Different types of pricing strategies: Part 1

by Anindya on 12/12/2017
We have all experienced it while shopping online. If you like the general look of the thing you are searching for, the next thing that you search for is the price. Yes, pricing is important and often the decider whether a product will move off the virtual shelf or not.

The fact that pricing matters is supported by researches* on the subject. Take a look at these findings:

60% of all online shoppers worldwide say that price is the most important factor affecting their online purchase decisions.

More than 90% of online shoppers spend time online to hunt for the best deals for the product they are planning to purchase.

Around 20% of e-commerce website traffic comes from various Price Comparison Shopping engines all around the world, particularly for price-sensitive products.

Keeping these facts in mind, it is necessary to give a lot of attention to your pricing strategies while selling online. There are several approaches to arriving at pricing for your products, but no single approach can cater to your requirements. What is required is a calculated combination of various approaches to arrive at pricing for your product.

Let us explore some of the approaches to arrive at a price:

Cost-driven pricing: The simplest approach is cost-driven pricing. Fix a cost to your product by calculating all the costs involved in procuring, stocking, shipping and selling your product, add on a desired margin to this cost and you will get your price. The challenge is, of course, to calculate the right cost and determine the profit margin you plan to add on. So, you need to fine-tune the way you are going to calculate cost as accurately as possible. Arriving at the exact operating overheads you are incurring is a bit tricky.

Once you have determined your cost, you have to plan your margin. Everybody wants a margin which is as high as possible, but margins depend upon the competitive scenario, product type and consumer preferences. For instance, you have more flexibility in pricing a luxury product where customers might be willing to pay more for a quality product in comparison to a price sensitive product like consumer electronics where pricing is extremely competitive. These facts indicate that with cost-driven pricing, you run the risk of either undervaluing your product or price yourself out of the market.

To read about the other types of pricing strategies, click here. And if are not yet registered on Amazon please start your journey today.

*Source: Strategy: E-Commerce-and-Consumer-Goods

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