For some sellers, setting the price may not be as easy as it seems. If the price is too high, then nobody will buy what you’re offering because the customers can’t afford it. But if the price is too low, then you’re not receiving the profit you deserve.
Sometimes you can set the price with using math, and that can make sense—up to a point. That’s because while formulas are logical, humans aren’t always easy to calculate. Still, you can start with math to get things started and then you can adjust your prices later once you get a better sense of how your customers think.
Here are some pricing strategies that may work for you. While each one has its own set of benefits, they may often have their own drawbacks as well.
This stands for Manufacturer Suggested Retail Price. You price the products you sell according to what the manufacturer thinks the price ought to be. The main benefit of this technique is that it’s super-easy for you to adopt. You save time and effort thinking about the right price for you, and you’re assured that other sellers of the same item is offering the same price as you are.
The main drawback to this approach is that you don’t differentiate your platform from other sellers, at least in terms of price. If you’re not offering a discount, then why exactly will customers buy from you when they can buy from other websites and stores?
Double the Wholesale Cost: Keystone Pricing
This is a very easy formula put into practice. Just double the price of the item when you bought it at wholesale prices. That very ease is what makes this pricing strategy very popular.
The problem is that in many cases, it may not be reasonable for you to double the price because you end up with too high a price that customers would balk at. It all depends on the availability and the demand for the product you’re selling.
If it’s a limited edition Rolex watch, then it makes a lot of sense to mark up the price that much. Lots of people love Rolex watches, and they’re willing to pay a high price for it. There are even waiting lists for these things.
But other items may not be able to sell as quickly when the price markup is 100%. That’s especially true when these products have plenty of sellers and some of them are offering lower prices.
In some rare instances, even double the wholesale price may not be enough either. The product may be very rare, or perhaps you’ve shouldered considerable costs for shipping and handling. If you have a large demand for a rare item and you’ve spent a lot on other costs, then even doubling the price may be too little for you.
Product Bundle Pricing
This is when you offer a larger volume of the item for a lower per-unit cost. For example, you can sell a single product for $50, but offer a pair for $80 (instead of the usual ($100). There are plenty of variations for this sort of strategy. You can give a “Buy 3, get 1 free” offer for the product.
Or perhaps you can bundle one product with another related product. For example, you can offer a shampoo and conditioner bundle that costs less compared to buying each one individually. You can also do this with gaming consoles and games.
The advantage of this is that customers think they’re getting a great deal, so you can really drive up the volume of your sales. It can increase your profits, and at the same time, your brand is seen by more people.
On the other hand, you may end up having trouble selling the products in the bundle individually. Customers may consider the bundle price the “real price”, so they may think you’re overpricing the products.
Offering discounts is a proven way of selling unsold inventory. You can get rid of the out-of-season stuff, while you get more visitors to your store. The increase in the number of visitors to your store or website can also boost brand recognition.
However, the downside is that your brand can be permanently associated with discounts if you do this too often. People may not think that your products are of premium quality if you’re not setting premium prices. In addition, customers may stay away from your shop until you have another discount period.
Overall, this may be a viable strategy for new brands. It increases brand awareness. Once your brand is more established, you may want to limit your discount periods for end of season sales when you wish to offload unsold out-of-season items.
This when you give a serious discount for a product (or even sell at a loss), but you’re compensated when the customer buys other items in your store at regular prices. This is the loss-leader strategy, which can really work when you have lots of products to upsell or cross-sell.
One classic example of this is to sell a bicycle at a discount. But then they get into the store and the cyclist also buys a new helmet, other cycling apparel, and bicycle accessories. The profits for these other items can offset the discount for the bike, and you still end up with a customer who is liable to come back for more cycling products in the future.
Of course, the main problem here is the distinct possibility that your customer will expect only to buy at discount prices for everything. They may only your discount item, and then look for other discounts for other related products they may need.
Ending Prices at “99”
For some reason, our brains tend to feel price differences in a somewhat nonmathematical manner. For example, the difference between $745 and $746 isn’t much. But somehow, there’s a psychological difference between $799 and $800 that’s greater than a mere dollar.
In our minds, the price is still in the vicinity of “$700” instead of “$800” when we see a price tag of $799. It’s the same principle when you price an item as $19.99 instead of $20. Somehow, it feels nearer to $19 instead of nearer to $20. In fact, there’s a sense that it’s nearer to $10!
In this strategy, you check out what prices your competitors are offering and then you offer a price that’s a bit less. It can work if you’re able to cut down on your overall costs and you can promote your pricing widely.
On the other hand, it cuts down on your profits. Besides, customers may be looking at other factors other than price
There’s an apocryphal story about a scotch whiskey that didn’t sell well because of its low price. People just thought it was “cheap liquor” so they avoided it. But when the scotch brand boosted its prices, sales increased because it suddenly had a more “premium” image.
This works only for luxury items for the most part, such as jewelry, fashion items, artistic furniture, and drinks like wine and fancy coffee. For more basic products, lower prices will drive the demand.
The real truth is that there’s no correct way to set your prices, especially at the start. What this means is that you need to be flexible while you improve your market research regarding what prices your customers are willing to pay. You have to do your homework, and you need to bend to changing market environments.