How do you decide your pricing? *Want to trial new research driven strategies*

by rt2018
10 replies
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I'm really interested in pricing models (I studied economics at Oxford and the bug never left). This is particularly interesting to me in the very pure, price driven e-commerce space. Because of this I want to know how people price in small e-commerce businesses. From my experience the methods are far away from what theory and some research suggests. In some cases the theory is wrong because the real world is just more complicated than that, but I am intrigued that a lot of prices seem to be decided by guesswork or recent experience, rather than research and data. I'd be really intrigued to look into this with some small e-commerce companies.

This isn't advertising - for all I know people out there are already doing this, but I'm genuinely very interested to know how far the economics I've learnt travels into real life. Please do get in touch with your own pricing strategies or rules - I'd love to discuss in more detail.
#decide #driven #pricing #research #strategies #trial
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  • Profile picture of the author ryanbiddulph
    Hi RT,

    The easiest way for me to get clear on my pricing; see what folks in my niche charge, and stay in that ballpark.

    Pricing is about getting clear - aka, feel A-OK, comfortable and at ease - on the price. But post bloggers or IMers feel doubt or anxiety or worry, or even greed, when pricing, creating a lack of clarity, and run into all types of issues with changing prices, and with flagging sales.

    Keep it super duper simple. Get clear. Focus on what's really important; rendering generous service to readers, customers and clients who will pay whatever you charge because they love you so much from your generous service

    Ryan
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    • Profile picture of the author rt2018
      I guess it really does depend if you're in a repeat business type of market, which is something I hadn't thought about too much. I still think there's a place for data and experiment driven pricing though - perhaps in terms of pricing for add-ons, or the format of you payments. For example, you could pay for a magazine issue by issue or as a subscription, and I wouldn't be surprised if you could actually increase profit without changing customer experience by experimenting with these. Do you mind if I ask what industry you sell in?
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  • Profile picture of the author jamesthomason
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    • Profile picture of the author copywriterpros
      Everyone has its lucky week, issue is to keep that good work and continue to earn same amount for a longer period of time. Never heard of them but will check and let the people know what is it about.
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  • Profile picture of the author dave_hermansen
    Our pricing is always based on the market. We check out the prices of the top 5 places that show up in organic search, Google Shopping ads as well as Amazon. We try to stay right around those prices. Anyone in the top 5 organic positions, especially, has usually been at it long enough to have found the sweet spot between orders and profit.
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    My PROVEN ecommerce process, as seen on: Fox News, the NY Times & Flippa
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  • Profile picture of the author rt2018
    That makes a lot of sense Dave. Do you monitor price performance around those prices? Or once you're in the ball park do you leave it at that? I guess I'm thinking that even small changes in price can make a big difference to conversion, especially in competitive e commerce markets, and you don't hear much about small businesses running concentrated experiments to decide based on data.
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    • Profile picture of the author dave_hermansen
      A lot of it depends on the niche. In an ideal one, you are selling name brand products and all of the manufacturers have M.A.P. pricing. In that case, you are just occasionally checking things out to make sure everyone is adhering to the rules.

      Even if there is not M.A.P. pricing, when you are dealing with name brand products, there is really only so low people can go before they are no longer profitable. We run the same price checks, described above, every other month unless we see a need to do it more often than that. Again, though, when you are talking about established sites that are near the top of the rankings, they don't tend to budge much on price, if ever. They are going to get the lion's share of the clicks and they have no reason to bend when sites that get very little search traffic lower theirs.

      The volatility comes when you are selling generics. The level of quality and prices is all over the board, which is one reason we try to stay away from the China sourced, no-brand products. You often find yourself competing with website companies that are in countries where making a dollar of profit on a sale is a good thing (we don't waste our time on anything where we can't make at least $25 per sale, preferably considerably more). We DO have some sites that have these kind of products but those are all impulse buy products that we know are at a low price point where people do not do much, if any, price comparison and we market to those people exclusively on Facebook and/or Instagram. We don't do any price comparison research on those products.

      We hardly ever play with prices, trying to squeeze out an extra dollar of profit and weighing whether that extra dollar works out better with a slightly lower conversions rate. We're not in the same shoes as other companies. We have more than 30 websites and it would be too overwhelming to do that (the cost of added employees to do that sort of thing would rarely justify any additional profits). If we were a manufacturer or if we only had one website, we probably would experiment a little more. Plus, lowering your price always opens the door to price wars, which are not good for anybody.
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      My PROVEN ecommerce process, as seen on: Fox News, the NY Times & Flippa
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      • Profile picture of the author rt2018
        That is true about price wars- I generally think in terms of big markets with loads of sellers where conditions arent really set up for that, but that's very often the real world.
        I see the point about running this across multiple sites, but it would be possible to automate price experiments and selection to maximise profits (or fulfil other specified goals). Is that something you would consider?
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        • Profile picture of the author dave_hermansen
          With organic search, there's really no such thing as "big markets with loads of sellers". There are those in the top 5 search results getting the vast majority of clicks, those in the next 5 that get a smattering, and then there is everybody else that fight for a few crumbs. The market is really limited to the sites on page one for any given search term, since few searchers go beyond that. That's why we spend so much time researching a product niche to see what search terms exist where we have a chance of overtaking the sites on page one.

          Sure, if I thought there was a failproof way to automate price changes and experiments, I'd give it a shot. Often, that becomes extremely difficult if not impossible, depending on the shopping cart you are using, though (and even more difficult when you are using three or four different platforms). Also, experience has taught me that all it takes is one blip (whether that be a programming error, a hard drive/memory lag or a connection that times out) and horrible things can happen. That said, I'm sure there are ways to semi-automate this with supervision over the process that I might be comfortable with.
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          StoreCoach.com- Learn How to Dropship the Right Way - Buy & Sell Websites - Partner with Coach
          My PROVEN ecommerce process, as seen on: Fox News, the NY Times & Flippa
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  • Profile picture of the author Bella Lopez
    So, I run a dropshipping store and my pricing policy is pretty much straight.

    I purposely selected a niche with low cost so that I could sell it for a markup and still have "fair pricing". Next, I looked at my major competitors and what they were selling it for.

    Because its not always about price but other things as well like Free Shipping or a small gift and better customer support, I focused on all these things.

    So yeah, I have a clear markup point in my head and pick my products accordingly.
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  • Profile picture of the author rt2018
    Hi Bella - sounds like its going really well for you. I do just wonder whether the mark up approach might be limiting you a bit. It's certainly a good time of thumb, but to me I think you'd profit maximise by driving prices from data and forgetting any preconceptions- after all, sometimes it's worth cutting your mark up for quantity. Is this something you think about at all or do you think about prices in a more qualitative way?
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