We know, it can be rough out there. You’re competing with the likes of Amazon, Ebay and other online retailers. But driving sales isn’t all about who can offer a given product at the lowest possible price point. Knowing the basics of tried and true pricing strategies and the ins and outs of creating relaying meaningful value to your consumers is the cornerstone to creating a successful business model.
Driving sales isn’t all about who can offer a given product at the lowest possible price point.
So let’s break down the basics of pricing strategy. If you’re just starting out, the key is to start simply. First things first:
1. Determine Your Costs and Desired Margin
I.e. know the math. You’ll want to break even at a bare minimum in your new venture, and chances are, you might actually prefer to turn a profit. In order to properly price your products, you must first have a thorough and realistic view of your unit cost. “Unit cost” in this circumstance does not refer solely to the literal cost of your goods alone. You’ll need to include overhead costs as well when considering unit economics: product storage, employee salaries, etc. Once you’ve determined your unit cost, utilize a simple margin calculator to determine how to appropriately price your items to achieve your desired margin. This calculation is the basis of what is known as cost-based pricing.
2. Consider the Competition
Market-oriented pricing is a pricing strategy that focuses predominantly on market factors. One of those factors is competition as well as market saturation. Does the demand for your product currently outpace the supply? If so, you can up that price point. If your product is currently on the market, who is selling it and at what price point? Say you decide to sell protective eclipse glasses for next solar eclipse. You’ll want to research your competitors’ price points and price your product competitively. Unless you have a good reason not to, which leads to...
It’s all about relaying value.
3. Know Your Audience and Your USP
If you know your audience and what you’re unique selling proposition is, then you’ve got leverage in the world of pricing. It’s all about relaying value. For example, let’s say you decide to target eco-conscious consumers with your solar eclipse glasses. Because, hey, they’re eco-conscious. Chances are they’re into cosmic events such once-in-a-life-time solar eclipses and whatnot. And you have noticed that your competitors are not yet specifically targeting these consumers. In this case then, it might make sense to sell recycled — or at the very least recyclable — solar eclipse glasses for a slightly higher price margin. Most consumers are willing to pay more for a product if it aligns with their worldview or concept of self. There are reasons that terms such as Made in the USA and Certified Organic abound in the retail world.
4. Get Up to Speed on Common Pricing Tactics
No need to reinvent the wheel when it comes to pricing your products. Take a look at what top online retailers are doing and you’ll have a good sense of what works. Here are a few noteworthy pricing tactics:
Charm Pricing: Known to increase conversion rates by nearly 100%, charm pricing is the practice of removing a penny or two from a rounded price point (i.e. changing a price tag from $20.00 to $19.99). Don’t ask me why we as consumers continue to fall for this. But we do.
Skim Pricing: This is a common retail practice whereby you introduce a new product at the highest possible price point and the lower the price over a specified period of time. With this strategy, you’re targeting two different audience segments: early-adopters and status-conscious consumers are more likely to pay full price for the latest gadget or trend, and the price-sensitive consumer is more likely to purchase once the item is marked down.
Anchor Pricing: Related to skim pricing above, anchor pricing is the practice of listing both the original price point and the sale price point to relay perceived value.
Loss Leader Pricing: This is an advertising tactic that actually offers a specific product at a loss in order to drive consumers to their site or store. This strategy has been employed by grocery stores for decades.
Price for Discounts and Promotions: When considering your pricing strategy, a good rule of thumb is that you may want to consider the possibility that out of necessity in the future you may want to either discount your item permanently or temporarily, with timed promotions in order to move your merchandise.
The long and short of it: Don’t overthink it. Like the rest of the modern world, you’re likely a highly experienced shopper and intuitively have a pretty good sense of how to price your product, after years of interaction in the retail market. But the tables have turned. Relearn what you already know.
Have any additional questions about pricing items? Let us know in the comments!