Succeeding in online retail seems simple enough: You buy a product, then sell it for more than you paid to earn a profit. In practice however, figuring out how much to charge for your eCommerce products can be a little more complicated.
Pricing strategy is the single most effective way to influence value perception around your products, create or maintain demand for them, and maximize profitability. Here, we consider the main pros and cons of 3 smart strategies for pricing your eCommerce products.
1. Start with keystone pricing
Keystone pricing is the most basic way to value your eCommerce goods: You simply take what you paid for a product, then charge your customers double. By selling for twice what you pay (a 100% markup), you can generate gross profit margins as high as 50% (half your selling price).
- Lets you price products quickly (without worrying about how much you should charge)
- Establishes a base price point from which you can move up or down
- Doesn’t take overhead or product marketing costs into account (so your actual profit may be significantly lower than 50%)
- It can be tough to sell some products for double their cost—especially if your competitors are selling for less
Keystone pricing can be especially useful if your product is unique or hard to find, or if you’re new to eCommerce and need a quick way to test-drive your pricing.
2. Aim for competitor-based pricing
Because it’s so easy for prospective customers to compare eCommerce products virtually, you may have better pricing success if you follow your competitors’ lead.
Here are several ways to benefit from competitive pricing.
Compete on price alone. Track what your competitors are charging for the same or similar products and consistently charge equal or less.
- Pro: The simplest way to stay competitive
- Con: Your profit margin will likely be very low
Compete around best-sellers only. Focus on identifying key value products—the ones that matter most to your customers—and selling them for less than your competitors.
- Pro: Value products typically have the biggest impact on sales, profits, and customer loyalty
- Con: It can take a lot of work to optimize value perception by regularly tracking and responding to what people are buying
Compete with loss-leader pricing. Take a loss (temporarily) on best-sellers or key value products by selling them for less than they cost.
- Pro: Very effective for attracting new customers
- Con: If you sell your most popular products for too long without earning a profit, you may run into cash flow problems or find it hard to hang onto buyers when you eventually increase your prices
3. Consider premium pricing
Selling your products at a premium achieves two important objectives: bigger profits for you and a feel-good purchasing experience for your customers.
By pricing your product above what your competitors charge, you can showcase a higher level of quality—whether it relates to your product’s features, appearance, or performance, or to your customer engagement.
- Projects an appealing, high-value image to prospective buyers
- Works especially well if your overall marketing strategy highlights quality (or luxury) ahead of cost
- Without mass price appeal, you’ll need confidence in your ability to target, attract, and convert a niche or upscale marketing persona
- You should ideally have the product quality to back up your pricing “claims”
Pricing your eCommerce products can be a tricky road to navigate.
If you’re having trouble landing on the smartest strategy in the short term, here’s a good rule of thumb to keep in mind: never charge more for a product than you’d be willing to pay as a customer.