When it comes to pricing your e-commerce brand’s product, picking a random number is not the best idea. There are a number of considerations to factor into pricing your product before launch. Interestingly enough, the pricing sector remains a relatively untapped business area in many regards.
A March 2021 Simon Kucher Global Pricing Study featuring over 2000 respondents (both B2B and B2C) cited the untapped value of pricing structures to spur profit margins. Profit margins largely increased - particularly for software and e-commerce companies - due to increased demand and decreased cost. However, for survey participants “prices improved” remained a relatively untapped area.
They noted in their press release that companies sometimes feel inhibited by what could become a bidding or pricing war; sometimes “companies undervalue price as a profit driver”. New product launches are important – in their words “the main priorities for businesses to get back on track post-Covid”. However, pricing is still key. They suggest by “downplaying the potential of pricing and revenue model adaptations, companies risk missing key opportunities for long-term growth.”
Dos and Don’ts for Your E-Commerce Brand Before Launching a New Product
DO NOT: Assume the markup method is the only way.
“Cost + markup = price” is the reflex reaction for most businesses. Ultimately, however, this doesn’t take into account product demand and competitor pricing. You might have a really niche e-commerce product or be doing something really unique with your digital marketing. Perceived value can shift the game.
DO: Make use of competitor research
This one almost goes without saying. If you are not scoping out your competitive landscape, you simply won’t know where your product measures up. Aim for going slightly lower than your competition OR slightly higher to distinguish yourself relative to perceived value.
DO NOT: Neglect factoring in all your business expenses
Production costs, digital marketing costs, employee expenses, customer service, shipping and handling, warehouse fees all are part of this story. Do you have an office space? Employees you are paying out? Running paid ads? All of this needs to be factored in. Physical product brands take note: this e-commerce tip really applies to you.
DO: Consider the intangible values you provide
Pricing is only one part of what gives something value. What other things could you use to inform your product’s perceived value? Excellent customer service? Active recipes and a unique origin story? (Check out Laird Superfood and MUD\WTR™ for good examples of the latter.) Many companies have an ethos, mission, and product development alignment that does provide added value to their customers. Just make sure to communicate and showcase these differentiating features in your digital marketing!
DO NOT: Assume cheaper is always better
Any Wish.com shopper knows this adage all too well. You can actually lose consumers in the competitor market this way. People might undervalue your e-commerce brand’s product because you are undervaluing it yourself. If you are looking for a way to execute more cost-effective pricing, consider an anchor model. This strategy is best for subscription based services and will let you establish varied tiers of pricing with different rising perks along the way.
DO: Use survey groups & gauge interest early
Market research can go a long way. What would customers desire? Consider proposing either or and scenario based questions to set up guidelines for visual aesthetic, pricing, and more. Short on cash? You can even create a mock advertisement and test it out in adjacent offices. Even waitlists can serve as an interesting tool for your e-commerce brand.
DO NOT: Run sales 80% of the time
Too many sales can influence a customer’s perception of the usual price of a product towards the negative. “Why should I buy that at that price when it will go on sale in 2-3 weeks?” Some companies do semi-annual sales at the same time every year, and consumers will hold out closer to those dates to make use of those deep discounts (e.g. Victoria Secret’s semi-annual sale). Sales do have value - for establishing brand interest and loyalty - but it can quickly become an overused tactic. Keep sales, discounts, and coupon code variable and carefully strategized.
DO NOT: Assume all industry niches are created equal
Just because one industry is implementing a particular pricing model does not mean that will translate to all. You need to find the best one for your e-commerce business. For example, the video game industry leans toward profitability in video game releases. As such, game consoles are notably cheaper (this is known as “loss leader pricing” fyi), often priced barely above cost. A similar example would be the sale of DVD players vs. DVDs themselves. Long term profit comes from the sale of new movies and games, not the device itself. Another example is price skimming (noticeably used by Apple users). Each time a new model is launched, pricing on prior devices goes down. This model is best for superior niche markets with lots of updates.
Finally, give yourself a break as this is all a work in progress. Pricing is a long haul game and you can’t expect everything to get off the ground seamlessly at once. However, combining several of these tools - including prioritizing pricing, doing competitor research, and establishing your best fit pricing model will aid in the success of your e-commerce brand.
Adquadrant prides itself on giving attention and care to all of the e-commerce clients it serves. Market research, competitor pricing, and digital marketing messaging of your combined product value are some of the things we do best. Reach out to us here to discuss how we can help you.
About the Author: Julie Ann Howlett is a freelance writer who enjoys marketing, entrepreneurship, and writing. She has degrees in science and teaching and has done advanced coursework in data analytics. She runs her own small businesses and is especially passionate about gender equity in STEM, technology, and business. You can connect with her on LinkedIn via customized note.