The pricing strategy is one of the most important factors in determining the success or failure of sales in e-commerce. This is because the customer can easily compare product prices between stores or search for similar products, cheaper or more available.
There are dozens of types of pricing strategies. I will describe here the most important ones. However, it should be remembered that each of them has many variants depending on the market situation for a given product group and the competitive environment:
1. Price lowering strategy (Price skimming)
This strategy is to start with the highest initial price and reduce it over time. It can be effective for exclusive goods and those it is difficult to find replacement products. Also often used when product availability is limited.
2. Price dependence on competition (Competitive pricing)
Most often used in a market where there are many sellers of the same goods. Pricing is based on prices in competing stores (or the prices of competing products).
The most difficult in this strategy is the correct selection of the competition against which we will set prices and the determination of the optimal price difference.
3. Pricing strategy – low prices (Penetration pricing)
Selling at a minimal margin or even at the purchase price. Online stores decide on such a strategy most often when they want to win the market. The price then becomes a significant competitive advantage.
4. Fixed margins
The simplest and most popular pricing strategy in online stores is adding a fixed margin (which differs, depending on the category) to the purchase price of the product. It is the most commonly used and the easiest method, but not very effective.
5. Psychological pricing
The most commonly used techniques are:
– Price ending in 9,99 (charm prices) – customer perceives the price as cheaper than it is
– Bundle – selling products in groups
– Prices crossed out – showing the customer how much he will save buying
– Multipacks – cheaper price when buying more of the same or different products
You can also take a look at the article in which I describe the methods Amazon uses.
6. Value pricing
The price of a product is based on its value for the customer and not on manufacturing costs. We often find this strategy among “premium” brands producers, but lately, it is also popular among book publishers or products it is hard to find an equivalent.
7. Dynamic pricing
This strategy is based on continuous automatic analysis of changing sales conditions and testing different price levels to maximize profit. It is difficult to implement for an online store, but it can provide the highest profits.
Choosing a pricing strategy always depends on the goal we have. Most often it is, of course, the maximization of profit, but it can also be: acquiring new customers, freeing storage space, or gaining a competitive advantage. The key is to understand the market well and get to know your target customer.
However, we should remember, that the selection of a pricing strategy is a continuous process. It is difficult to choose the best strategy for a given online store/product group the first time. Usually, it takes, a lot of testing to make a good choice. Even when we make the right decision, the conditions may change over time and the process of choosing the strategy will have to be restarted.
Price strategies should be reviewed regularly, as there is often a need to adapt them to the changing market environment.
Manager with experience in leading team of software developers and testers during implementation of internal and external IT projects.