Precise Product Pricing Is the Key to Higher Conversion
E-commerce guide to design your pricing strategy.
If you’re an online store owner, you might have often wondered that perfect product pricing is a myth. We can assure you, it’s not. Determining the right price for your products or services might feel like an unsolvable mystery because it is hard to know whether the product is cheap, overpriced, or reasonable from the customers’ perspective. Let’s assume you find answers to these questions, how do you determine your margins while keeping a fair price and insuring that it is profitable for your business?
If you’re struggling with these questions, your pricing strategy is likely two-dimensional, i.e., solely considering profit margins and digits. Pricing goes beyond number-crunching and maths. The secret of a perfect price lies in the third dimension, the human factor. Consumer behaviour and human psychology have a significant impact on whether the consumer will make the purchase or move on to a different store. Pricing is the craft of finding the precise balance between all the potential prices that encourage your visitors to make a purchase. The top determinant when pricing your products is the psychological impact of prices on the behaviour of your target audience. Without access to customer data and demographic, having one price that works for all is challenging (don’t worry, there’s a solution for that too).
We have compiled a list of eCommerce-specific pricing strategies to help price your products more accurately and make sure you never lose a customer because of the price.
1. Premium Pricing
Premium pricing is one of the oldest tricks in the book. Pricing the product higher than the competition solidifies product value and secures greater margins for you. In premium pricing, customers pay for the brand or the product itself, so the cost of the product is secondary.
Premium pricing for products also builds the desired exclusivity around the product, which leads to an increase in demand. Sometimes the most competitive pricing is the expensive one. Several experiments prove a high-priced product attracts a larger audience by creating the perception of higher quality and brand value.
Who is it ideal for?
Premium pricing works for all products and all stores. We have had merchants who sold premium socks. Socks! But for premium pricing to work, merchants need to offer:
- Quality in the making process or material
- Luxury through aesthetics and exclusivity
- Unique shopping experience and packaging
2. Bundle Pricing
Bundling is the most effective pricing strategy to increase Average Order Value. If done effectively, bundling helps you sell more products to customers without marketing all the products. Merchants do this by combing products into a bundle and selling them as one product at a discounted rate.
You can use bundled pricing to increase demand for products that aren’t getting sold individually. Bundle pricing is about offering value to customers and it almost always works. All the top brands you know are doing this and it’s working great for them.
Can we all do it?
Yes! Bundle pricing works better for stores with a large number of products that can be sold together. For example, a belt with a pair of trousers. But small businesses can benefit from this pricing strategy as well. For example, if you’re a small business with one product, you can bundle two types of the same product together to offer it as a set.
3. Charm Pricing
Charm pricing strategy charms its way into customers' wallets and makes them spend more. Several studies on charm pricing show that the pricing strategy increased sales by 24% on average when compared to rounded price.
The charm pricing strategy has a psychological impact on consumers that triggers impulse buying. For example, if a product is priced at $49, most shoppers psychologically round the price down to $40 rather than rounding up to $50.
Ending prices with an odd number gives shoppers the perception that they found a great deal that is tough to resist. The numbers that work the best are the ones ending with 5, 7, or 9.
It is for stores of all sizes!
This pricing strategy works for all stores with any number of products, regardless of the size of the store or volume of sales.
4. Customer Pricing
A perfect price is the difference between a high conversion rate and a bounce rate. Unfortunately, the right price is subjective, i.e., the reasonable price for every customer is different. We all work in dynamic markets, no matter how niche is our product. Having a fixed price in a changing market is the reason for low conversion in our stores despite high traffic.
The customer pricing strategy offers a personalisation of prices for all visitors. Think of it as an automated optimisation for product pricing to ensure that the sale goes through. A customer pricing strategy is an optimised way to capture the potential of these highly motivated shoppers by giving them a chance to name their price and pay what they want.
If it is so reliable, why isn’t everyone using it?
The truth is, it’s not for everyone. For customer pricing to work, there needs to be enough profit margin for merchants to offer customers the freedom to pay what they want. This works best when stores have a high volume of sales, but a little creativity is all it takes to make it work in your store. For example, if you’re a small business, you can customize the customer pricing strategy for seasonal sales and festive discounts to drive traffic to your website by doing something unique.
Conclusion
Not all pricing strategies work for every store, but a little exploration is all it takes to adapt these pricing strategies to meet your business needs. The perfect combination of these four pricing strategies will increase your conversion rate, but there is no perfect formula to do it overnight. Consistent experimentation is the only way to find a combination that works best for your business.
Let’s price our products right!
Relevant Recommendation: Make an Offer is an interactive ‘Pay What You Want’ Shopify solution that helps merchants leverage the negotiation button for email collection, dynamic pricing, and managing customer offers.
