Welcome back to the eCommerce Maven Podcast! With inflation, many of us are experiencing changes in pricing in our daily lives, especially in our businesses. In this episode, we’re digging into the complex subject of pricing products. I discuss the importance and influences of pricing, pricing strategies, evaluating your own pricing, the common mistakes in pricing and looking at successful examples of different pricing structures.
- Adding a margin or mark up to the total cost of producing and selling product to arrive at its price
- Pricing is the number one thing done wrong I see with coaching clients 9 out of 10 times, individuals have priced their products incorrectly
The Importance of Pricing
- Ensures you can cover your costs
- Ensures profitability
- Determines how you want your product to be positioned in the marketplace
- Influences customer perception
Influences on Pricing
- Production costs: Costs directly involved in making the product
- Overhead costs: Indirect costs associated with running your business
- Distribution costs: Costs involved in getting your product to your customer
- Consider including wastage or return fees
- Consider competitive pricing if you have a lot of competition in the market
- If your product is high in demand, you might be able to charge a premium for it
- Penetration pricing
- Price skimming
- Psychological pricing
Evaluating Your Pricing Strategy
Step-by-step guide to evaluate if your product is priced correctly:
- Step 1: Understand your costs
- Step 2: Research your competition
- Step 3: Know your customers' willingness to pay
- Step 4: Assess the perceived value of your product
- Step 5: Test different price points and measure the impact Use a matrix system, plotting competitors based on their pricing strategy to see where your brand lands
- Step 6: Assess your pricing through paying attention to conversions
The Common Mistakes in Pricing
- Ignoring the competition
- Not understanding costs fully and direct costs associated with producing and selling products
- Failing to update prices Setting prices based on emotion Ignoring customer perception
- Relying too much on discounting
Examples illustrating some pricing strategies in e-commerce and how that plays out:
- Amazon: They started with a slight markup over cost and as they grew and expanded into other products, started to use a dynamic pricing model.
- Netflix: Started with a pay per rental model with DVDs and today transitioned into a subscription model and then to a streaming service.
- Everlane: Transparent cost based pricing model with also a choose what you pay sale model where customers could choose the price for the product when they were putting it on sale.
- Pricing is under your control
- Set up your pricing profitably starting today
Got any questions about what we covered in this episode? DM me on Instagram at @kristisoomer or tag me in a story and I'll get back to you with suggestions!
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