E-Commerce Pricing Strategies: Improve Conversions in the Age of the Customer Experience

E-Commerce Pricing Strategies: Improve Conversions in the Age of the Customer Experience

written by Mert Gençler

E-commerce businesses are now trying to achieve success at a time when customers hold all the power in their hands. Online buyers have immense options and opportunities to find the best products with best deals while they are shopping. To convince buyers not to abandon their basket and continue shopping in your online store, you should meet all their expectations, such as shopping journey, product information (image, description, reviews) perceived value, customer support, etc…

Among these different elements of the online customer experience, pricing is the most important. Here is why;

In a common scenario, a product can be found in at least 5 different online retailers. So, online shoppers are more price sensitive if the product exists in multiple online stores. This situation creates an opportunity for price comparison engines. Such engines can be used to compare prices in order to find the best deals. Usually, online buyers start shopping by comparing product prices in search engines and searching for the best deals. A price comparison search engine can produce more than 50 deals within 5 minutes. On top of that, 20% of online store visitors are redirected to the retailer’s site from price comparison engines.

Pricing strategies are also relevant because of the online experience. The online buyer expects convenience and, in that regard, price placement is crucial. Buyers get frustrated when they have to struggle to find the price. A great indication for this is that 9 out of 10 buyers search online to find the prices and deals.

So, pricing shouldn’t be considered and applied just as a necessity. By applying different strategies depending on industry or customer related variables, E-Commerce stores can boost conversion rates and get ahead of the competition. 

Let’s see different pricing strategies that might be applied to your e-commerce store.

Strategy #1 – Cost-Oriented

Cost-based pricing is the most common strategy used by small and medium-sized E-Commerce vendors. The idea is not complex. Calculate your cost and add the margin to it. The sum of that calculation (cost + margin) determines the price.

Even thought the application is simple, there are some tricky parts. While calculating the cost of a product, you should define and list every indigent accordingly. Salaries of workers, overhead costs, fixed costs, marketing, inventory, transportation expenses have to be taken into account.

While setting the margin, you should also evaluate the industry and the consumer’s perception of the price. Applying random margins will be devastating for your business. For example in an industry where the competition is fierce (e.g. electronics), settling for smaller margins would be a wiser approach. Besides that, identifying the consumer’s perception of your product is crucial. There is a risk of undervaluing your products. As a result, you damage your competitiveness. 

Strategy #2 – Market-Oriented

E-commerce is huge. There are thousands of online vendors and hundreds of them are your competitor. Online shoppers are extremely aware of this and have the tools to hunt down the best deals. With this in mind, you should monitor market conditions, external factors and competitors.In brief, you need to be aware of everything happening in the E-Commerce market. Do not isolate yourself from the competition and don’t just focus on internal variables.

In an ultra dynamic market like the E-Commerce market, gathering competitor or market data is not a painless effort. Going at it manually will cause you to lose a great amount of time. Thanks to competitor price tracking tools, you can monitor the competition and the overall market situation without much effort. E-commerce companies can gather actionable insights and real-time data from the market. After acquiring this data, you can respond dynamically to the moves of your competitors. Depending on the market landscape, you can cut your prices or even increase them to fatten up your margins. With data generator- competitor price tracking tools, E-Commerce companies can enhance their margins and conversions.

Strategy #3 – Customer-Oriented

We’ve discussed costs and competitor landscape. But how about the core of your business? Your customers? Cost-based or market-based pricing strategies deal with numbers not people. A customer – oriented approach is mostly about getting to know your customers, identifying their behaviour and psychology.

It is vital to answer these two questions; 

-Who are my customers?

-What do they need and what is my business’ value for them?

Depending on the answers to these questions, you can define more accurate margins. Your customer group may intensively search for discounts or they may be less price-sensitive. For example, if you are running a prime brand, your customers won’t mind paying higher prices. In that case, it would be better to run a marketing campaign focusing on brand value not prices or deals.

Customers buy because the price of the product matches their perceived value of the product. If your price point is higher than the perceived value of the product or if your prices are too low for customers who are willing to pay more for a niche product, you will lose sales and conversion rates will decrease dramatically.

About the author

Mert Gencler is a Marketing Manager at Prisync. Prisync is a competitor price tracking and monitoring software for all sizes of e-commerce companies serving more than 300 e-commerce vendors around the world.

More information:

Sointu Karjalainen

Chief Marketing Officer