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Numerous industry leaders agree that pricing your products is part science and part art. The latter includes psychological techniques such as the ‘The Rule of 100,’ ’Bundle Pricing,’ or ‘Charm pricing.’ However, this post will focus more on the scientific part (1st Bonus Tip: After using...
Step 1: Determine the Base Price
You’ve got to start somewhere. How do you determine the initial price of your product? Sounds complicated and technical, right? The good news is that there are numerous pricing options at your disposal thanks to decades of learning and thousands of pacesetters to emulate.
The trick lies in knowing which is the best pricing model for your business. Below are 3 of the most common and arguably the most effective pricing model for eCommerce entrepreneurs or ‘brick and motor’ businesses.
1 Time-based/Demand Pricing:
How much are the competitors pricing their products? How much are the consumers willing to pay? Under the market-oriented pricing strategy, you research into your particular industry to determine the product pricing of similar products and services. Depending on your offering, you can either match the competitor’s price, offer a low price, or overprice – depending on the quality, costs, and consumer preferences.
2 Cost-Based Pricing:
In a nutshell, cost-plus pricing involves adding a mark-up (usually a percentage of the break-even) to all your incurred costs. Calculate all the direct and ind...
Step 2: Tinker with your Pricing
Always test the waters before you cash in all your chips! This is a mantra that should apply to all businesses and eCommerce stores unless you are an extreme risk taker. In the context of pricing a product, ‘testing the waters’ involves utilizing the microeconomic concept of price elasticity. So, what is price elasticity and how can you use the concept to maximize your profits?
Simply defined, the price elasticity of demand (PED) measures the responsiveness of consumer demand after a change in price (i.e. PED= % change in Quantity demanded/% change i...