Do you know how much your products are worth? How low are you willing to price an item to compete with another ecommerce retailer? 

With the advent of highly competitive pricing tools, winning the online pricing war can be a lose-lose for ecommerce retailers. Large online retailers like Amazon have an advantage in competitive pricing, as they can set the price low enough to run smaller retailers out of business. But there are other ways to compete - and it all starts with developing (or at least thinking about) an ecommerce pricing strategy.

Here are 6 tips that will help you develop an ecommerce pricing strategy:

1. Know your Margins

The reality of online retail pricing is that the lowest price doesn’t always win. In fact, pricing battles usually end with you pricing your products too low. Even with enough customers, you still may not make a profit. If you are lowering your prices to a point where you are losing money, you should consider finding a better source, or adjust your product offerings to include more profitable items.

Getting your online store into a pricing battle can hurt you in the long term as well. When you consistently price too low, your customers will always expect the lower price, even when it is unsustainable to your business. As a result, you could lose those customers over time.

2. Know your USP (Unique Selling Proposition)

What makes us different? Every company has to tackle this question to determine their value proposition and target market. For online retailers, a unique factor could be excellent customer service (i.e. Zappos), free or timely S&H (i.e. Amazon Prime), or product you can't find anywhere else (DODOcase). Of course, there are many more.

With pricing competition at an all-time high, retailers have to think outside of the box when crafting a marketing or promotional strategy for their online store. Some retailers have found success by appealing to a sense of charity, especially around the holidays. For example, Shopify store owner, Ricky Padilla (pictured above) donates $1.00 to fund clean water projects every time someone purchases coffee from his ecommerce shop Brown Water Coffee. He also offeres free shipping on orders over $20 - which is a great pricing strategy that encourages people to buy more than 1lbs of coffee. 

3. Lose-Leader (Selling Below Market Value)

Highly discounted pricing can be advantageous if paired with the appropriate merchandising strategy. The Lose-Leader Strategy assumes that an item sold below market value will encourage customers to buy more overall. Using this strategy, online store owners have the opportunity to upsell, cross sell and increase the total shopping cart value (average revenue per user).

Even if the profit is not impressive, this strategy stimulates client acquisition, opening the door for further marketing efforts. The value of customer acquisition outweighs the value of the transaction. A corollary strategy is to choose products that have a low CPA (cost per acquisition), to minimize loss. The end goal is to sacrifice losing money on one item in order to make a profit on the rest of the products sold (i.e. cereal cheap, milk expensive). 

4. Offer Incentives

Once you know your margins, and price accordingly, then you can offer incentives to motivate your customers to buy. Even if you can’t sustain an ultra-low price in the long term, you can always offer limited time pricing to reach these customers. For example, “Purchase in the next hour and receive 20% off!”

Semantics are also important here, as the language you use can attract customers and minimally affect your bottom line. If you have a surplus of products, you can profitably offer a ‘twofer’ (2 for 1). Additionally, people perceive large percentages as big savings. For example, “Buy one, get one 50% off!” The customer sees the 50% off, but really they are only getting a 25% discount. Shopify App Product Discount will let you run sales in your ecommerce store based on a variety of conditions: by product brand, type, collection, and more - so "buy one get one free" , "buy 3 get one 75% off" and similar sale situations are easy.

Being savvy with your incentives allows you the ability to garner attention to your products, and build a reputation for having good deals, without breaking the bank.

5. Diversify Product Offerings

To offer a diverse product offering that will sell, ecommerce store owners must first understand their market demand. Make sure that you are up to date with current trends by reading ecommerce news. Use products like “Google Trends” or “Google Insight” to check the popularity of a SKU and try to attend local Meetups with fellow online retailers.

Having a better idea of what your customers want gives you the opportunity to sell and generate profit from diversified products. When in doubt, give your customers multiple options to help them figure out what they want. In the lecture, "Are We In Control of Our Decisions" Dan Ariely recounts an MIT experiment he conducted to test the effects of product and pricing diversification. The entire video is worth a watch, but skip to 12:30 for the most applicable example.

Dan Ariely found that giving a customer more options influences their choice and their perception of a ‘good deal.’ Specifically, one unattractive option can emphasize the utility of other options, helping the consumer decide on an option that best suits them. The end result of proper diversification is that online retailers will offer bad options to emphasize the good, driving customers to act based on perceived value.

6. Test your Ecommerce Pricing Strategy

As with many things in ecommerce, one size does not fit all, so it is important to measure and test the success of changes you make to your online store's pricing strategy. Ideally, every change should be tested and validated with an analytics tool (i.e. Mixpanel, Google Analytics, Shopify Sales Dashboard).

For example, find out if your ‘Summer Sale’ (where you implemented one of these strategies) increased your conversion as you expected, or if the new, trendy products in the store are generating more profit than older products.

With Black Friday and Cyber Monday right around the corner, transcend futile pricing wars... equip your online store with appropriate strategies to help you sell more and stay ahead of the competition. 

By Mark Hayes