Boost sales with the right e-commerce pricing strategies

Even for seasoned entrepreneurs and retailers, it takes careful consideration to land on the right price for products. If something is too expensive, it might deter customers. Not high enough, and you’ll lose out on profit. 

So how do you approach pricing? A pricing strategy is, quite simply, the way you go about setting prices for your products and/or services. It’s a crucial element of your overall marketing strategy, as it affects how your brand or retail business is positioned in the market, how you attract customers, your reputation, and, of course, how you achieve your financial goals. 

In the wholesale world, items come with a manufacturer’s suggested retail price (MSRP). But there are many factors to consider when you price items, including production costs, competition, market demand, and perceived value. Varying your pricing over time, or even combining tactics, can boost sales and conversions. Here are seven e-commerce pricing strategies to consider.

1. Cost-based pricing

Cost-based pricing is a strategy you’re likely already familiar with. This straightforward method simply adds together the cost of your products—including marketing and shipping costs—and the margin you want to make off each item. 

Let’s say you’re selling scarves. 

• They cost $20 to make and $5 to ship 
• You spend $2/scarf on marketing

That’s $27 to get the scarf in the hands of your customer. You could sell them at $35 or $40 and make a good profit. 

Cost-based pricing provides a straightforward, stable structure that’s easy to plan for and build a budget around. But it focuses more on the amount of money you want to make and less on the perceived value your customers attribute to your products. It doesn’t take into account that your competitors might charge less or that you could reasonably sell an item for more. 

2. Keystone pricing

Keystone pricing might be the simplest e-commerce pricing option: Your selling price is double the cost price. Or, it’s a 100% markup. 

So if each box of candy costs $8 to make (including shipping, marketing, etc.), you sell it for $16. 

This simple method is easy to implement and calculate and is common in retail. The profit margin is also appealing. But it doesn’t consider market conditions and customer perception (don’t discount the fact that your customers might think your product is worth even more!). 

3. Competitor-based pricing

This strategy considers what your competitor charges the consumer. You’ll need to investigate pricing at both boutiques and big-name stores or comparable brands to your own to get the most accurate prices. Once you have the average of these prices, compare that number to the cost it takes to source and sell the product. The difference between those amounts is your competitor-based pricing figure. 

So, if the average competitor price for a candle is $40, and it costs $20 to source and sell yours, you can set your price around $30 to $50.

Competitor-based pricing is a good way to ensure you’re selling products at a price that makes sense for your market. It’s a helpful method for those in a saturated market like apparel and can reinforce a perceived value to customers. However, you may be (literally) selling yourself short if you end up chasing the lowest price among the competition. Even if you can’t match the low prices of big-box stores, remember that independent businesses can offer better and more personalized customer experience, and that has real value to shoppers. 

4. Value-based pricing

This structure depends on what you believe your products are worth based on a differentiating quality—like being eco-friendly, small-batch, or handmade. 

This system does require more effort, as you’ll need to combine aspects of both cost-based pricing and competition-based pricing models. You’ll want to know the lowest price you can reasonably sell your product for, as well as what the competition is doing. 

 Let’s say you’re selling yoga mats. 

• The lowest price you can sell at is $20
• The competitor’s average price is $40

If your yoga mat is made with industry-standard material and comes in limited color options, you might price it below $40 to drive sales. But if it has special features like an anti-microbial coating or sustainable sourcing, then your price should be higher to reflect that value. 

Value-based pricing highlights what makes your products unique and the benefits your customers receive. It’s a strategic way to stand out in the market and optimize profits, but because value is subjective, it can be tricky to hit just the right number. 

5. Dynamic pricing 

Based on real-time market conditions, this system is sometimes referred to as surge or demand-based pricing. A customer is less likely to be price-sensitive when there’s high demand for a product, so the price can be raised at key moments. 

A good example is an air conditioner in the summer or a snow shovel during a blizzard. Prices increase during busy times and drop during low seasons to stimulate sales. 

It can be effective, but you risk alienating local and loyal customers with sudden price increases. Dynamic pricing also requires extensive and quality market research to ensure you raise and lower prices at the right time. 

6. Price-skimming pricing

This approach is a good option for truly distinctive items that create their own category in the market. You’ll attract early adopters and customers willing to pay a premium for exclusive access to something new.

Once competitors create similar products, they may offer them at a lower price. By being the first on the market, you have the power to profit while competition is low and remain competitive as the category evolves. 

Let’s say you’re debuting a higher-end weekender bag. 

• You can charge a premium price of $400 because there’s nothing else like it on the market
• After you’ve attracted customers willing to pay a higher amount for first access, you can lower the price to $350 and attract a new set of customers
• Eventually, other brands or stores may start selling something similar, and you’ll want to reflect the market price more accurately to attract a broader audience 

With this e-commerce pricing strategy, you’ll maximize early profits, build your brand image, and easily cover initial costs, but it is limited in its initial market reach and can elicit a negative reaction about your brand if customers don’t connect value with price. It’s also tricky to maintain that initial hype.

7. Bundle pricing

Bundling more than one product for a single price can increase sales volume. This might include upselling (adding on to a purchase), cross-selling (selling a similar or complementary item), and buy-one-get-one offers. You can get creative with your offerings and set yourself apart from competitors with your thoughtful curation of items. 

Customers see bundle pricing as a way to get more for less, which may mean they’ll buy more than they’d originally planned! This may increase average orders, but of course, when you bundle, you’re likely decreasing the prices of individual items, so your margins might drop. 

Find what works best for your business

Choosing a method to price your items depends on your goals, how established your business is, who your customers are, and what’s going on in the market. But don’t worry: It’s not a one-time decision; it’s an ongoing process. You can experiment, adjust, and reassess your strategy over time so that it fits your business and suits your customers.