If you are an online seller who is a part of the online marketplace landscape in India, you already know that there is no set formula for pricing your products. Unless your product is the only one selling in that specific category, you will have competition from all those online retailers selling the same or similar products.
Pricing right is a combination or formula of various strategies. Essential here is to understand what works the best for you. In this article, eCommerce technology firm Browntape Technologies gives some pointers on pricing your products for the eCommerce space.
Factors to consider for pricing
Consider the following aspects of your products:
-
Cost of sourcing or manufacturing
-
Market value
-
Target customers
-
Competitors’ pricing
If you price too high, you run the risk of losing out on your potential customers. If you price too low, you might not get enough returns. So the trick here is to find that balance which would work for you.
What kind of a profit margin do you want?
Profit margins can be of three types:
- Direct cost margin – your margin after deducting direct costs related to the product (fabrication, logistics, sales costs, administration etc.) from the selling price.
- Break-even pricing – a no profit, no loss situation.
- Profit pricing – you get your profits, percentage varies depending on your selling price.
Based on the stage of your business, you could decide which one of the above you want. Profit pricing is of course the desired one. But for most, fingers have to be burnt to some extent when starting out.
When should you slash prices?
Ideally, prices should be lowered (beyond the comfortable extent) only when you are looking to increase your market share. Create bundles and combos to bring down the regular pricing as it cuts down on operational expenses and of course increases cart value.
Marketing events combined with adequate pricing may do the magic, but slashing prices beyond a certain level other than for promotional days need not always get you impulsive sales from customers. During Mega marketing events, slashing the price should be closely considered with the fact that RTO eventually increases by 5-10% during these days.
When should you hike prices?
As your business expands, your direct costs will increase. Unless your order volume is that huge, you will need to keep your prices with nominal discounts to stay afloat. In the online world, customers tend to buy products that give them value. Even if your competitors are selling at lower prices, you can price your products higher if the quality of your products are more, thus giving customers more value for their spend.
Should you increase or decrease now?
The key to finding the answer for this is to keep an eye on the market and your competitors. You cannot be static in a dynamic market. Let your pricing strategy be agile so that you can react to the market changes and adjust your prices accordingly. Keep in mind though that at the end of the day, what matters is that customers believe they are getting good value from your product offerings.
According to Vijin Nair, Category Manager at Browntape, “Giving products that are value for money with quality service is the best formula for roping in customers. Use marketplace product promotion campaigns to showcase your products, combining these with slashed pricing for mega events.”
Take a few minutes to answer the following questions to introspect and find out if you are pricing your products right.
- Is your product unique? Are you part of a niche/undiscovered segment?
- Will your target customer group find value in your product? How much would they be willing to pay?
- What are your costs associated with the product? Consider the manufacturing/sourcing, transport, packaging, administrative charges and so on.
- How much do your competitors charge? Are they pricing higher or lower than the market standards?
- Have you reached your break-even? If not, how many more units do you need to sell to break-even?
- What is your expansion plan in terms of number of units to be sold?
Originally published on iamwire.
