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How to get started with the right eCommerce pricing strategy and ensure the success of your international business

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If you’ve based your ecommerce store prices on simply whatever numbers tickle your fancy, then we’ll be honest: you’re doing your pricing completely wrong.

As with anything else you do when running an ecommerce store, you’ll need a strategy for setting your prices. In other words, you need an ecommerce pricing strategy. This is a series of rules or methods for calculating the best prices for your online store products, based on factors such as production and/or distribution costs, market trends and your revenue goals.

Using the best pricing strategy for your ecommerce store goes a long way in helping you maximize profits, while also positioning your products to be more appealing than your competitors’ (which also helps maximize profits).

Read on as we share insights on how customers make purchase decisions, and a few pricing strategies that international ecommerce stores should consider using. (Hint: ecommerce dynamic pricing is one of them!)

4 factors that influence purchase decisions

Consumers have no shortage of online stores to shop from these days. Even excluding independent retailers, there’s also the mother of all ecommerce stores to contend with: Amazon. In such a competitive space, just how are you going to win a customer’s business?

Here are four factors that customers will consider when deciding which store to buy from – and that you should likewise work on for your own store:

  1. Customer experience: People love feeling special and being treated well. An online store that provides a pleasant and personalized experience will likely get more orders than a store that generically addresses visitors as “Dear Shopper” and spams them with irrelevant offers.
  2. Availability of perks: Offering perks such as free shipping, speedy delivery or even extra loyalty points can encourage purchases (even repeat ones!)
  3. Quantity and quality of product reviews: Before parting with their money, customers want to be sure that they are making the right purchase decision. You can provide extra reassurance by displaying ratings and reviews of previous customers’ (positive) experiences with your products.
  4. Brand trustworthiness: What are others saying about your store or brand? Hopefully they are saying good things, as a bad reputation can deter customers from shopping with you – or even drive customers to a competing store.

Why does your online store need a solid ecommerce pricing strategy?

Apart from the above four factors, don’t forget to put some thought into your ecommerce pricing strategy too. While you shouldn’t aim to compete on selling price alone, there’s no denying that it’s a major consideration when customers decide where to spend their money. In particular, pricing can:

  • Be a lever that drives traffic to your store. The more attractive your prices, the more visitors your online store can expect to get. After all, everyone loves a good deal!
  • Determine your order conversion rates. Most ecommerce shoppers are masters at deal-hunting. As a result, they won’t buy until they’ve found what they think is the lowest price for the item they’re looking for.
  • Influence customer behavior. Customers aren’t as loyal to particular brands nowadays. They often shop around to see which store is selling what they want for the lowest price. In fact, there are comparison shopping engines that send price alerts to help customers bag an item at its best price, no matter which store is offering it.
  • Affect the length of the shopping journey. Shoppers may not buy right away when they decide to get a particular item. Instead, they may spend days and weeks researching options before making their purchase. That said, if a shopper sees an item being sold at a bargain price, then they might snag it on impulse.

Which ecommerce pricing strategy should you use? Common strategies and their pros and cons

Now here comes the more difficult part: actually pricing your products. Some common pricing strategies are listed below, together with their pros and cons. You can adopt one of them, or even a combination, depending on what works best for your business model.

Cost-plus pricing

This ecommerce pricing strategy involves determining a product’s costs and then charging a markup on top of that. For example, let’s say that it costs you $100 to obtain and sell a widget (factoring in your marketing and shipping costs, among others). You can then apply a 20% markup and charge customers $120 for it.

While cost-plus pricing is straightforward and makes it simple for you to work out your margins, it doesn’t work so well for more generic products. That’s because customers can easily buy it – or a similar product – elsewhere if a different store is selling it for cheaper.

Market-based pricing

Under a market-based ecommerce pricing strategy, you’ll conduct market research on the prevailing market rates, and peg your prices to these. Market rates are generally determined by:

  • your competitors’ prices for the product, and
  • how much potential customers are willing and able to pay for it.

Market-based pricing is a fair way of charging customers – assuming that you know the market rates in the first place, that is. If you get things wrong and set your prices way above what the market can bear, this could spell disaster as customers avoid shopping with you.

Penetration pricing

Incumbents in the market may not like it when this method is used against them, but it can prove highly effective for new entrants. With a penetration ecommerce pricing strategy, you’ll enter the market with below-average prices to rapidly build your customer base. Once you’ve gained a sizable following, you can then regularly increase your prices to the market rate.

As an example, the Disney+ streaming service was launched in 2019 at the low price of $6.99/mo, undercutting the price of rival Netflix’s then-$8.99/mo plan.

Although penetration pricing can be simple and convenient for new ecommerce companies to implement, the challenge is knowing when to start raising prices. Because you will eventually have to, and you will have to be prepared to manage unhappy customers when that happens.

