Top 5 Innovative E-commerce Pricing Strategy

E-commerce Pricing Strategy

Online shoppers want to feel that they are getting their money’s worth. As such, pricing products is taken very seriously by e-commerce stores. It is one of the top agendas in any e-commerce company.

Conventional wisdom says, going for either cost-based pricing or value-basedpricing is the right move forward for e-commerce pricing strategy. But is it always the case?

Thanks to e-commerce marketing, there are several other innovative and unique pricing approaches that are great alternatives to the traditional strategies.

After evaluating every other alternative pricing strategies, we bring to you the top 5 innovative e-commerce pricing strategies among them.

Who knows? Maybe one of them will be the perfect strategy to take your business to a new level.

Let’s take a look.

1. Loss-leader pricing strategy

The philosophy of this e-commerce pricing strategy is ‘For the greater good’. Select one or few products that have low CPA (cost per acquisition) and sell them at below market value. This encourages the customer base to buy more, which could be either the said product or the rest of the products.

For example, people buy a bulk of product instead of one when prices are reduced. Hoping to capitalize on the opportunity to get a ‘great deal’.

In this pricing strategy, you make a minimal profit from the initial purchase. But as customers buy more, you make up that “loss” significantly. It also opens the door to other product categories. For example, if the reduced-priced product has additional complimentary items, their sale will boost your overall profit.

To further enhance the strategy, you can jack up prices a bit on other products. But be careful of price sensitivity. Taking the 80/20 manoeuver can be good move to increase profits. But keep an eye on the cost of production. The higher the cost, the lower the profit.

2. Pay what you want (PWYW) pricing strategy

This is a very unorthodox and innovative e-commerce pricing strategy, especially for online stores. Pay what you want has been around for some time but mostly used in collecting revenues for charities.

Basically, businesses following PWYW provide high-quality service/product to the customers and it is up to the customers to decide how much they’ll pay. There is no set price.

The basis of this pricing strategy is trusting in two things:

  1. People understand the value of items
  2. People will pay (sometimes more) the perceived value of the item

It is the general belief that customers will appreciate and be willing to pay more than the actual value if they enjoy the product/service.

This type of pricing strategy is great for endorsing free marketing, but it usually doesn’t result in significant profit or loss. Though, there are exceptions to this.

For example, a restaurant in China decided to try pay what you want strategy for a limited time in 2016. During the promotion, they saw a huge influx of customers. And even though they received very positive feedback from customers, during the promotion they lost over 100,000 RMB. Surprisingly, the number of customers returned to as it was before the promotion.

On the other side of the spectrum, Bride Hotel’s Karma keg was a huge success, bringing in 10-25% more profit than the intended price. So did Humble Bundle, who continue to do so today.

This e-commerce pricing strategy is great for breaking down barriers and increasing reach. Your business will attain a lot of goodwill as well as appreciation if the product is worthy of it.

3. Personalized pricing

This is the newest e-commerce pricing strategy in this list and also the one with the most potential. It uses a yield management algorithm to provide different prices to each visitor.

The pricing position depends on things like device used to access, history of purchase or search history, customer loyalty, preference etc.

All these information are easily attainable today thanks to Big Data. A great deal of our personal information is stored on the internet. That information can be purchased by third-parties such as e-commerce stores.

Businesses are able to create personalized e-commerce pricing strategy with either bought information or their own customer’s previous history. There is a vast sea of information that can be used. Real-time analysis is used to determine and present a price to the customer.

The fundamental concept of this pricing strategy is that customers are willing to pay more for some products. Keeping that profit margin in mind, online shops can offer discounts on products that have been on the cart for some time or offer a lower price to repeat customers.

Personalized e-commerce pricing strategy is seen as the next big thing for both retailers selling in the physical and online store.

4. Psychological pricing strategy

The psychological pricing strategy is a strange phenomenon. On pen and paper, this shouldn’t work as well as it does. But somehow, it does. And even though it is an old strategy, it continues to be one of the most innovative.

The premise is simple. Instead of offering a product or service for any other number, you offer ‘9’. For example, even though $95 is almost as same as $99, offering the latter has more chance to convert. This phenomenon is further reinforced thanks to a study published in the Quantitative Marketing & Economics journal.

In psychology, this is termed as ‘Left-digit effect’. Wherein, you associate the number before to ‘dot’ as the price. It creates an irresistible urge in the customers. Which is why it is sometimes referred to as ‘charm pricing’.

There is also something called ‘prestige pricing. In this method, instead of using ‘9’, you convert it to a round figure. The round number feels ‘right’ to the customer’s psyche. It is fluently processed and encourages consumers to buy the product or service.

5. Dynamic pricing strategy

The concept of dynamic pricing is quickly taking off in the e-commerce sector. Adapted from the airline’s sector, this e-commerce pricing strategy provides merchants with the flexibility to decrease or increase the price.

This is determined by the rate of current business. As in, if the business is slow, the price goes down and if business picks up, so does the price. This fluctuation of pricing works well for both tempos. By reducing the price, you encourage more consumers to buy products/service from you. On the other hand, when your business is booming, you attain maximum revenue.

There are two things you need to ensure you don’t make mistakes in determining the price:

  1. Competitors price tracking
  2. Pricing intelligence software

There’s a good chance that your competitors will be going through the same slow business as you and create a pricing competition. You need to always keep track of what the others are offering to not fall back.

And as for pricing intelligence software, it can be the foundation to this pricing strategy. The software will help you get pricing insights, trends and compare prices among many other things. This is a great tool for bolstering your pricing capabilities.

Wrapping up

There are few things that are crucial to an online businesses success; a great e-commerce website, quality product/service, SEO and the perfect pricing strategy.

The 5 strategies mentioned here are currently the most innovative ones out there today. But who knows what tomorrow will bring.

Innovation never stops. You need to mix and experiment to find, understand and apply an e-commerce pricing strategy that performs most effectively for your business.

One thought on “Top 5 Innovative E-commerce Pricing Strategy”

  1. Marvelous! This post has very detailed and good information about the strategies. These strategies can help someone a lot to set the prices according to the audience. This is very helpful information. I really liked reading it. Looking forward to read more of your blogs.

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