How Pricing Factor affects your E-commerce sales
We all have been in this situation. You went to buy a shirt from a shopping mall and then your eyes catches a flattery white cotton fabric shirt, you run your fingers across the shirt hold it up to your frame.
Then you look for the truth that always keeps hiding inside the shirt (the price tag). Slowly you reach for it and twist it around to see the price. OHhh Noooo!!!. Maybe after some quick mathematics calculation (I’ll download “Avengers Infinity War” movie rather than going to the theatre”) you go through the details like color, body fitting, and size.
This is a very common offline behavior we do while going for shopping physically. It won’t be wrong to say that the same process is followed by us when we go for online shopping.
Yeah in online shopping no price is hidden inside your shirt, it’s clearly stated right next to the product you’re looking. If 50% is the users need for the product then another 50% is the price that will make the product more charming to be bought.
Today in this article I will be going to discuss what pricing factor is and how it affects your growth in E-commerce business. So let’s roll onto it.
According to PWC research here are some prime reasons why customers visits an ecommerce website:
- 61% to compare pricing
- 23% to participate in promotions
- 41% to look for coupons
Smart Margins
The idea of setting prices of your products low is a total myth. In fact, you lose the price battle if your pricing is too low. If you are dropping your costs to a point where you are losing money, you should consider finding a healthier source, or alter your product offerings to include more profitable things.
Setting up your profit margin with respect to that it won’t affect your customer's buying is a pretty complex thing. When you consistently keep your products price low your existing customer will always expect the lower price for your product, even when it is unsustainable to your business. As a result, you could lose those customers over time.
There are tools available to measure what price your competitors’ sets for a product. One of them is by “Pricing Lab” which monitors and updates prices automatically in real time.
Cost-Based Pricing
It is the easiest way to calculate what product should be priced at. This has two variants :
i) Full cost Pricing
ii) Direct Cost Pricing
-Full cost pricing takes into consideration both variable, fixed costs, and profit %.
-While Direct-cost pricing is variable costs + profit %.
Cost-based pricing is one of the most intuitive ways to set a price. Simple logic is that after calculating the costs of a product for your company, you just have to apply the profit margin you want to achieve. That way if cost of the product is 50 and the margin you desire is 100%, you have to price it at 100.
With cost-based pricing, there’s always a sense of relief attached, as you know that you are covering your costs and gaining some profit on all the work that you are putting in.
Dynamic Pricing
It is a pricing strategy in which prices are changed in response to real-time supply and demand.
Dynamic Pricing allows retailers to remain competitive 24*7 by price monitoring and changes, boosting profits by 25% on average.
This strategy is an old practice. In the year 2000, Amazon was experimenting with dynamic pricing: Whenever a user tries to view the same product even after deleting their cookies and web-history they were shown different pricing every time for the same item.
This was mostly used for loyalty purposes, existing customers were recognized and offered a better deal. The result, a feeling of being ‘special’ and an increased loyalty to the business.
Penetration Pricing
This pricing strategy is mainly used when launching a new product or service. Penetration pricing includes offering a very low price during its initial offering. The prices are intentionally set low to attract the new customer. Lower price helps to lure customers away from competitors.
Penetration Pricing strategy helps the retailers to make the customer aware of their new product in the market. The price entices the customer to try the brand new product.
Because of the low pricing your branding among initial customers who will then share your products review/feedback with other possible customers.
Psychological Pricing
“Odd” pricing tends to win more than “Even”. The ‘9’s magic is one of the most widely used and oldest pricing practices. Ending prices with .99 or .97, or a bit less than a round number, is a market psychology tactic that deeply affects shopping decisions.
It is found that the consumer perceives this odd price as being significantly lower than they actually are, as they tend to round them to the next lowest unit. For example:
As you can see in the above image that Amazon's India site is also following the same practice of '9'. All the pricing of the product listed there is odd or either ending with '9'.
Products pricing with 3.99$ got more chance to be sold than 4.00$ because mostly it is seen that value on the left (before the point) is what buyers interpret in their mind as the final pricing.
William Poundstone in his book Priceless, listed eight different studies on the use of charm pricing and found that on an average, they saw an increase in sales by 24% when they decided to use “Odd” pricing.
Smaller Fonts
No one wants to see the big large price in front of their eyes.
Research says that prices that are shown in smaller fonts convert better than larger font under the same display value.
Small font = small price (9.99$)
Large font = large price (9.99$)
Presenting the lower sale prices in comparatively small font resulted in more favorable value assessments and bigger purchase likelihood or choice than presenting the lower sale prices in relatively large font.”
Few Tips
- Your buyers are experts to recognize the pricing. So try, to set the prices of your product as precise as possible. They even know the small difference between your products, and will understand why one costs 49$ and other 47$.
However, if you feel they are not that expert in pricing, do not make things difficult and set it at 50$ ;) .
- As 99 is shorter and better than 100, the same way a price whose pronunciation is shorter seems lower to your buyers than a price pronounced longer. Twenty-five-twenty-eight dollars ($25.28) is worse than twenty-six-one dollars ($26.01).
- As any startup is aware of the fact that, costs depend on sales volume. Sales volume depend on prices you set. Because your costs will change as you scale, pricing based on cost alone is a hazardous practice.
However, pricing based on cost also ignores something important, which is the value you create for your customers.
The Conclusion
You first need to manage your focus on e-commerce pricing as it would mainly depend on what stage is your e-commerce currently.
If you’re just a startup, keeping low cost will probably have the biggest impact. But once you start getting bigger (increased visitors, a high number of sales) you can start working on customer retention.
In order to escalate your conversion rate you need to master your pricing strategy and your brand will be more efficient.
Wishing you all the best and good luck in your hunt for the right price !!
