Pricing strategies for e-commerce traders

Some of the traders are still using not so up-to-date tools for pricing. Taking the purchase price and multiplying it with 1,8 then adding the VAT. That’s it. If some product is not selling, they reduce the price, offer a general discount from time to time, sometimes they even get into a pricing war with their competition that leads to profit loss. This method can be described as an intuitive one, stating that the users of it are not making their decision based on real data. Lacks of conscious strategy planning, only a simple reaction to the market changes.

Fortunately, nowadays much more sophisticated methods are available. For example, there is a software solution that monitors and analyses the price and stock changes of the competition, using this data shows the opportunities offered by the market, gives suggestions about where the price needs to be adjusted, not to mention that based on the purchase prices offers you recommendations on how to maximize profits. 

Efficiency and cost savings

The usage of the e-commerce sales solutions rather minimizes the costs of the selling channel and does not require the maintenance of densely visited and high-priced offices or shops. Even if the implementation of an online infrastructure that is required to operate in e-commerce means extra costs, on the selling channel the costs will reduce.   The reason for this, on the one hand, is the multitude of effective forms of advertising that support the online sales system and, on the other hand, the cost savings themselves. However, in some cases, e-commerce merchants are trying to apply their offline processes to their online processes too by keeping their prices high in order to not to become their own competition.

This specific and unique situation demands a special pricing strategy indeed. For online retail businesses, it could mean a significant challenge to determine what price is worth considering for a product and service. Hence the immense need for knowledge about online pricing base requirements, and the ability to create prices that help them to reach the potential buyers, cover their expenses and make a profit.  

In the following, we present four basic pricing models that can be used to develop distinctive types of pricing that operate dynamically in the long run. In the meantime, we must not forget that from a strategic point of view we should choose the methods that turn the price loyal customers into brand-loyal customers. To achieve this we do not only focus on consistent pricing but also to have professional customer service.

Cost-based pricing strategy

This is the most popular and simple pricing strategy in the retail e-commerce industry. In this case, the end price of a product or a service is determined by the following factors: production, distribution, and sales costs. To the price generated here, the e-merchant must add the desired profit margin to get the final online market price. This method makes it possible to determine the prices quickly and accurately without any market or customer research, not to mention that it ensures static profit after all sold products or services. There are two ways to calculate the cost based prices: with fixed costs, where, in addition to variable and fixed costs, the profit margin must also be taken into account, or with direct costs where only variable costs and a percentage of the expected profit margin have to be taken into account.

Value-based pricing strategy

We talk about a value-based pricing strategy when the prices are determined based on how much the customer would pay for the product or service on the market. So in the present concept, the price is based on the position perceived by the buyer, as the e-trader focuses on the value of the product, which is determined by the market and the customers in the situation. This is an optimized approach of the e-commerce pricing strategy and a fairly complicated process, a number of factors must be taken into account and requires an accurate assessment from both the buyers and the market. The base elements of the product or service have to be researched, the main causes of the purchase have to be known, and the important role of pricing in e-commerce has to be understood. Value-based pricing is one of the most profitable methods if the e-merchant has adequate background knowledge and counts time as a positive opportunity.

Competitor based pricing strategy

As it becomes clear from its name, this method is based on monitoring the competitors' price changes continuously, adjusting the prices accordingly. As the goal is always to maximize profitability, this model only fits if we sell the exact same product or service as our competitors, there is no significant difference and we can rely on the research and experience of the competition. This constant dependence on competitors can quickly create price competition, which can lead to the release of margins, but this is only recommended in a few special cases. 

Package based pricing strategy

This pricing strategy can become very effective and profitable if the offered opportunities are used properly. Two similar products or services can be sold in packages, the customers like to purchase in this way because they do not have to pay the full price resulting in money savings. Obviously, this can also be used when there is a minimum increase in prices so that the customers rather buy the separate product/service at a lower price than the packages, still more profitable for us.