Price skimming

Price skimming involves entering the market with an initially high price point to target customers with more spending power. Afterward, you’ll gradually lower your prices to gain market share from the mid-market and lower-income segments.

Apple provides a great example of price skimming at work. Its iPhones are consistently set at eye-wateringly high prices – even the $499 launch price of the very first iPhone was considered exorbitant at that time. However, the iPhone’s premium pricing instantly made it desirable to customers in all market segments. Consequently, when Apple later released more budget-friendly iPhone models, customers were already lined up and eager to get their hands on them.

Using price skimming is ideal if your product is seen as high-end and a must-have, such that people will pay a hefty sum for it (and the associated bragging rights). On the other hand, if there isn’t much consumer interest in your product, then adopting this ecommerce pricing strategy might only backfire.

Promotional pricing

While more of a sales tactic than a product pricing strategy, promotional pricing can prove effective if cleverly used. Through dangling discounted prices, coupons and special deals, you might be able to convert the most price-sensitive consumers.

However, you don’t want to run such discounts too often, or customers may come to associate your brand with them. This not only cheapens your brand image, but may also cause customers to hold off on shopping with you until you hold a sale. As a result, you may suffer from poor sales volumes during non-sale periods, and lower revenue figures when you do make sales.

Using dynamic pricing in ecommerce

There is one more ecommerce pricing strategy that we didn’t mention in the previous section because we think it deserves a section of its own. We’re talking about ecommerce dynamic pricing, or the strategy of setting your product prices based on real-time demand.

While this may sound like market-based pricing, the difference is that you’ll change your prices a lot more rapidly and frequently – possibly even a few times a week! – compared to periodically gauging market conditions and adjusting your prices accordingly.

For rapidly growing international stores, the dynamic pricing ecommerce model may be the way to go because:

  • Your prices will constantly be based on the latest demand and supply trends. This helps you maintain competitive pricing and healthy profit margins, even if the demand for your product or your product acquisition costs tend to fluctuate significantly.
  • It is simple to put in place using the right dynamic pricing ecommerce software or plugin. For example, the WooCommerce platform offers its own dynamic pricing ecommerce plugin, while third-party options are also available.
  • Ecommerce dynamic pricing is easy to manage if you operate in multiple markets and multiple currencies. You can set pricing rules for various markets, so that customers in one country see a certain price, while customers in another country see a different pricing. You’ll also be able to display your prices in your customers’ local currencies, no matter which country they are visiting your website from.

When using dynamic pricing for ecommerce, however, take care to avoid these potential pitfalls:

  • Don’t let your dynamic pricing ecommerce software completely dictate your prices. As the business owner, you’ll need to monitor the software’s suggested prices to see if these make sense, and make manual adjustments if they don’t.
  • Don’t let your ecommerce dynamic pricing fluctuate too often. Customers may perceive this as an attempt to extract as much money as you can from them, which generates mistrust and unhappiness towards your business. (If you’ve ever experienced Uber’s surge pricing on rainy days, you’ll know what we mean here!)
  • Don’t use ecommerce dynamic pricing in an attempt to beat the competition. Playing the game of “who can sell for the lowest price” is never a smart business strategy, especially if you’ve just launched in a new market. Doing so only starts a race to the bottom where everyone – you, your competitors and consumers – all lose in the end.

Using psychological pricing for your online store

Pro tip: psychological pricing is one ecommerce pricing strategy that you can apply alongside others. This involves pricing your products in a way that makes them appear significantly cheaper than they actually are. Some tactics include:

  • Charm pricing: $3.99 seems a lot cheaper than $4, even though you’re pricing your product for only $0.01 less!
  • Giving freebies: Through bundle pricing, customers will get certain items for free if they buy other items. For example, saying “Get a free baseball cap when you buy one T-shirt and one pair of jeans for $50” sounds more attractive than saying “Buy one T-shirt, one pair of jeans and one baseball cap for $50”, even though the customer ends up with the same items in both situations.

Think about how you can incorporate psychological pricing tactics into your ecommerce pricing strategy.

What is the best ecommerce pricing strategy for your online store?

As should be clear by now, there’s more to pricing products than slapping random numbers on a price tag. Use an ecommerce pricing strategy to set well-informed prices, and then optimize your online store for higher average order values (AOVs). For example, you could:

  • Enhance product pages with attractive product titles and descriptions, images and relevant calls-to-action (such as “Book now” instead of a more generic “Add to cart”).
  • Offer “Buy now, pay later” options to encourage sales.
  • Establish a customer loyalty program to incentivize repeat purchases.

Finally, if you are marketing your store internationally, make your online store content available in the languages of your overseas audiences. In this respect, the Weglot website translation solution is the (not so secret!) weapon of successful international entrepreneurs.

Providing fast and high-quality translations at an affordable cost, Weglot helps you translate your online store at scale so you can focus on keeping your revenue and profitability up.

Sign up for a free trial of Weglot here.

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