Pricing is one of the most challenging decisions for an eCommerce business. Should you be an aggressive store and price low to stay competitive? Or should you be a business known for its quality and maintain premium pricing?

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There can be a lot of confusion if you want to price your products effectively. The biggest obstacle is that you will be unable to sustain your business if your products are priced incorrectly. Pricing your products is one thing but doing so effectively is another. 

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What is an eCommerce pricing strategy?

An eCommerce pricing strategy helps businesses establish how correctly you should price things to improve sales and profits while remaining competitive in the marketplace. The pricing strategies employed in eCommerce vary depending on the types of products sold, the demand for those products, and the level of competition in the market.

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How to price your products using different eCommerce pricing strategies?

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1) Competition based pricing

Competition based pricing is a common strategy in the ecommerce industry, and it involves setting prices for products based on what the competition is offering. It can be tricky to use, as staying ahead of the competition can be challenging. 

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The winning trick is to price yourself either higher or lower than the average, depending on how you want your brand to be seen compared to your competition and whether you are a new or established seller.

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To develop this pricing strategy for your online business, businesses need to conduct market research on competitors offering products that are strikingly similar to or the same as yours in the markets you are selling.

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For example, if you sell yoga mats, that costs INR 250 to market and produce them. Its competition research reveals that the average price online for yoga mats is INR 500. You may price it slightly above the market average at INR 550 using competition based pricing, giving you an INR 300 profit per mat.

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2) Value-based pricing

Value-based pricing is a way of setting prices based on the perceived value of your product or service, and it is the only scenario in which both the business and customers benefit.

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This pricing strategy ensures that your consumers are satisfied with the price they pay for the value they receive. By pricing the product according to the perceived value placed by the customer, eCommerce businesses can avoid short charging while providing a customer experience that meets their business expectations.

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Additionally, this pricing strategy reinforces the brand's reputation, develops more robust customer engagement as well as satisfaction, and eventually boosts its bottom line. 

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For Louis Vuitton customers, the value of their products is based on:

• Their default image of style & exclusivity

• Their accessories' social adaptability

• A gender neutral product design

• An affordable price than other high end brands 

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3) Loss-leader pricing

When a business initially enters a market, a loss leader is the best pricing strategy to build a loyal customer following and a recognizable brand. A loss leader strategy involves selling a product or service at a loss to acquire new consumers or upsell existing customers on other products and services. This way, customers will eagerly walk into the store or open their brand website and buy more products than shopping products with regular pricing.

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Amazon utilizes the loss-leader pricing strategy, hoping that buyers will add additional goods to their carts once on-site. Amazon has adopted this pricing model with their Kindle (profiting from eBook sales), their prime membership (which is offset by the prospect of more Amazon Prime purchases), and a large number of their regular products. 

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eCommerce businesses need to price their products below the actual price offered by competition as a way to break through a saturated market and attract new buyers to your store.

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4) Penetrative pricing

Penetration pricing is a marketing approach in which a company enters a new product market by offering lower prices than the competition. The pricing strategy is highly beneficial when they want to draw attention to a new product, service or brand.

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The perfect example of a brand following penetrative pricing is Xiaomi smartphones that are priced very reasonably in the average range of INR 15000- 30000. Their products offer unmatched performance at attractive pricing and have the right quality at the right price with the industry’s best hardware configuration. But when the same customers opt for Samsung or Apple smartphones, similar hardware configuration can cost 6X-9X times the price offered by Xiaomi. 

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It’s no wonder that with this clever pricing strategy, lakhs & lakhs of Xiaomi smartphones go out of stock in a few seconds, which has definitely pushed premium brands out of the competition when it comes to claiming the top spot as the number one smartphone brand in India.

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5) Dynamic pricing

Dynamic pricing involves changing the price of products based on critical factors like

• Consumer expectations

• Website & consumer behavior

• Inventory level

• Supply and demand

• Market trends

• Competition & industry standards

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Amazon's pricing plan is a perfect example of dynamic pricing. Its pricing varies on a minute-by-minute basis. Its system analyses live industry trends, competitor pricing, substitute product prices and consumer behavior before showing the current price of products. As a result, they sell more products at the largest profit margin.

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Dynamic pricing can be set up by brands considering critical factors related to industry, target customer and competition and then using their data points in analytics to adjust the product prices.

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6) Premium pricing

The premium pricing strategy is centered on pricing products considered expensive or luxurious over their average market value. The objective is to create the impression that the products have a higher value than rival products due to their higher prices.

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Premium pricing is effective when:

• A product is first introduced in the market

• There is a limited production of product in the market

• The product has a patent or copyright on a design

• The business has unique products with higher pricing & quality 

• The product is perceived as a luxury item with extraordinary quality or design

• There is no substitute for the product in the market.

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Apple follows a premium pricing strategy to differentiate its products by selling a great phone with a great experience at a lower cost. The hardware and User Interface (UI) are designed to provide a lot of value for the price, keeping profits high for the Cupertino based company.

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When it comes to pricing an eCommerce product, no one size fits all. You have to consider several external factors before setting the price for your product, and you have to consider the market, demand for your product, competition, and business goals. 

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Fynd Platform enables brands to create online web stores, accept online and COD payments, & connect with cost-effective delivery partners to deliver products across India. We hope this blog was able to help you with pricing your eCommerce products. If you have any questions, please feel free to Contact us or Book a demo immediately.