01 May 2013
We’ve talked a fair bit about various pricing strategies over the last while, but every once in a while it’s good to do a quick recap for those who don’t have much time for research. Today, let’s quickly cover some of the most common strategies for pricing in online retail.
Product pricing in the online world is one of the trickiest things to nail down, as prices fluctuate dramatically as retailers seek to gain advantages and balance themselves against the market. However, there are two basic models that are used by online retailers. First, the most common practice is simply using static prices with occasional discounts to entice customers. This is a tried-and-true model that everyone relates to. The second and less common practice involves dynamic competitive pricing. This is less common, but Amazon’s successful use of the technique is driving other retailers to adopt the same strategy to win over price-conscious customers.
Reward programs are also a major part of online retail, just as they are in brick-and-mortar stores. The online factor allows for much more targeted and personalized rewards and promotions, however, as online retail has the obvious benefit of creating a database of customer purchase history and browsing habits. Be sure to dynamically segment your customer list based on interest and send out specialized promotions.
Finally, we come to the biggest issue that online retailers face: shipping fees. Shopping cart abandonment is often highest at checkout, and one of the main reasons for this is ‘shipping shock’. Fortunately, there are a number of ways around this problem:
- Amazon has debuted a new service called ‘Prime’, where customers pay a yearly fee to receive free shipping
- Offer free shipping after a minimum order size (typically set just above your average order size)
- Free shipping is one of the most expensive solutions, but depending on your product, it can be a major sales driver
- Flat fees are another more common option, and again, depending on your product, this can be a great benefit to the business (even to the point of making a profit on shipping).
However, for the busy pricing manager, remember the bottom line: your pricing strategy should align with the overall goals and structure of your business. What works well for some companies may not be advantageous for you. Be sure to take the time to get it right, as pricing can make or break your business.