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According to an August 2012 study conducted by ReffferralCandy, in the US there are 102,728 ecommerce retailers that generate $12,000 or more in revenue.
Given the ever increasing consumer migration to the digital marketplace, this number has likely grown even more in the last year and a half.
With such a competitive market, online retailers need to do what they can to stand out and provide incentive for consumers to shop at their store over another.
One way to do this is to gain the consumers’ trust and loyalty; as part of a full strategy, effective pricing strategies can help grow this customer relationship.
Pricing strategies on the website slightly mirror those in physical stores, and they are a great way to capture potential customers throughout the phases of the sales cycle.
The number nine strategy: pricing perception
People like to know they’re getting the lowest possible price, and one of the oldest tactics in the book is to price an item that ends in '9' rather than rounding up.
For example, instead of charging $60 for a new pair of sneakers, it would cost $59.
In William Poundstone’s book Priceless, he found that sales increased by 24% when utilizing the '9 strategy' because people perceive they are getting the best deal. This is why if you go to any online or physical retailer you will see various prices ending in 9.
In the following example on the Bed Bath & Beyond online store, you can see their toaster prices all end with 9.
Sale price comparison
Another tried and true method is the sale price comparison. When a consumer sees the original price next to the sales price, studies have shown that it increases sales compared to just displaying the lower price.
In addition, if you’re using the 'number nine strategy' and comparing it to the previous higher price, it’s proven that there is an even greater increase in sales.
To use this pricing tactic, you need to have a good grasp on your product margins. Knowing the lowest you can price an item and still make profit is important in offering sales. However, you also need to make sure you don’t price too low because then your customers will expect the lower prices always and you’ll end up making less profit.
As you can see on the Urban Outfitters website the sale prices of men’s sweaters and cardigans is next to an original price. Also notice the sale prices ending with 9.
When a consumer sees that they’re getting something else on top of their selected item at a lowered combined price (rather than paying for the items separately), they are far more likely to go ahead with the purchase.
This can be done profitably by providing excess less-profitable inventory with a good product that is generally sought after.
Typically this works best when the items are related; for example, if you’re offering the free or discounted item with an mp3 player a good item to pair would be headphones you have extra stock of. You can offer a 'buy X get one free' special by using products you can afford to give away with lower or no cost.
On the Macy's moisturizer page, it is offering a 'free gift with purchase' on highlighted items. It provides the consumer with an additional small item, and for some items there is a choice of which gift they can receive.
This addition to an item they were already ready to purchase is another proven incentive to win the sale over a competing ecommerce retailer.
Appeal to peoples’ good nature
In general, people feel good when they provide some sort of aid to those who are less fortunate. When a shopper is going through the line in a grocery store and the cashier asks if they’d like to donate to the specific store's charity, typically shoppers are willing to part with a few dollars.
This can work in an online shopping experience as well. Many online retailers will donate a percentage of profits or give something to a charity and make the donation very visible to the consumer. Not only does this show them how much of their money is going to a good cause, but it also incentivises them to spend more.
If you’re aware of your margins you can determine what percentage can be donated without impacting your profit.
A great example of the donation tactic can be found on the TOMS website. For every pair of shoes purchased, a pair is donated and provided to a child in need. Not only will this increase your sales, but it will be doing some good.
Make sales items known
We’re all looking for a deal. And it’s no secret that if ecommerce stores exploit this fact, they’re going to make more sales.
Now that most successful sites have embraced the 'more images, the better' philosophy, it’s easy to implement a final step. By adding a sale symbol on the featured image of a product, sales will improve drastically.
Handcrafted jewelry shop, True Confections Boutique, managed to prove this with an impressive 19% conversion increase solely by making it known that items were on sale at first glance.
Instilling value with language:
This step goes hand-in-hand with the theories behind consumer behavior mentioned above. That buyers inherently want to feel that they’re getting value for their money.
Making it known at first glance that a product on sale will improve click through, but you can add a second final additive to encourage viewers to visit a product page and ultimately convert. This can be done by utilizing language.
What I mean is, by listing prices not solely as a number figure, you can imply that the user shouldn’t bother looking for alternative prices. They’ve found the best they’re going to get.
National Mustang retailer, CJ Pony Mustang Parts, has implemented an effective strategy to let consumers know they are getting a nice 'low' price:
Test and experiment
As mentioned in this article, once you know how much overall profit you receive on specific products it is easier to determine the right amount to give for discounts, giveaways, donations, and more.
With this information, you can test and experiment different pricing strategies and different prices in general. Trying out a price reduction one week and a larger price reduction on the same item the next will show which price gets more sales and which leads to more overall profit.
As with any business, it isn’t one dimensional. It’s important to remember that pricing strategies are just one part of an ecommerce retailer’s overall marketing, content, sales, and business strategy:
- The website needs to be user-friendly.
- The interface needs to be built to drive more conversions.
- The content on the website needs to communicate a story that compels a customer to continue on in the experience and drive them to purchase.
- There needs to be enough engagement to retain customers.
The important thing is to know your customers, know your industry, and experiment until you find the pricing strategy that works best for you.