The current estimated number of ecommerce sites active across the globe rests somewhere between 12-24 million. Clearly, competition is fierce when it comes to selling products online—and no matter how niche your product offerings may be, there are still other online stores competing with you for the business of your target audience. To help position your store as the top choice for all consumers, consider setting prices for your products and services using a competitive pricing strategy.
How do you develop a competitive pricing strategy?
Business owners who adopt a competitive pricing approach examine the way their competition is pricing their products when making decisions about how to price their own. Keeping tabs on your competition is a great way to ensure you know what actions to take to come out on top, and focusing on their pricing—along with what they are able to provide for that pricing—can be extremely beneficial when it comes to winning over shoppers.
If the products in question are too similar or identical, this technique can lead to price drop wars between businesses. However, when approached strategically, this does not have to be the case—offering the lowest price doesn’t have to be the thing that gives your product a competitive edge. Considering adopting a competitive pricing strategy? Read on for a few steps you should take and tips you should incorporate into your strategy.
1. Research your competition—from broad to niche.
Your first step is, of course, research. If you sell a fairly broad product like fishing poles, you can easily determine which large stores and smaller, well-known companies customers may pass you over for. But if you sell something more niche, like luxury cat bowties emblazoned with a custom family crest, you aren’t likely to have any direct competitors.
However, remember that there are always alternatives to your products that customers can choose. In the example above, for instance, you could look at businesses selling regular cat bowties, cat costumes, cat collars, or anything else that might work as a substitute for your product. Even though they may seem completely different, knowing all of your customers’ alternatives will give you more insight into how you can position your product as the best option.
2. Consider how your products compare to competitors’ products.
Next, look at your products in comparison to the products of your competitors. How similar are they? What are their major differences? Most importantly, what are their drawbacks? Once you note these characteristics, you can get to the important question: how can you position your products as “better” so you can charge a higher price that people will be willing to pay?
3. Remember to look at the big picture.
In the world of ecommerce, the product’s list price isn’t the end of the experience when it comes to cost. Shipping costs, possible return costs, timeliness of delivery, and quality of packaging all play a role in the overall value of the experience a customer is receiving as well. Consider ALL the costs your competitors’ customers would have to pay to get an idea of the overall experience buying from a competitor’s store.
How can you offer customers a better value without hurting your bottom line?
The easiest option when applying competitive pricing is to simply offer a lower one and hope that your customers are price-conscious above all else. However, you don’t have to approach it this way and negatively impact your bottom line. With the research you’ve gathered above, you can focus on creating and conveying an overall experience that is unmatched by competitors—and worth the price. Here are a few actions you can take to make this work.
1. Highlight how your product is superior to competitors’.
If your products are made from higher-quality materials, are sustainable, come with necessary accessories, etc., make sure that this information is displayed prominently and repeated throughout your site. Even if your product is priced higher, building this type of value will make it seem worth the extra cost. If your competitor’s product has a similar characteristic to yours but doesn’t mention it explicitly, your brand will come out ahead because you’ve confirmed for sure that yours does include it.
2. Emphasize how your overall experience transcends competitors’.
Do you offer faster shipping? Gift-worthy packaging? Courier delivery for locals? Specialized packaging to ensure no breakage? Make this clear so that your customers know how great of an experience you are offering altogether—again, if your competitors offer the same perks but don’t mention them, you’re already giving yourself a leg up. This is also a good place to emphasize a competitive return policy as well—since some products simply cannot be evaluated fully without being examined by hand, it helps to be a little generous here.
3. Consider how your shipping costs relate to your product costs.
Shipping cost is a common culprit when it comes to diagnosing abandoned carts, so you’ll want to find a way to either lower your costs or justify higher costs. Additionally, consider how your average product costs compares to your typical shipping rate—if a popular product is $25 but costs $10 to ship, many customers will balk at paying that much. Here are a few things you can do to avoid shipping-based objections at checkout:
- Free Shipping: If you can, offer free shipping and build the shipping costs into your product prices. This may seem like a great way to lose money, but 79% of US consumers say that free shipping would make them more likely to shop online—thanks in part to the rise of Amazon’s fast and free shipping.
- Threshold Free Shipping: If you can’t offer free shipping on every order, consider offering free shipping at a certain threshold (for example, with a $100+ purchase). This has the added benefit of potentially increasing average order values as customers add more to their carts to avoid shipping charges.
- Date-Based Shipping Costs: Some customers are willing to pay more for quicker delivery, while others don’t care how soon their orders arrive. Offer different shipping rates for different delivery dates—if you can offer free shipping on the slowest delivery timeframe, that will help convert shoppers.
- Justifying Costs: If you must charge higher shipping costs due to extenuating circumstances, tell your customers why—do your products require “fragile” packaging? Refrigeration? An overseas trek? Sometimes, context is all it takes to show people that a little extra care is worth their money.
Adopting a competitive pricing strategy is the best way to ensure that you’re losing fewer sales to your competitors. By building value into your overall shopping experience, you can even convince customers to order from you despite charging more than your competition. While you may need to eat some costs to adjust your shipping rates to appeal to more shoppers, remember that gaining a repeat or referral-happy customer will offset that cost quickly.