How to Set Your Product Prices
FEATURED COMMENTARY
By Chris Malta Home EBiz Product Sourcing Expert
How you price your products has a tremendous impact
on your business’ bottom line. That’s why you, as an online seller, need to find the
pricing strategy that works for your web store and allows you to achieve your business
goals.
Costly Mistakes Bad pricing can have serious repercussions in the form of lost
business and lost revenues, yet many e-tailers disregard its importance. Many new, and
not so new, sellers seem prone to certain common mistakes: Not tracking the
consequences of pricing decisions. Says Frank Luby, of Simon-Kucher.com, In a lot of
cases, people are making pricing decisions very information-starved. You should be
able to defend your prices with market research. Monitor the affect of pricing changes
on your profit margins, so you know how to adjust your prices in the future. Trying
to match or beat the lowest prices. A lowest price strategy is only practical if you
have a sustainable cost advantage over your competitors. If you can’t maintain those
super-low costs, you can’t afford to maintain super-low prices either. Using
standard markup pricing. The problem with simply adding X dollars to your cost to
determine your price is that you may be charging less than what your customers are
willing to pay. Even a slightly higher price, with a small loss in sales volume, can
result in significantly greater profits. Or your price tag may be too high, and
generate much less business than if you had the right prices.
Proven Practices So how should you be setting your prices? There are multiple
strategies that work well, but whatever strategy you choose, keep the following in
mind: Your pricing strategy should fit your business goal. For instance, if your
goal is achieving a certain market share, your price points may be lower than if your
goal is maximizing your profits. Your customers will have a price range in mind when
they’re shopping. You don’t want to be drastically higher or lower than every other
seller. If you’re dramatically higher, buyers may feel they can do better elsewhere.
If you’re dramatically lower, they may feel suspicious and wonder what’s wrong with
your products. Check out your competition, and see what they’re charging and how their
products and services compare with your own. Pricing’s a trade-off. Buyers aren’t
just paying for the product they’re also paying for the value you add, whether in the
form of convenience, better service, or faster delivery. You have to determine what
benefits you bring to the table versus your competitors and what those commodities are
worth to your customers, and adjust your pricing accordingly. No rule works every
time you’ll need to adapt your pricing to accommodate different products, target
markets, and sales mediums. If you can’t afford expensive market research software
right now, then take the above factors into consideration, and just experiment. Start
high, try different price points, and see where your products sell best.
Don’t underestimate the power of pricing. It’s not impossible to find those ideal
price points that will allow you to accomplish your business objectives. Says Luby,
All you’re really doing is finding a way to get (customers) to pay what they’re
willing to pay and not leaving that money in their pockets.
