Pricing strategies to steer your online business growth
set different pricelists for different customers
Thanks to the Internet, businesses no longer have to rely on a brick-and-mortar shop to reach potential customers, sell their products, and make money. Instead, there are now tremendous opportunities to sell products, drive additional revenue growth, and reach a new set of customers with an online business and e-commerce store. The eCommerce industry is growing at an exponential rate. In fact, retail eCommerce sales worldwide are expected to reach $4.8 trillion by this year.
But take a moment to think about how many online stores exist. No one directly monitors the exact number of eCommerce websites across the globe. However, it's estimated that there are upwards of 24 million stores selling products on the internet today. With all these online competitors, how do you stay ahead and ensure that your business still has success in this space?
There are several strategies used by most companies online but I will focus mostly on different pricelist strategies used by most businesses. A pricing strategy is the method of pricing a business uses to determine how much to sell their goods or services for. It's one of the most commonly overlooked and undervalued revenue levers in business. Carefully selecting the right pricing strategy takes a deep understanding of your product, your market, and your customers.
Most commonly used pricing strategies include cost-plus pricing, competitor-based pricing, and value-based pricing. The cost-plus pricingmethod is the oldest and simplest method of determining price and embodies the basic idea behind doing business. You have a product, sell it for more than you spent to acquire it (because you have added value by providing the product). In practice, a lot of companies calculate their cost of production, determine their desired profit margin, and put the two numbers together, and create their price for the product or service. This method requires very little market research and also doesn't take into consideration consumer demands and competitor strategies.
Competitor-based pricing involves setting your prices based on the current trend i.e. by looking at the prices set by other businesses in the same sector then adopting those numbers, plus or minus some amount based on how your product. Competitive-based pricing remains a simple, low-risk way of quickly gauging prices that accounts for market share and other factors, and in some cases, it is fairly accurate. However, this may lead to missed opportunities since companies end up not assessing their true value and get caught in a race to the bottom through industry group thinking.
The value-based pricing strategy works to determine the willingness of a target customer to pay for a particular product. Most common pricing strategies and methodologies forget about the customer, instead of focusing on internal reasons and/or competitive metrics to justify prices. Yet, customers don't care how much something costs you to make or your competitors, they care how much value they're receiving at a particular price. Value-based pricing provides real data by maintaining focus on the customers which will help you develop higher quality products, and even improve customer loyalty which is really important especially if you want to maintain and expand your online market.
What to consider when choosing a pricing strategy
You should quantify your buyer personas like the price each buyer is willing to pay, the estimated Lifetime Value of a customer, the estimated customer acquisition cost (CAC) of a customer, the top marketing channels you're finding this buyer in currently, the products the customers care about most and the least, the value proposition the customer cares about the most and the least. this will definitely take sometime and work, but everyone should be on the same page with who you're targeting, as well as how that user thinks, breathes, and lives.
Find the right products for each persona. Your buyer personas are your pricing strategy's foundation; now we need to build the structure around them. The first thing to think about is which products and features should be aligned to which persona. The ultimate goal is to have a plan or entry point for each buyer persona, and then a place for them to grow via upgrades.
Determine the best value metric and bundling. Once you've aligned your products, services, and features, you need to start thinking about a proper value metric. This is what you would charge for your products or services, and is the most important aspect of your pricing strategy. Your value metric should: align with your customer's needs, it should grow with your customer, and be easy to understand. The key is picking a metric that grows as the underlying company grows.
Actually pricing your product. Determining the price of a product is pretty easy. You simply need to collect some data, similar to the type of data you collected when finding the value metric and bundling you would use. Price sensitivity data is actually much easier to collect because we simply take advantage of how people think about value. People don't think about value as a single point. Instead, value is a spectrum where it's difficult for you to give someone a straight answer when asked, "how much is a product worth to them?" Yet, it's easy for them to know that a car costs more than a laptop which both cost less than an airplane. You can take advantage of this phenomenon by simply changing the way you ask about pricing with questions like at what point is (your product) so high-price that you'd never consider purchasing it? At what point is (your product) getting expensive, but you'd still consider purchasing it? At what point is (your product) a really great deal? At what point is (your product) so low-price that you'd question the quality of it? These questions get you much clearer guidelines into how your personas are thinking about price giving you price elasticity.
Remember, pricing is a process.
Now you are ready to creating your customer prices for your products remember to focus on your buyer personas because not all buyers are the same. There are various tools in the market to assist you in achieving this strategy with ease. Check out our eCommerce pricelists which is a powerful feature that will assist you to customize your pricelists
Prices per customer segment
Create pricelists for your customer segments: e.g. registered, premium, etc.
Apply deals for bank holidays, etc. Enter start and end dates.
Prices per minimum quantity
Meet a minimum order quantity and get a price break.