Do you introduce your prices based on your costs or the market? You will find how to define a pricing policy for your eCommerce within this post.
Many times how to define a pricing policy for your eCommerce seems like a simple task and it becomes a real headache. Is the margin enough? Am I in market price? Should I upload it or download it? Let’s shed some light on the subject and hope that this post will be very helpful.
The importance of pricing
This goes beyond the evidence that leads us to think that a poorly defined pricing policy can compromise the viability of a project. Maybe, what you have not thought so much about is the power it has as a selling point.
One of the factors with more weight for the user when deciding on the online purchase is the price, although there are other aspects such as comfort, reviews (social proof) but what is premium is the price.
That is why we have lived for many years in an environment where there are platforms dedicated exclusively to the comparison of products and services such as Next Tag or Price Grabber. Even many eCommerce incorporate their own internal tools (let’s not talk about the marketplaces like Amazon that directly show it in your Buy Box, on the right and under the purchase button in a prominent way).
The impact of the price is very prominent in the various phases of Customer Journey, but obviously where it has more incidence is in the consideration phase that is the prelude to the purchase. That is why we have to work with great care on this aspect.
How is the pricing policy defined?
Behind a decision that is absolutely strategic is essential a product research, market, competition, operating costs, production, logistics, recruitment, market segmentation … It is not easy to do well, but it is worth every minute you spend.
The first thing you should think about is what criteria you will use to define the pricing policy, because there is more than one way to do it.
# 1 – Price based on cost
It is the most basic and, to some extent, the most logical. You just have to know how much it costs you to sell that product (all associated costs) and on that amount set the margin you want to get.
The more accurate you are in allocating the costs, the better it will go afterwards, think of each and every one:
- Production price or unit purchase of the product.
- Cost of storage of products.
- What you have to invest in logistics.
- Taxes and fees associated with the activity.
- Human Resources.
- Properties such as offices and warehouses.
- Hosting, web design (at Oleoshop we help you to make the investment profitable
- when creating your eCommerce).
- Cost of the capture what is the CPA of the campaigns that involve that product?
Now you can ask yourself the margin you want to obtain.
Although also influences supply, demand, the level of competition and brand positioning. In this case I do not mean organic positioning, but strategic to the eyes of the client, do we transmit exclusivity? Do we play with a good value for money? Do we have an exclusive benefit? As you can imagine, a buyer of organic products is more sensitive to quality, therefore, he will be willing to pay a little more for a product that fits his needs.
# 2 – Price based on the market
It is a different approach and something more aggressive. Yes: when we talked about a cost-based strategy we already mentioned the market. You can not ignore this variable because you will simply be lost. When you define the pricing policy of your eCommerce from the prism of the market you will be making the decisions putting in focus what is happening with other eCommerce.
The first thing is to make a thorough study of the prices of competitors and see where you are. Are you above? Maybe you have to do some numbers to see if you can be a little more competitive. Are you below? Congratulations, you can raise the price! Each conversion will bring you a bigger margin and you will continue below the market if you do it in a progressive and constant way.
If your idea to define an ideal pricing strategy is this, you can choose to do it in a manual way in which you review the main competitors and the product to be completing a spreadsheet. This work is quite tedious and never ends because the prices are quite dynamic and move based on many variables that you can not control.
The alternative is to use a Mindterest-type software. They are solutions that are not cheap, but have a great weight at a strategic level. Not only keep you up to date with the changes in the prices of monitored products, but also spy on your competition in terms of the promotions you use or your stock levels (imagine that your main competitors break and are left without the availability of the doll this Christmas, if you have enough stock you can improve your revenue a little).
This also opens the door to dynamic repricing. Imagine that you define a maximum price and a minimum price as far as you are willing to go, in that case you can always guarantee a competitive price and a margin within the fork that you consider optimal. For this you have systems like Boardfy that work in real time and give you an almost immediate reaction capacity.