What’s Wrong with My eCommerce Site, Part 3: Pricing

What’s Wrong with My eCommerce Site, Part 3: Pricing

This is a part of our ongoing series of posts to help eCommerce merchants find out what’s wrong with their eCommerce website when things just aren’t working.

Sometimes you get traffic, but you aren’t getting many orders. There are a lot of things that can prevent customers from completing orders on your site – including trust, perceived risk, page performance (speed), and a bunch of other things. We’ll get to all of those at some point in this series. But today we are going to focus on one of the hardest topics to tackle … your product pricing. 

Your Product Pricing is Killing eCommerce Sales

In preparing to write this article, I looked at tons of advice online about how to set product pricing. I’ve got to say it … most of that advice is just not good enough anymore.

For example, I found a lot of sites that simply gave formulas and calculations on the different methods of setting a price. Most of them mentioned the practice of “key-stoning,” which is simply taking the base wholesale cost of your product and doubling it. They also almost always mentioned “manufacturers suggested retail price,” which is the price that a product supplier suggests that you sell it for. You might also see online posts discuss “loss leader” pricing (selling one things cheaper than normal to get the customer buying) and other kinds of discounting techniques.

But here’s the problem. All those old-school rules-of-thumb are fine for physical retail bricks-and-mortar stores twenty years ago. But none of that matters today. Today, it is all about customer perception and competition. That’s it. And none of those pricing method “ideas” will help you. You need something more.

Smartphones – the eCommerce Problem AND the Solution

I love both conventional retailers and eCommerce folks. But I just can’t help myself. If I am in a physical retail store looking to buy anything more than $40, I find what I want to buy in the store and the reflexively whip out my iPhone and search for it online. If a trusted online vendor has the exact same thing for more than 5% less and free shipping, BOOM! Click, click, sale made. Otherwise, I buy from the store and take it home now. Heck, a lot of physical retail stores will even price-match based upon an online ad.

Here’s the deal … almost EVERYONE does that these days. You probably do too. It’s worse when I am shopping “just” online. I’ll keep two or three browser windows open at a time to compare offers. It’s a hyper-competitive game that has nothing to do with “formulas” or profit margins of business plans. Consumers buy a combination of trust and total offer.

The Basics – Do Your Pricing Research

I know that it sounds simple, but we’ve found a lot of online entrepreneurs who do little or no competitive research on the products they want to sell. BEFORE you buy products to sell … really, before you launch your online store … go online and search for the products as if you wanted to buy them as a customer. Find the top online retailers selling the same products. Make a list of these retailers and visit their websites every single week. Compare their offerings to yours in every way (not just on price).

  • Is their price competitive?
  • Do they charge for shipping and, if so, how much?
  • What is their return and exchange policy?

If you found them online searching for products, chances are that many of your customers will find those folks the same way. So, ask yourself if you can compete at similar prices and offer details.

I am not saying that you have to sell at a lower price in every circumstance. There are tons of ways to differentiate yourself and give a better experience that can make small differences in price less important. But you can’t be out of the ballpark (more on that in a minute).

Product Search for Under Armour Blcak Hoodie - Can Your Price in Shopify of BigCommerce Compete

When Pennies Count Online

In highly competitive product markets, sometimes pennies matter. It’s common knowledge that “99 pricing” is generally effective. That means that instead of pricing your product at $50, you price it at $49.99. On higher ticket items it means pricing the $500 product at $499. Yes … it seems simple and a little silly. But you can’t fight the science behind it and the fact that it DOES work. But there’s more …. 

Since your online customers can easily compare prices side-by-side with a simple Google search – and since a lot of retailers know about “99 pricing” – I say try “89 pricing” … or “79 pricing” etc. Again, when you are dealing with high-volume, commodity type items, if you can capture an extra sale or two by shaving a dime or a dollar off the price you should do it.

Negotiate for eCommerce Results

Another thing that surprises me a lot is how few online retailers negotiate with their product suppliers. Now … if you are a small business eCommerce store selling Nike Apparel and Under Armour gear, you’re probably not going to get anywhere playing hardball with a billion-dollar company. But MOST product suppliers out there will work with you … IF … you are trust-worthy, sincere, fair, and if they believe in your business.

