The Top 12 Best Pricing Strategies for e-commerce

By Thomas Bennett Financial expert at Priceva
Published on July 11, 2022
Whatever your e-commerce project sells, it’s highly important to set a well-balanced price that will appeal to customers and help you achieve the desired profit margin. In this article, we will review the most commonly used pricing strategies, how and when they can be used, and the ways to implement a pricing method so that it will grow, not sink, your business.

What is a Pricing Strategy?

A pricing strategy is a method of price formation used by a company to determine how much to charge for goods or services. This is one of the most undervalued revenue boosters in business. With a carefully selected, well-balanced price, companies can grow their revenue and attract more buyers.

So far, the most commonly used pricing strategies are:
  • Competitor-based pricing (based on rivals’ quotes).
  • Cost-plus pricing (based on the production expenses plus a markup).
  • Value-based pricing (based on the product’s perceived worth).

To implement any pricing strategy, it’s important to understand your product, the market you operate in, and your customers. Let’s observe the most widespread approaches and find out when they can be applied efficiently.

The Best Pricing Strategies

Depending on the market, product specifics and financial goals, you can apply different pricing strategies. Below, we observe the ones that are most commonly used in the e-commerce sector.

Cost-Based Pricing

In this case, a company calculates the total input (unit production costs, transportation and marketing) and defines a target margin profit for each product so that to recoup these expenses. The following formula is used:

(Material Cost + Labor Cost + Overhead Costs) x (1 + Markup) = Price

When it comes to the e-commerce sphere, the most common production expenses include website hosting, domain, marketplace fees, storage, returns and refunds, salaries, rent (if you run a brick-and-mortar office), marketing budget, software, and so much more.

With all that in mind, it’s not surprising that e-commerce companies fail to calculate unit production costs and set optimal quotes using a cost-based strategy. As a result, prices may be either too low, which undervalues the product, or too high, which takes a toll on competitiveness.

Unless you work in a niche with a low number of competitors, cost-based pricing is a bad idea because it doesn’t take into consideration the prices of analog items and customers’ willingness to pay.

Value-Based Pricing

Value-based pricing involves setting the cost of a product as its perceived value for the customer. This approach allows setting very high prices and taking correspondingly high profits if the company can persuade its audience to buy the goods. This strategy is often used for selling luxury items where buyers are ready to overpay for a brand name.

This strategy is not suitable for mass-market products unless they have some very strong competitive advantages or innovative features. The value-based strategy does not take into account the cost of the product or competitors’ prices.

Competitive Pricing

If you run an e-commerce project, most likely you’ve got at least 10-15 competitors offering analog products — everyone is looking for ways to tempt buyers over to their side. When choosing from similar items, consumers compare prices and choose the most appealing offers, and a competition-based pricing strategy is all about finding the most appealing quote.

That doesn't necessarily mean setting the cheapest cost — all in all, price wars are doomed to failure, and you want to grow your revenue — competitive pricing is a more complex approach. It requires price intelligence so that you know when a price increase is reasonable and won’t repel customers.

Competitive pricing can be exercised in e-commerce and many other spheres, but it requires a deep understanding of the sphere, rivals, and customers.

Dynamic Pricing

This is a very efficient pricing strategy in which marketers constantly adjust prices according to the desired profit margins, market demand, and competitors’ quotes. To put it simply, it allows you to set optimal prices at the right moment depending on the market conditions and competition status, without overlooking your major business goals.

For retailers that offer hundreds or thousands of products, dynamic pricing can be automated with the help of price optimization software. It collects pricing data and adjusts your quotes against any changes. Besides that, the technology allows you to test various price points and give your business the right positioning. The collected data can be converted into actionable insights and sales improvements.

Consumer-Based Pricing

Customer focus is crucial for any business. You should always ask yourself, “Who are my customers?” and “What are their problems and how can I solve their problems?” The answers to these questions are the essence of a consumer-based pricing strategy.

To take this approach to price formation, you need to segment your audience. Find out who is likely to purchase your goods, and what needs and requirements should be addressed for different groups of buyers. Purchasing history and real-time data can help with such research. After segmenting, you need to define customers’ willingness to pay for your products. You can conduct it on your own or entrust this task to professionals.

Consumer-based pricing should be used by e-commerce projects that offer several product lineups and want to differentiate them by features and cost. For example, you can offer budget and premium products — each category for a separate target customer group.

Bundle Pricing

This pricing strategy is applied when you sell a range of items together for a discounted price. For example, a professional camera requires accessories: mandatory ones like lenses, or optional ones like a tripod. So, why not sell them together?

Product bundling is a win-win scenario: it allows the retailer to increase profit and sell unpopular assortment positions, while customers get a full set of products for an agreeable price.

