9 Smart Pricing Strategies to Attract New Customers & Increase Sales

In order to reach the desired profit margin, retailers should thoroughly plan the pricing of their products. It is important to maintain the balance between what consumers are ready to pay and what you want to charge. Smart pricing strategies help e-commerce businesses calculate the optimal cost for numerous products and maximize profit. In this guide you will learn about the most commonly used approaches and situations when they should be applied.

Smart pricing is a dynamic pricing strategy, which means the cost of goods is adjusted according to certain criteria, such as market conditions or competitors’ quotes. This pricing model is often based on price monitoring: you find out what rivals charge for similar products and try to come out with a better deal.

Hence, smart pricing allows you to kill two birds with one stone: offer competitive prices to retain a market share AND maintain your profit margin. In the e-commerce industry, it implies testing different prices on a daily basis with the help of repricing software.

A pricing strategy should not be selected randomly and evolve around profit raising only. The choice of price formation method should be based on the desired brand positioning, your niche, type of product and even competitors’ approaches – all these factors matter.

First and foremost, you start with defining your business’s goals and needs: settle on what you want your company to contribute to the world and what your mission is. It will help you with brand positioning and developing an overall retail strategy (which, in turn, defines how you will develop relationships with customers).

Next, research the niche and market and identify your 3-5 major competitors in the industry. You should analyze their approaches to price formation, define their weak and strong sides. Exploring your rivals’ strategies can help you differentiate your brand. A thoroughly developed pricing strategy can be particularly useful for standing out from the crowd of online retailers.

Finally, you should organize surveys with your potential customers to see how they perceive your brand, value and products. They can give you useful insights into how much you should charge for goods and help you figure out psychological price thresholds. You can even start the research by just talking to your friends and family before moving on to formal surveys with potential consumers.

Remember: the more information you gather, the more likely you are to successfully test prices and experiment with pricing strategies.

Let’s go over the most commonly used smart pricing strategies in the e-commerce industry. They are fundamentally different but have one thing in common: instead of setting an all-time fixed price, a retailer keeps adjusting the cost of goods depending on certain variables.

This pricing strategy is commonly used in the e-commerce industry when a retailer launches a new product or service, or a brand has just entered the market. There are two ways to use introductory pricing:

1. Start setting discounted prices - it will help you secure a market share and give consumers a chance to try your product.
2. Set relatively high prices if you offer an exclusive product or a limited-edition item. If you become the first to offer some innovative goods, customers will likely be willing to pay for them.

Also called “markup pricing”, this strategy boils down to calculating the production and promotion cost and adding an extra sum. As a rule, the markup percentage depends on how much profit a brand wants to make. For example, if you sell T-shirts and producing one item costs you $20 (material + labor + distribution), you’d set a price of $30 representing a 50% markup.

Depending on profit goals, a retailer can adjust the markup amount : increase it to earn more, or decrease it when a product does not convert all too well. If you offer a new, crude version of the item, the starting price can be low, but you will increase markup as you offer new features or benefits.

As the name suggests, competitive pricing focuses on real-time market rates. Your rivals’ prices serve as a benchmark: you can compare them and come up with better deals. Even a small difference in price can make customers prefer your product over other brands’ solutions.

The major problem is that a retailer tracks pricing of similar products instead of considering the item’s production cost or consumer demand. As a result, the same goods can generate different profits at different periods. Hence, competitive pricing should be exercised with your business’s goals in mind.

This approach is also called “surge pricing” and ”time-based pricing”. It implies adjusting prices according to the changes in customer demand, and pretty often depends on seasonal factors. For example, this model has been utilized by hotels and airlines for decades. Clothing and apparel stores also use dynamic pricing to sell off old collections and generate more profit on newer models.

In e-commerce, marketplaces use dynamic prices to adjust rates automatically: their algorithms analyze demand, competitor prices and sales volume. You can also implement this strategy by using dynamic pricing software that tracks prices and automatically updates them all over your webstores.

Skimming pricing is a sort of introductory pricing strategy: it involves setting a high price during the product launch and then gradually decreasing it as more competitors appear on the horizon. If you have developed a cool product that does not have any substitutes yet, customers will be ready to pay more. It gives you the opportunity to capitalize on your innovation thanks to early adopters and then outperform competitors as they join and try to slice off a share of the market.

This pricing strategy implies combining several products and offering them cheaper than they would cost individually. Bundle pricing allows you to sell off certain items (for example, the ones with a low conversion rate). Generally, a successful bundling strategy involves making profit on low-value goods coupled with high-value goods.

In this case, a retailer charges a very low price (sometimes even lower than it costs to produce an item) in order to attract an audience and sell the product to as many people as possible. This pricing strategy is typically practiced when a company is just entering the market and wants to gain a firm footing in it.

After reaching a sufficient sales volume or level of product awareness, the retailer starts offering the product at its full price. The profits from extra purchases compensate for the losses. However, this is a risky strategy because many consumers might be repelled by a higher price and refrain from further purchases.

Premium pricing allows selling top quality products to higher market segments. The major challenge here is to produce luxury goods and promote them efficiently to appeal to the right audience – and that implies more expenses. The major challenge of smart pricing here is to deliver the expected value, otherwise no one will be willing to pay extra.

Similar to premium pricing, this strategy evolves around basing the price of items on how much people believe they are worth. This approach is also suitable for retailers that sell unique goods rather than commodities.

In order to understand just how much customers value a product, you can perform testing or surveys. Use their feedback during the process of product development, and don’t forget to invest in your brand so you can add perceived value to your goods.

Although the smart pricing strategy seems to be the best approach to cost formation, it is not equally suitable for all businesses. For example, if your lineup only has a few items, you can easily make do with setting prices manually. Also, if you have in-staff experts who know the market well, they can do the repricing for you.

If you are not sure about using repricing software yet, you can consider a hybrid approach. For example, you can pick the most important SKUs in your assortment and set automatic price updates for them. It can also provide you with repricing suggestions. And then it’s up to you to accept them or not.

Smart pricing is essential in the e-commerce industry because it helps retailers stay competitive and reach desired profit margins. However, there are many strategies available for implementing this approach, and it is important to choose the right one.

With the help of Priceva’s repricing tools, you can facilitate the process of price analysis and manage thousands of prices without overloading your sales department. The software will track competitors prices and product performance, and provide you with real-time data-based recommendations. Your team can forget about the hassle of manual updates and rest assured about the efficiency of applied pricing strategies.

Smart pricing strategies can be implemented much easier with the help of repricing software because it can process tons of data and provide recommendations based on data and tangible metrics. All you need to do is choose the products and set repricing rules – the rest is done automatically.

It can help you generate much bigger profits than you ever could with manual price formation. It becomes possible because: 1) smart pricing is performed with customers’ expectations in mind; 2) automation of repricing allows you to stay on top of competition by offering better deals.

With the help of smart pricing, you can outperform your competitors, increase your market share, maintain or raise your profit margin, and boost sales volume. This is why all repricing software expenses will be recouped by your multiplied profits and your employees’ saved hours.