One of the most crucial elements to consider when building your online store is product's pricing.
The price of your products is one of the elements that will make or break your online venture, and mistakes in your pricing strategy can be costly.
You don’t want to price your items so high that you scare away customers, but you don’t want to go so low that your profit margin is suffering.
Here are four different pricing strategies that you can employ to build an online store.
Direct and Indirect Costs
Before considering which pricing strategy you want to employ, you need to stay aware of your direct and indirect costs involved in sourcing your items. It’s hard to price an item accurately without knowing exactly how much it costs you. This amount isn’t just the price you paid for the item itself, but you also have to factor in packaging costs, the cost to ship it to your location, a portion of your overhead costs, and any professional services you enlisted to get the product ready for sale, such as photographers or content writers.
Use the Market
There are very few niches of online stores that have absolutely no competitors. You can use the market to help you with your pricing strategy to build an online store. Check out the competition's websites. You can see how much they are selling their comparable products for, and in some cases, see how well their products are selling. Some sites may list how many items have sold while others may just have a number of reviews.
Once you’ve done your research on their pricing, you can decide whether you want to match their prices or try to beat them. Just be sure that you’re keeping in mind all of your costs, direct and indirect, when employing this strategy along with your item’s quality. You may be able to match or price higher if you know your condition is better or match or go lower if you can source your products at a price that makes it feasible.
Unlike using the market, in cost-plus pricing, you’re looking internally for your prices. You’ll determine your break-even point for how much you need to sell the particular product at a minimum to make your direct and indirect costs back. After you’ve determined that amount, you can then add in your markup for the amount of profit you can make on that particular item. You can add in a particular percentage for all of your inventory or mark them up individually. You may find that some prices may seem too high, so you may need to either find ways to reduce your cost or lower the markup on the item.
Another price strategy that you may want to consider during your online store building is offering bundles. This often allows you to sell more inventory and gives customers a chance to get the items they want at a lower price. This can help to increase the value of the items for the buyer because they can feel as though they are getting a deal. Often, it’s beneficial to put a high-value piece together with lower value items to allow for the high-value part to make up for any losses on the lower value portion of the bundle. This strategy can be a good way to introduce people to your products by creating an introduction bundle that has a variety of items. Some retailers produce trial sizes of their products that they bundle to entice buyers. This can be beneficial if your products come in different scents, colors, or formulations.
Adding Psychology to the Mix
The study of the human mind and behavior is beneficial as a price strategy for when you build an online store. Consumers want a good bargain, and often, a small trick can make something seem more affordable. Use nines in your price. Say your most expensive items are several hundred dollars. You can make your 500 dollar diamond ring seem more reasonable by making it 499 dollars. This one dollar difference may not seem like a lot to you when it comes to the profit margin, but the psychology of consumer behavior makes it look like a better deal. Psychologists have determined that many consumers are more focused on what the first number is compared to how the number ends. 400 sounds much better than 500 even if it’s so close to 500. The same is true with prices like 9.99 compared to 10 or 59 compared to 60.
Just because you choose a particular pricing strategy or price when you first build an online store doesn’t mean that you have to stick with it. If your rates aren’t working, you can change them up to make them work for you.
You can use a few different pricing strategies to come to your prices. You may find that a little testing and experimentation can go a long way towards fully scoping out what your market can bear.