Penetration Pricing

As a rule, this method is used by startups that want to get established on the market or existing companies that want to promote new products. They offer below-average prices, which motivates customers to get acquainted with the assortment. Generally, this strategy is not profitable in the long run, so it’s recommended only for product introduction.

Economy Pricing

This approach is similar to penetration pricing, with a couple of differences. First, the products are intended to be cheap all the time, and the desired profit margin is reached with the help of a large sales volume. Secondly, this model does not imply using promo campaigns.

Generally, economy pricing boils down to selling a lot of goods on a constant basis. This strategy is often used for commodity products, such as groceries, when the seller does not rely on a brand for marketing and the products are cheap because of low production costs.

The pricing formula in this case looks like this:

Production cost x Profit margin = Price

There are two drawbacks to economy pricing. Firstly, you need to ensure a steady flow of consumers to maintain profit. Secondly, consumers may perceive the product as a low-quality one.

Loss Leader Pricing

Similarly to economy pricing, this strategy involves setting the lowest prices, but only on some products. Those products may actually bring you no profit, but cheap products serve to attract an audience to your store or website. Loss-leaders do this to motivate customers to explore their assortment and purchase normally priced items.

Price Discrimination

Price discrimination is a flexible approach in the e-commerce sphere, where the same products are sold at different prices to different customers. This strategy can be performed in three steps:

  1. Buyers are charged the highest sum they are willing to pay for a particular item. For example, it can be done at auctions or bidding sites, where customers may pay much more than in regular stores.
  2. Consumers are offered a lower price if they buy a certain quantity of the product, or pay the full sum for a single item.
  3. After audience segmentation, goods are priced differently for different customer segments (essentially, this is a customer-based approach).

Price Skimming

This pricing approach is used at the beginning of a product’s life cycle. The seller sets high prices to capitalize on the product’s new features and exclusiveness, which allows him to maximize profits and continue earning until competitors start introducing the same product.

Why does this strategy work? There are consumers who want to be the first to try new goods — this is the feeling of exclusivity. Hence, it is recommended to use such phrases as “Limited collection,” “Exclusive offer,” “Be the first to try,” and so on. These words highlight the product’s value and urge consumers to buy the goods.

Anchor Pricing

This marketing approach is often used on top of other price formation strategies — it boils down to creating bait for consumers. Retailers make a favorable comparison of prices, where the initial one serves just as a reference. It’s commonly used in marketplaces: buyers see a discounted price near the original crossed-out price.

Does it have any effect? Sure, this approach works well because many buyers tend to rely on the initial pricing information for making a decision - the discounted price motivates them to make a purchase right now.

A study shows that anchoring creates a context and triggers purchases because the higher price creates a higher product value in consumers’ minds. The initial value forms an opinion about the product, while the lower price motivates people to buy.

Another way to use anchor pricing is deliberately placing a higher-priced item next to a cheaper one to make it more appealing for customers. Many brands exploit this trick to make their audience purchase a mid-tier product. If you want to implement this strategy, make sure that the anchor price is reasonable because e-commerce store visitors can easily compare prices against your competitors and decide to buy cheaper alternatives.

Why are pricing strategies neglected?

When companies think about growth, they mostly focus on attracting customers. According to research, 70% of marketers are concerned with buyer acquisition and only 10% with monetization. Even among the Fortune 500 companies, less than 5% focus on setting the best prices possible. Thus, by emphasizing marketing campaigns, many miss out on the opportunity to grow organically for little effort.

But it’s not enough to get leads — they must be converted, and optimal prices are the major selling lever. By actualizing a correctly chosen pricing strategy, you can improve your sales 7.5 times more efficiently than with acquisition.

How Pricing Strategies Can Help You

If you don’t optimize your prices, you’re missing out on a golden opportunity to effectively grow your business and convert leads into sales. To acquire customers, you need to perform costly marketing campaigns, while a suitable pricing strategy requires only market and customer research — the rest is a matter of price tag changes (which doesn’t cost you anything).

An efficient pricing strategy can help you:
  • Boost brand awareness and lead to lasting loyalty of your customers.
  • Bring the value that you deserve for your services and goods.
  • Achieve a stable profit that you can convert into business growth and development.

Companies that adjust their retail prices exhibit more robust economics and outperform competitors more easily.

Empower Your Business with Priceva's Price Tracking Solution
Take charge of your pricing strategy with Priceva's powerful price tracking tools.

Tips for Choosing a Pricing Strategy

Now that we have observed several widespread pricing approaches, it’s time for you to figure out the most relevant method for your business. Here are recommendations that can be applied step-by-step to help you define the right method.

