Pricing is one of the most important factors that affect the success of your e-commerce business. However, many online sellers make common pricing mistakes that can hurt their sales, profits, and customer loyalty. In this article, we will discuss some of these mistakes and how to avoid them.
One of the biggest pricing mistakes is not knowing your true costs of running your e-commerce business. Your costs include not only the product cost, but also the shipping, packaging, marketing, taxes, fees, and overhead expenses. If you don't account for all these costs, you might end up pricing your products too low and losing money on every sale. To avoid this mistake, you need to calculate your break-even point and your profit margin for each product and category. This will help you set realistic and profitable prices that cover your costs and generate revenue.
You also need to have a shrink budget allocated for lost packages, damages, defectives, warehouse theft etc to ensure you are truly looking at your bottom line. Also allocating a budget for promotions which are more prevalent online and markdowns. If running a drop ship business you can remove a lot of these cost and that is a huge benefit and why it can be more profitable.
Another common pricing mistake is not researching your competitors and their prices. If you ignore your competitors, you might price your products too high or too low compared to the market value. This can make you lose customers who either think your products are overpriced or undervalued. To avoid this mistake, you need to conduct regular competitive analysis and benchmark your prices against your rivals. This will help you understand your position in the market and adjust your prices accordingly to stay competitive and attractive.
I’ve seen this a lot lately particularly around Google Shopping. An egotistical race to compete on in-researched terms rather than a smart pricing and bidding strategy using particular tools like Prisync along the way to get ahead and stay ahead is what I’m seeing make the difference when it comes to competitor price watching and protecting your own margins.
A third pricing mistake is not testing your prices and their impact on your sales and conversions. If you set your prices based on assumptions or intuition, you might miss out on opportunities to optimize your pricing strategy and increase your profits. To avoid this mistake, you need to experiment with different pricing tactics and measure their results. For example, you can try using psychological pricing, dynamic pricing, discounts, bundles, or upsells to see how they affect your customers' behavior and willingness to buy. This will help you find the optimal price point that maximizes your revenue and customer satisfaction.
When it comes to #eCommerce, the right price can make or break a sale. Kellogg's study on consumer behavior highlighted the importance of price elasticity. They found that even minor price adjustments could lead to significant shifts in consumer purchasing patterns. For instance, when Kellogg introduced a 5% discount on one of their popular cereal brands online, there was a noticeable 20% increase in sales. This suggests that understanding your customers' price sensitivity is crucial. eCommerce businesses should constantly evaluate and adjust their pricing strategies, taking cues from market research and real-time data, to stay competitive and maximize profits. ????
A fourth pricing mistake is not communicating your value proposition and the benefits of your products to your customers. If you don't explain why your products are worth their price, you might face resistance or objections from your customers who might not see the value or the quality of your products. To avoid this mistake, you need to highlight your unique selling proposition and the features and benefits of your products on your product pages, landing pages, and marketing materials. This will help you justify your prices and convince your customers that they are getting a good deal.
A fifth pricing mistake is not monitoring your performance and the feedback from your customers. If you don't track your key performance indicators and the reviews and ratings from your customers, you might miss out on important insights and trends that can help you improve your pricing strategy and your customer experience. To avoid this mistake, you need to use analytics tools and customer feedback platforms to collect and analyze data on your sales, conversions, retention, margins, and customer satisfaction. This will help you identify what works and what doesn't and make data-driven decisions to optimize your prices and your products.
The prices on your website should reflect your brand positioning. Having relatively high prices is more than ok if your brand positions itself as high-quality, or luxus. Of course, this should come with a matching brand identity and a clear communication of your added value. This can be done explicitly, e.g. 'we only use the finest materials'; or implicitly, by using graphic language and images that resonate with a more affluent target audience.