When you find that your competition is selling below you, negotiate with your manufacturers or supplier. Once they get to know you, they will tell you how to get a better wholesale price that might translate into a more competitive retail price in your store.

Differentiation - What Is It?

“Differentiation” is a big word that marketers and economists use, but the idea is really simple. In a crowded marketplace, make sure that your offer looks different or better than the others. This is easier to do when you are selling truly unique products like artwork and crafts or clothes that you make yourself. You might also occasionally get an exclusive from a supplier. It’s impossible to comparison-shop products like that. But differentiation is harder to do when you are reselling mass-produced or commonly-available products.

There can be lots of reasons that you can’t beat a competitor’s price. Maybe you can’t purchase at volume yet, so your unit and shipping costs are higher. Maybe everyone is paying exactly the same thing for the product. Maybe your overhead costs are higher. But even if you can’t beat a price, you might be able to beat them in total offer value.

Entry-level SLR digital cameras do this a LOT online. The big manufacturers – Nikon, Canon – actually have their distributors sign special agreements and promise not to undercut certain pricing levels. So, to compete better, individual stores have assembled packages – especially on the entry-level cameras. They’ll include lenses, cases, tripods, and a bunch of other inexpensive add-ons for the same price. There is no reason you can’t do the same thing. Customers are even willing to spend a dollar or two more if they perceive that the value is a lot better. 

Selling Yoga mats? Include a booklet of your favorite yoga poses and a work-out towel with the order. The towels can be purchased in bulk for less than a dollar each and creating printed pieces has never been more cost effective.

Selling coffee machines? Include a pack of filters, a plastic coffee scoop, and a sample pack of flavored coffee – all inexpensive at wholesale. Now you're not just selling a coffee machine, you're selling “everything you need for the perfect cup of coffee delivered right to your door … just add water” for about the same price.

Bounce-Back Coupons and Gift Cards

If you can’t be competitive on a price, get as close as you can and then give them a premium offer. And the one I’ve seen work many times – especially during the holidays – is the bounce-back. The idea is that you convince the customer to spend a little bit more now and save more next time. You need to understand your product mix and your customers’ buying patterns, but a well-designed bounce-back can turn a small pricing dis-advantage into two sales for a double-win.

Let’s say that you sell kitchen gadgets on your website and your warehouse is full of toasters that you sell as cheaply as you can for $29.99. You are doing your competitive research and discover that there is a competing store out there that sells the same toaster for $24.99 – five bucks less than you – and you can’t figure out how they do it and make any money. Well, the first thing to understand is that your competitor might NOT be making any money … they could be selling in desperation or ignorance about their real costs. But none of that matters because you are competing for the sale right here and now.

Consider an offer that delivers a $10 gift card or coupon on the customer’s NEXT purchase. If the customer is a serious foodie that likes kitchen gadgets a lot (exactly the kind of customer you want) then they might perceive that your offer is less expensive than the other guy’s offer. The other guy might still get the one-off person who does not buy tons of kitchen gadgets, but you are going to get the repeat customer who does. And one of the little secrets of promotion is that a lot of those bounce-back offers are not redeemed. Either way, you have beaten the competition without having to beat them on the core "price" of the product.

How to Set eCommerce Product Prices - Next Time

Calculating a pricing strategy is a deep topic. In the last example we floated the idea that your competitor might be pricing in a way that just can’t be profitable. Don’t be that guy. Calculating your pricing strategy is actually a long process that you will only get good at over time as you discover which sales make you money and which ones don’t. Sometimes an entrepreneur discovers that they can’t compete on a certain product line until their volume increases, so they take the loss-leader hit for a while. Sometimes you determine that that product is not a good fit for your business and you close it out and move on.

What that calculation looks like – and how the big eCommerce giants do it these days – is a topic for another post someday.

Until then, thanks for reading. If you need help implementing a coupon, discount, or gift card app in your Shopify or BigCommerce store, let us know. We do that kind of stuff all the time.

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