3 simple ways to build a pricing strategy and 1 that may be the most important

In an economics textbook, it looks trivial. The demand curve intersects with the supply curve. At the equilibrium point, they determine the optimal price. In reality, more complex than a school graph, sellers find this point slowly - by trial and error. A good pricing strategy will make the latter as few as possible.

However, the classic supply and demand graph is not useless. It shows that every manufacturer has a choice. He can go for quantity, selling a lot at a low price and with a small margin, or he can bet on small sales of relatively expensive products. Naturally, there is also a whole range of options located somewhere in the middle.

It's easy to try them out, because price manipulation is simpler in an online store than in traditional retail. You don't have to move the goods to another shelf or stick a tag with the new price. The update appears on the site in a second. It can be done even several times a day. And it's worth it, if necessary. It is important not to do it haphazardly, based on hunches. It is better to give a framework to such procedures, using basic methods of building a pricing strategy.

1. prices based on costs incurred

In the first approach, the starting point is your own business. Like any business, it cannot spend more than it earns. This means that (except for special promotions) the price of a product must simply be higher than the cost of producing it.

On the cost side, add the purchase of products, intermediates and raw materials, and the value of the labor required to create the final product. Then there are the costs of storage, packaging, shipping and possible returns. Only after these have been estimated can you proceed to add the margin.

- We encounter a situation where retailers add the same margin - 5, 20 or 50 percent, to all products in their offerings. This is convenient to count, but not entirely effective. It's a good idea to differentiate the margin by the rank of a particular commodity, for example. For a flagship product, it's better not to elevator the price too high and compensate by bumping it up with the accessories included in it. Psychologically it looks much better," suggests Lukasz Kozlowski, an expert in customer development of the Shoper platform.

2. prices in relation to competition

In the second method, we start from what other players in the market are doing. Usually operating in it for a long time, they have "tested it" and have already found the optimal price range for their goods. And customers are able to easily check this, especially with the help of price comparison engines. This does not mean, however, that it is impossible to break the prevailing trends in the industry and stand out from the competition in terms of price.

- A favorite idea of many fledgling e-tailers seems to be to beat the average price on a given product with their own offer, which is a few percent cheaper. Yes, such an entry into the market may get noticed, but customers may be disappointed when, after a few weeks, prices are raised to real market levels. A smarter approach seems to be to try to be the cheapest for only a few selected but highly sought-after products, so that price comparison engines show us first," reveals Shopera's expert.

- It's also sometimes worthwhile to work the other way. There are tools available on the market that allow you to automatically monitor prices, including, for example, when a product has just disappeared from stock at your competitors. If at our company it is available off-the-shelf, then it doesn't hurt to charge a little more for it," adds Lukasz Kozlowski.

3. price based on product value

The last of the ways to set the right price comes directly from the customer. The Internet is also a good channel for offering premium products, for which recipients are willing to pay more. If you want to create an offer for such a group, you should start by properly identifying the group of target customers and getting to know them in depth. The analysis should lead to a determination of what features the product should have in order to resonate with the values important to the specific target group.

- The premium category is not necessarily immediately goods made of raw material of unparalleled quality. Uniqueness can be imparted by design, the way it is packaged, the gadgets included, or a custom shipping method. The impression of exclusivity is also increased by limited editions or linking the store brand to a person with a strong personal brand in the group we care about reaching," explains Lukasz Kozlowski of the Shoper platform, which offers comprehensive software for online stores.

For premium products, the classic demand curve behaves inversely to the textbook charts. Sometimes setting a price higher than the market price results in increased interest in the product. This is because customers may conclude that since its higher price also means higher quality. This happens in the case of products that are important to them, such as accessories related to their favorite hobby, through the acquisition of which they gain a sense of development in this field.

4. manufacturer's suggested price

- A large proportion of the stores we serve do not themselves manufacture the products they sell. They acquire them from manufacturers, who set a suggested price for distributors. Beginners in the e-commerce industry don't have to start with price experiments on their own, and at least in the beginning it's worth sticking to the manufacturers' hints, advises Lukasz Kozlowski.

The suggested price does not necessarily tie the seller's hands and doom him to be lost in the crowd. It is worth hinting to buyers the possibility of adding the necessary accessories, and their prices deftly juggle and thus stand out. Of course, online shoppers pay attention not only to the price of the product, but also to the cost and timing of delivery or the possibility of convenient return of purchased goods.