered why stores charge £9.99 instead of £10? This is what is known as psychological pricing, the theory being that people are more likely to buy a product if there is a 9 on the end of the price tag. Prices ending in 3 or 7 are also psychologically appealing.
Pros - Tap into your customer’s subconscious and trigger a spending spree.
Cons – This method won’t work with high-end goods as lower prices devalue the item.
Product bundling lets you come up with a unique price point by bundling together several items in new ways. Be creative – bundle cheese with wine, shoes and in-soles, or gym wear with a protein shake. It works for PlayStation and Xbox, so it can work for you.
Pros – Customers feel as if they are getting a bargain.
Cons – Not everyone wants to pay more for extras they don’t need.
Apple has been very successful in their prestige pricing strategy. Their prices are far higher than other manufacturers but because the brand is so popular, people will queue up for days to buy the latest Apple products, no matter how expensive they are.
Pros – Once you have an audience who love your goods, you can pretty much charge anything you like.
Cons – This only works if your target customers are happy to pay whatever price you conjure up.
Another supermarket favourite - the buy-one-get-one-free pricing model involves selling two products for the price of one.
Pros – People will often be tempted to go for BOGOF deals because they like a bargain.
Cons – Supermarkets have done the BOGOF deal to death, so you may come across as ‘untrustworthy’.
A dynamic pricing strategy means adjusting the prices of your products according to current market conditions. Airlines do this all the time, but it is harder to achieve the optimum price without excellent up-to-the-minute data.
Pros – Dynamic pricing means you are more likely to meet your customer’s expectations of what they should be paying.
Cons – You will need to monitor the marketplace in real-time and be prepared to change prices quickly.
Think of the Pound Shop and you get the idea. You might make a loss on some products, but on others, profit margins will be good.
Pros - Flat pricing is really easy for customers to understand and really easy for you to administer, and profits will be higher as a result.
Pros – This method only works if everything you sell is at a similar price point.
Sales, coupon deals, and special offers are all excellent ways of boosting traffic to your online store. After all, customers love a bargain.
Pros – Special promotions can help increase knock-on sales of other, non-discounted goods.
Cons – If you overdo the sales, you will devalue your other products.
In theory, offering products at the lowest prices means you are guaranteed sales. In practice, this is hard to achieve without dynamic price checking software and if you continually slash your prices you may end up stuck in a price war with your competitors.
Pros – Low prices will increase traffic to your store and other products will benefit.
Cons – It is difficult to sustain very low prices if you are a small retailer and you could end up making a loss.
Finally pricing is a moving target – there are so many variables to consider that it will take time and experience before you find the right price point for your products. Be willing to experiment and make adjustments to fit the current market conditions. And if you need any advice on all things e-commerce related, give us a call today!