Duration: 14 Minutes
Customers have more power than ever before.
With a single search, they can compare products, prices and reviews before making a purchasing decision.
In this keynote, Dimos shares 10 different eCommerce pricing strategies that will help you get an edge over your competitors.
Choose one, or combine them to make the best out of your online store.
Hey, everyone. I'm really excited to be today at the Strategy Factory, and here at cascade. And I would like to thank Lucas for inviting me. My name is Dimos Papadopolous, and I'm currently a product manager for PepsiCo e-commerce. So I have worked with different e-commerce businesses or industries through different geographies across Europe.
And there is one common belief across all of those businesses that pricing can literally make or break your business. So a low price actually could prove very fruitful for some of the companies because they can attract demand and they can amass a huge amounts of sales, but the higher price can also prove very, very efficient.
Because it can lead to premiumization. It can bring to an improved, let's say consumer perception as well as a better margin for sales. So there are multiple strategies that you can take actually in order to reach the proper pricing and the most effective for your business. However, what is right for one company is not right for another.
And let's be honest, e-commerce has the power of democratization because essentially the consumer has the strength. With a single search, you can search different products, different competitors of yours or services in order to understand which one is the best value for them. So in today's session, we're going to discuss some top, let's say, tested e-commerce strategies, and then we're going to discuss what could be the most efficient strategy for your business to apply.
Let's go to the first actually. So the first one is straightforward and it's the best for small businesses. It's literally a stable percentage of increase next to the price, for that the cost for the product to produce. So a lot of the businesses, they just amass the product costs. And then they put a percentage on top, which is usually roughly double the wholesale value, which is practically the profitability that they won't get upon purchase.
This specific strategy could prove very useful for some small businesses. However, it's going to result in a very low price for some products, or it can also lead to a much higher product price than this value, actually, because the business doesn't really control. The second strategy is the manufacturer's suggested retail price.
This is typically a good strategy for small businesses starting out because essentially they take the defacto price that the manufacturer provides or the suggestion, which might prove also useful across the industry. It can provide standardization and it can also provide a very good collaboration. And even let's say respect among the different relationships between you and your business, and also the manufacturers.
However, this is also a, not 100% efficient strategy because it is hugely dependent on the individuality and personalization of the business. What the manufacturer might perceive as a fair price for the product. Maybe it doesn't fit your specific e-commerce needs. Because maybe you have international shipping or maybe you provide eco-sustainable packaging, or maybe you have different rooms or in different, let's say, costs related to your own business or the way you operate and the taxes and legal implications.
So it can prove rather complex occasionally, but also it can be very effective to maintain relations. Another specific strategy is very useful. It's the competitor pricing. So this is one very, very common. You search your competitors, your top, let's say three to five competitors, and then you really base and non-core your price either in the middle or a bit lower or a bit higher.
It purely depends on how you want to be perceived and what kind of marketing you're going to run because they are key to navigating this tactic successfully. You can either be perceived as more economical and may be accessible to the public, or you can even be perceived as more qualitative and more premium as an essence.
It really depends. You don't want to be perceived as too premium because it's my credibility in my lead to businesses thinking that you are a bit greedy and you also don't want to be too economical because it might be believed that you don't have very good quality or maybe you're considered cheap.
Another fourth strategy is that is known as actually priced skimming. Essentially. It's a very good strategy for building their businesses, which are very, very high in the innovation scale. So for example, business-like Salesforce or businesses like Apple, Microsoft, they employ this kind of price strategy and why they do so because when they launch a product due to scarcity and due to the innovation that they have a master, of course, the years of knowledge, then they can actually price it in a very, very high scale.
And the rest of the business can not even keep up because they cannot offer similar products or services. Then eventually when they start rolling out new features or new products in the same line, they tend to go lower and lower, which might lead to specific price profitability via the beginning. And then eventually it leads to a steady stream of purchases.
This is a very, very proven strategy, especially for companies offering innovation or technology. And the fifth strategy could be the other way around actually it's called penetration pricing. So what it practically is you're entering a new segment or let's say you are launching in Europe. And you want to really test the waters.
So essentially you provide a much lower price, maybe even lower than the production cost. Just for a few, let's say segments or a few periods in order to understand how the products perform. And once you have proven yourself and you have amassed specific consumers, then you really depend on loyalty upon that, and upon penetration, you just assume that some of the consumers will continue buying because they are already let's say satisfied or happy with yours. So then eventually when they become loyal, you can slowly increase your prices and be careful. Content is key in this kind of strategy. You can do very good product marketing content.
You can run specific product marketing strategies in order to really excuse yourself for increasing the price that the price, and also to really remind them what kind of benefit they're getting or what kind of, let's say value they're getting out of your product and why you had to increase prices.
