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Sourcing News |
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Price Check - How to Set Your Product Prices
By: Chris Malta
CEO, WorldwideBrands.com
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Biography
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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.
In a lot of cases, people are making pricing decisions information-starved. You should be able to defend your prices with market research. Monitor the effect 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 mark-up" 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. 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. |
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