Let’s talk about a common scenario.

You are browsing a product on an e-commerce site. Find what you want to buy. Specs and everything else seem perfect. So, you look at the price tag.

Unfortunately, it’s over budget.

You feel disappointed. And start looking for similar products at cheaper prices elsewhere. When buying online, 60% of shoppers report that price is the biggest factor influencing their choice. If you’re an ecommerce website owner, you’ll want to avoid the scenario above.

It is very difficult to give the right price for every product. You have to make a profit. But you don’t want to lose potential customers. That means you need to optimize your pricing.

This post explains how to optimize your product pricing.

What is Ecommerce Price Optimization?

Ecommerce price optimization is the process of using market and customer data to find the optimal price for a product in the best way to maximize revenue and profits. To find the best price, you need to understand how your customers will react to price changes.

In e-commerce, price optimization is necessary today because everything from customer needs to tastes, preferences and budgets is constantly changing and evolving. That’s why executing the necessary pricing adjustments along with ensuring a bespoke ecommerce solution that will make your store stand out is key to finding the ideal amount you need. After all, it is the price of a product that regulates the likelihood of a customer buying it.

Please do not list similar products with the same price

It’s a scenario you’ll see on every e-commerce website you visit. There are two products that cost about the same, and research shows that most consumers leave the website without buying anything.

A study was conducted for this scenario where two similar products were priced at $62 each. 64% of users left the store without making a purchase.

The same study was conducted with the same product priced at $62 and $64 respectively. Here, 77% of users made an immediate purchase decision.

What this study uncovered is that keeping prices the same is unwise because it negatively impacts sales.

Apply the magic

When you visit a physical store or online store, you will see prices like $29, $99, $199, etc. Why do ecommerce marketers trust the 9 factors?

Because it’s psychological, you wouldn’t believe it actually works outrageously. I don’t buy a $200 product; I think back to when it was $199.

A study by Quantitive Marketing and Economics found that when you have two similar products, keeping the price of one relatively high and ending in 9 allows you to sell more of the same product at a lower price.

There is a psychological term called the left-handed number effect. Looking at the price of $7.99, I think it’s actually a 7, not an 8.

Use accurate competitor data

A smart businessman always keeps his competitors closer and sometimes gets good results. If you want to design a dynamic and effective pricing strategy that works meaningfully in real life, you need to provide better pricing through competitor pricing analysis.

The best practice is to collect as much raw data as possible and proceed with data cleaning. Use this data to define your pricing strategy.

Dynamic and non-discriminatory

It is not healthy for your business to discriminate on price in various mediums. It is a marketing tactic to offer the same product at a higher price if the user visits the website with an Apple laptop.

It is not an ideal practice to offer different prices based on demographics or customer characteristics. This is simple discrimination and could be considered illegal. Customers are also becoming smarter and using price comparison sites to check product prices. You don’t have to take it anywhere.

Instead, do a lot of research and let the results of your research determine your product pricing.

Best price

It’s one of the best ways to make money when you’re competitive. Seasons when competitors are in high demand or low inventory are good times to seize that opportunity. Most hotel and airline booking agents follow similar practices to increase revenue and profits.

The loser strategy

It is also a pricing strategy that has proven to work every time. Loser strategy is about human psychological tendencies. It simply means that if a person finds a product that is below market value, they end up shopping more.

You can upsell, cross-sell, and increase your total cart value by offering deeply discounted prices. Overall, the profit margin increases significantly.

Remember that sometimes you won’t get good returns, but customer acquisition is also a valuable asset you will gain from implementing this strategy. Overall, either way works.

Cost-based pricing

Cost-based pricing allows you to set the sale price of a product based on its cost of production. Here, the price of a product is determined by adding up all costs incurred in producing and distributing the product.

Therefore, pricing is based on the profit you want to make, not what your customers are willing to pay. This will help you achieve a certain profit margin beyond the total cost of creating and delivering your product or service.

Value (consumer) based pricing

Value-based pricing is another e-commerce pricing strategy that is usually based on a customer’s perceived value for a particular product or service. So, here you can set the price of your product based on how much your customers think your product is worth.

If your company offers a new or limited-edition item that provides a very valuable feature or service, you will benefit greatly from this value-based pricing model. This customer-centric pricing allows us to deliver an unparalleled customer experience, resulting in tremendous customer satisfaction.

Bundle price

Bundled pricing is one e-commerce pricing strategy that allows you to sell bundled products or services for a single price. Selling products at a bundle price increases business revenue because technically customers buy more of the product or service offered at the discounted price.

By bundling multiple products, you can attract more potential customers, encourage customers to spend more, and reduce marketing costs.

Hide prices

Price skimming strategies are based on a sense of urgency. Imagine displaying exclusive items with phrases like “exclusive offer,” “limited stock,” or “limited edition,” and customers are prepared to pay high prices for fear of missing out.

So, you can charge the highest initial price and lower it over time as demand from customers starts to decline and competition enters the market.

Geographic Pricing Strategy

You can implement a geographic pricing strategy that reflects different shipping, tax, or manufacturing costs depending on your customer’s geographic location. It can help businesses expand into new geographic markets.

A geographic pricing strategy allows you to lower your shipping, freight, or other transportation costs while generating maximum revenue within each region. However, this strategy should be applied after assessing product demand in different regions and taking into account factors such as manufacturing costs, population density and customer willingness.

How to choose a pricing strategy

Now that you know some tactics for ecommerce price optimization, you need to choose the right pricing strategy.

Conduct market research

Do your market research to find out which pricing strategy works best for you. You can do this by asking your target market how much they would pay for products and services like yours and figuring out the value your business will bring.

Determining the value of a product

Find out what your customers truly value about your product. Evaluate value metrics by valuing products for sale per unit and align them with your pricing strategy.

Price range determination

You can determine the maximum and minimum prices you can charge for a product or service by taking into account marketing, production, and advertising costs.

Take a look at your competitors’ prices

Review your competitors’ pricing to see how their products and services are priced. Then check the profit margin to compare. Decide whether you want to outperform your competitors by keeping your product at a lower price or by setting a higher price.

A few experiments with pricing

There is no one-size-fits-all pricing model that you can apply when pricing your products. Thus, you can introduce your audience to different pricing models and find out which ones they prefer, gathering data about your product’s performance at different prices.

Conclusion

There are many ways you can come up with a dynamic pricing strategy that works in your favor. All you need to do is analyze and monitor all aspects of pricing and adjust your strategy based on consumer patterns and behavior.