The Sixth strategy I'm going to talk about is subscription level pricing. So subscription level is essentially taking the full strategy stream from a product that is about to sell at a very specific time interval. And then you actually assume that you're going to get the profits of a full year broken down in different periods rather than from a single purchase because in the subscription service, essentially, they're going to rebuy the product and there are going to be constant stream consumers.
This was pretty well with a subscription. Let's say prices or consumer segments, which are interested in specific types of apparel, like underwear or socks, for example, or even with the foods and snacks or coffee subscriptions. So it works very well for those segments because, they're repetitive purchases, and that can really prove them.
The seventh Strategy, which is very, very typical is similar, the bundle pricing. And it's similar to subscription pricing, but not necessarily as it can provide different segments book together for an improvement. For example, the say that you are a suited company, so when you combine it with a belt and you combine with the shoes and you combine it with the tie and then you really give a good value out and a good package, improve price rather than buying every single product on their own.
In the full basket size that increases the average value. And that increases also the consumer lifetime value eventually. And also it improves the profitability for your business because otherwise, the consumers wouldn't buy them separately. The last strategy is called a loss leader strategy pricing. So this is present the product very, very lower.
Even nowhere, occasionally with them is production costs. Why would you do that? You'll say, well, there is reliance actually, because some of the companies and some of the services they provide, they, they come very, very profitable in conjunction with their other products or services. So for example, let's say let's talk about the DVD player or let's talk PlayStation.
They become very, very effective at selling other products as well, rather than the console or the platform because they sell games and then they sell on different kinds of, let's say memory cards, which can bring lots of purchases and then they can also bring lots of profitability on top. And the ninth strategy is very, very effective, but only for huge e-commerce businesses.
It's a dynamic pricing model. This involves a lot of resources, usually, maybe even a political department is dedicated to that, but also an intelligence software service and why it needs all of that because it takes into consideration algorithm models and the full exercise to approach pricing and a whole strategy behind it.
So it takes multiple factors into consideration. Like for example, the time of the product markets, the supply chain, it's a stock level at the warehouse. Also, historical data sets of let say traffic and sales of the product, but also take external factors into consideration. For example, events in a country or specific, city-level events and also weather or even track.
And then he decides on the most Solice successful and effective price for your products to be shown online. And the optimum profitability has been.
The 10th strategy and the final one actually is psychological ones. I will call it psychological pricing because all of us get really, really influenced by some of those tactics in e-commerce, for example, pricing the total numbers.
And a lot of us really, really prefer odd numbers to even numbers. So it is human psychology. Actually, if a product is placed at five or $10 or $7, it's perceived much cheaper than something in a store. And then pricing also at 1 cent less is very, very effective. This is huge, let's say in retail and you can really find it many times.
So for example, in your major supermarkets, most products, they will cost you 1.99 or 2.99, and they will never cost the full even number because that is perceived as a bit higher. And by signalling the lower number in front, it signals a better value for you. Another strategy actually, which is very, very proven, useful for all e-commerce businesses.
And then I tend to do a lot, especially for commercial campaigns is the strike-through pricing. So typically they have the initial price for the product or the beginning price, and then they strike through that one and they give the new value. So that is perceived as a discount or as an offer or as a very good value for the money, the consumer because previously it was 50% more.
Don't let's say stress too much. You can go for a combination if you are. I'm not sure what would work in your business. I would say test it out, try out different strategies and then you can even reach out and let me know how it's going for your business. A combination strategy could be actually combining different methods of the ones that we discussed.
And one company that does it very successfully. It's Sony for their PlayStation business. They usually do the skimming, strategy. So they have the innovation, they have a very successful platform. And then when they go with the console live, it's the very, very high price. What do they do? They tap into consumer segments, like, innovation seekers, gadgets seekers, the gamers who have been purchasing the platform for years and also on the ones who are hiring the innovation.
So by doing so they amass a lot of profits by at the beginning, and then slowly you're spacing by releasing more games, they just go into a loss leader profitability because they tend to even price it lower than its initial. Let's say the cost to produce price and why they do that. Because with all the games and all the collateral and all the other businesses that Sony amasses, they can really handle and get profit via various ways with the platform and the console.
So regardless of what you decide to do a very, very important thing to keep in mind. And actually, it's an e-commerce top secret I will share with you and remember what a consumer is ultimately willing to pay. It's not really dependent on the price. You can do various things and you can do a lot of flashy things and marketing campaigns, but that doesn't help really convert besides, you know, a few initial dollars.
What really helps convert is the value that they perceive your product to be. So if they perceive it as being valuable to them, then trust me, they will for sure convert to purchase. Otherwise, they will just avoid it. Or you can eventually bounce off your way. So I hope you learn a few of the new strategies that I share with you.
I hope you employ some of them. And let me know if you remain successful. Thank you. And good luck.