How should I set my product prices? By market value or perceived value? Should I keep tabs on my competitors’ prices? These are some of the common questions raised by the business managers regarding their product pricing. Even though pricing strategy is really at the heart of doing business, it’s not rare to see companies failing to implement the correct strategies to make most out of their business potential. Here, we’ll identify few common pricing mistakes made by eCommerce companies of all sizes.
Every Tom, Dick, and Harry knows that the lowest prices will yield the greatest sales. But that’s not necessarily the case. More often than not, companies wind up undervaluing their products, selling them at a fraction of their ideal price points. Sure, revenue may skyrocket initially, but you won’t be able to sustain.
If you’re offering multiple products, your business is bound to attract a broad spectrum of customers. Segment your customers and take it into account when setting prices. Customer segments are differentiated by the customers’ different requirements for your product. The value proposition for any product or service varies in different market segments, and price strategy must reflect that difference. Your price strategy should include options that tailor your product, packaging, delivery options, marketing message and your pricing structure to particular customer segments in order to capture the additional value created for these segments.
Pricing is one of your greatest tools for shaping your audience’s perception of your product. Going too low can make it unattractive to quality-conscious consumers, implying that it is weaker than its more premium-priced competition. Of course, you always want your pricing to take into account cost. After all, this is the only way in which you can ensure that you have a reliable profit margin in place for each of your products. However, you need to take a larger view of your product’s place in the marketplace.
Any change in your prices will trigger a reaction by your competitors. Smart companies know enough about their competitors to predict their reactions and get ready for them. This avoids costly price wars that can destroy an entire industry’s profitability.
It is foolish of companies to act statically in such a dynamic environment like eCommerce when it comes to pricing. It’s pretty common to see pricing schemes within companies where the price-points of the whole assortment is set on an annual, quarterly or monthly basis. The eCommerce market moves fast, so if your prices simply stand still, the market will move away from you, probably inclining towards your rather dynamic competitors. Therefore, the management of prices within an eCommerce company should be aligned with all sorts of dynamic operations of sales and marketing and the price points should be always questioned, tested and aimed to be improved.
Simply put, don’t over-complicate pricing. Getting consumers to overcome their hesitation and settle on a purchase decision is difficult enough as it is without making thing even more confusing. As such, be sure that your price points are as simple as possible. This mindset should apply not only to your offers but also to the way you present each price itself. Keep it simple and keep your cash registers busy.