Three Common Pricing Strategies

Learn about the three most common pricing strategies for e-Commerce: Cost-Based Pricing, Value-Based Pricing and Competition-Based Pricing.

PriceShape
3 min read
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Pricing is an essential aspect of running an eCommerce store, as it can impact the profitability of your business and your ability to attract and retain customers. There are several different pricing strategies that you can use, each with its benefits and drawbacks.

Here is a brief overview of three common pricing strategies for eCommerce stores and why one is more important than ever, considering the market situation:

 

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Cost-Based Pricing


Cost-based pricing involves setting your prices based on the costs associated with producing and selling your products. This strategy is relatively simple, as it only requires you to consider the costs of materials, labor, and overhead when determining your prices.

One advantage of cost-based pricing is that it helps ensure that you are covering your costs and generating a profit which always will be crucial. However, it can be difficult to accurately predict costs, especially when working with complex or customized products. Cost-based pricing may not allow you to compete effectively with other sellers, which can be a disadvantage in a competitive market.

 

 

 

Visual graphic of Value Based Pricing

Value-Based Pricing


Value-based pricing involves setting your prices based on customers' perceived value of your products. This strategy involves understanding your target market and what they are willing to pay for your products.

One advantage of value-based pricing is that it allows you to charge higher prices for higher-value products, increasing your profitability. However, it can take time to determine the value customers place on your products accurately. You may need to conduct market research or test different price points to find the optimal price, which can be time-consuming and costly.

This was the second out of three common pricing strategies. Let’s look at Competition-based pricing, even if, for some, it sounds more unattractive than cost- and value-based pricing since it refers to actions based on others' decisions and not your own. 

 

 

 

Visual graphic of Competition based pricing

Competition-Based Pricing


One pricing strategy that can be especially effective in a highly competitive market is competition-based pricing, which involves setting your prices based on your competitors' exact or similar products.  

There are several advantages to using competition-based pricing for your eCommerce store. First and foremost, it allows you to stay competitive in the market and attract price-sensitive customers. In these austere times, customers are more likely to double-check and research prices to save money. By setting your prices at or below your competitors' prices, you can make your products more appealing to potential buyers and win market share.

Additionally, competition-based pricing can help you respond quickly to changes in the market, as you can adjust your prices in real-time based on your competitors' prices. Competition-based pricing also helps you raise the price on all the products where you are priced too low. This increases the bottom line significantly and often doesn’t even affect the number of sales on the given product, as you can ensure that you still have the lowest price even though it has risen. 

Competition-based pricing can be a valuable tool for eCommerce stores in highly competitive markets. By closely monitoring your competitors' prices and adjusting your prices accordingly, you can ensure that your products remain competitive and attract price-sensitive customers. It is crucial to consider the costs of selling your products and the value customers place on them in addition to competitive pricing when determining your prices. Finding the right balance between these factors can maximize your profitability and build a successful eCommerce business. 

 

Don’t want to look at your competitor's prices?

That’s an option with the first two pricing strategies. But at least 20 % of the assortment is often priced more than 10 % lower than the cheapest competitor. These facts imply that you can increase your gross margin by raising prices without losing sales.

Also, a competitor’s out-of-stock situation is your potential. You can raise your price accordingly and benefit from the situation immediately. There are many different pricing strategies that businesses can use. The best strategy for a particular business depends on various factors, including the type of product offered, the industry, the target market, the competition, and the overall business goals. It's essential to carefully consider the pricing strategy that best supports the business's overall goals and objectives.

Don't want to spend your time manually checking your competitors' prices? PriceShape does that for you, gathering info about all your competitors and their prices in one place. You can test our services for free with your own product feed and see how you compare to other online shops here.

 

 

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