Measure Your Pricing Potential

In other words, you need to figure out the approximate pricing of your product or service that you can potentially achieve based on cost, demand, and other factors.Your pricing potential can be impacted by:
  • Local market specifics
  • Operational costs
  • Inventory
  • Demand changes
  • Competitive advantages
  • Demographic data

Quantify Your Buyer Personas

It’s not surprising that pricing will depend on the buyer’s characteristics — you need to know exactly whom to target. When making a portrait of your average customer, consider their:
  • Customer Lifetime Value
  • Willingness to pay
  • Problems and challenges

To get an insight into buyer personas, you can perform market research or interview a few customers to see what they like about the product or expect to see, how much they are ready to pay, etc. With detailed feedback on your hands, you can develop the most relevant offer.

Find the Right Features For Customers

If you run an e-commerce business, most likely you target a few customer segments, and each has slightly different requirements. You need to think which product features should be aligned with a certain group of buyers, and how to position your goods to justify the desired price. This step also requires you to have big data at your fingertips, so don’t overlook the previous point — make an in-depth survey.

Define the Best Value Metric and Bundling

Once the important features are highlighted (or maybe you discovered that there are no differentiating features), you need to set proper value metrics. A value metric is what you charge, for example, per buyer or per 1000 visits, and this is one of the important aspects of your pricing methods.

Even if your pricing is wrong, but the metrics are right, you’re doing okay. It allows you to ensure you don’t charge customers too much. But you need to find the right metric for your business. It should:
  • correspond to your customers’ needs;
  • grow with your customers;
  • be easy for you to interpret.

Calculate the Best Price for Your Products

After completing all the above-mentioned steps, determining an optimal price for your product is easy. Now that you know what people think about your goods and how much they are ready to pay for your product, you can come up with a cost that will satisfy both sides.

If you’re new on the market and can’t perform research with your products yet, make sure to charge based on competitors’ offers and customers’ willingness to pay. And remember that value is not a single point — different people may evaluate one and the same product differently, so be prepared to adjust.

Build Your Own Strategy

A well-thought-through pricing strategy handled in a smart way can help you maximize your profit and grow the number of buyers. The approaches we discussed above are not mutually exclusive — you can combine them to achieve the best results.

If you’re struggling with choosing the right strategy, ask yourself a few questions:
  • What are your business objectives and interests?
  • Do you want to promote new or existing products?
  • How competitive is your sphere?
  • What are customers’ pain points and requirements?
  • Are there any competitive advantages and ways to differentiate your products?

To answer these questions correctly, you will need to perform a market analysis — this step is nothing to sneeze at! Some companies make a serious mistake by ignoring their target audience and competitors, focusing purely on their own products. Remember: a pricing strategy preceded by thorough market research is more likely to succeed.

The right pricing strategy is based on calculations, market research and customer insights

Finally, note that a pricing strategy is not a one-off campaign — it requires ongoing effort to optimize prices as your business develops and customer demand changes. Like any other e-commerce project, you need to keep moving because supply and demand are always changing. That involves processing a lot of pricing data as well.

Keeping tabs on prices is not an easy task, especially if your retail business offers hundreds or thousands of goods. But, fortunately, you can automate this process with Priceva’s price optimization service. It will provide you with:

  • Pricing suggestions based on the elasticity of demand;
  • Fresh pricing information;
  • Different price scenarios;
  • Repricing recommendations for separate product categories, stores and locations.

With an automated price optimization tool, you can save your team up to 40 hours of work every week and focus on business development — let algorithms do the analysis and help you make data-driven decisions.


How do you price your products online?

You should develop a pricing strategy according to your business goals, long-term development objectives and product specifics. For the e-commerce sphere, you can use such strategies as Price Skimming, Penetration Pricing, Cost-Plus Pricing, Bundle Pricing or combinations of the above.

Why is a pricing strategy important?

A pricing model should be used in any business because it allows you to set the value you believe your product deserves, create a competitive advantage, and get (or maintain) a share of the market.

How do you apply cost-based pricing?

To leverage a cost-based pricing strategy, use the following formula:

(Material Cost + Labor Cost + Overhead Costs) x (1 + Markup) = Price

The markup is defined by the company itself. Note that despite being a commonly practiced strategy, cost-plus pricing isn’t appropriate for the e-commerce sector because it doesn’t take competitor prices into account.

What is the simplest pricing strategy?

The cost-plus pricing model is the easiest because it only requires you to add a percentage to the production cost of your product.

Which pricing strategy is best?

It depends on your business model. For the e-commerce sphere, competition-based pricing makes the most sense. When a product is introduced, price skimming or penetration pricing would be appropriate. Sticking to average prices may be a good idea, but only if you know how to differentiate your product.

Empower Your Business with Priceva's Price Tracking Solution
Take charge of your pricing strategy with Priceva's powerful price tracking tools.
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