9 product pricing strategies to try out
For online retailers, there's a lot more to consider than simple math when setting prices.
Yes, you should consider profit margin and revenue. However, you should also consider many other variables, including fluctuations in the cost of goods, where you plan to sell, and any regulations or restrictions that apply to your business.
The reality is that your customers will keep you guessing about what they're willing to buy and how much they're willing to pay. So, understanding different pricing strategies and when to apply them is key to making a profit.
Below we've provided a guide to help you take an informed approach to creating your product pricing strategy. Keep reading to discover the most popular strategies and how to decide which one is best for your online store.
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9 popular product pricing strategies
Now that you know some of the key things to think about when setting your prices, it’s time to start experimenting with different pricing strategies. Below are eight popular pricing strategies used by eCommerce small business owners today.
Pro tip: choose one or two of the below pricing strategies to start with and experiment until you find a combination that works well for your business.
01. Cost-plus pricing
Add a markup to the cost of your product to reach your desired price point. This is one of the simplest ways to set prices, but it doesn't consider things like customer demand or competitor prices.
02. Keystone pricing
Set your price by simply doubling the wholesale price of your product. You’ll likely want to tinker with the amount of markup to account for shipping costs, demand, and other factors.
03. Competition-based pricing
Keep your prices in line with what your competitors are charging. This is usually a go-to strategy in categories that are highly saturated or on marketplaces where price is of utmost importance to buyers.
04. Premium pricing
Charge a price that’s consistently higher than your competition to create the perception that your product is higher quality or better in some way. This is one way to build a luxury brand image—but you’ll want to ensure that your costumes are truly getting enough value from your products to justify the cost.
05. Price skimming
Set the highest price you can reasonably charge for a product when it first launches, then lower the price incrementally over time. This strategy can help you to maximize profits in the early days of your product's life cycle.
06. Discount and sale pricing
Offer customers a temporary discount as an incentive to increase sales and customer loyalty. Or, reserve discounts for out-of-season and slow-moving goods. Just avoid discounting your products longer and more often than you have to, as this could devalue your brand in the eyes of your customers.
07. Penetration pricing
Set a low initial price for a product to attract customers and gain market share. This strategy can be used to increase sales and encourage customer loyalty.
08. Value-based pricing
Charge a price that reflects the perceived value of your product. This could mean charging higher for products that are high-quality, durable, or created by a notable brand.
09. Product bundle pricing
Offer a group of related products as a bundle, where the total bundle price is higher than a single unit, but a single unit included within the bundle is offered at a discount. This is a great way to increase average order value (AOV) and encourage customers to buy more than one item from your store at a time.
No matter what pricing strategy you choose, the most important thing is to experiment and find what works best for your business. When it comes to setting prices, don’t be afraid to try out different strategies until you find the perfect fit. And, of course, always keep an eye on your competition.
Did you know? Wix eCommerce includes flexible tools for managing and monitoring your prices. Track your cost of goods (COGS), margins, and profit from one place—plus set discount-pricing, create coupons, and more. Discover all of Wix’s eCommerce features.
Key things to consider before you set your price
Finding the right price is a balancing act. Price too high and you risk scaring off customers. Price too low and you risk killing your margins.
To find the sweet spot, here are five things to consider:
Calculate the true cost of running your business by factoring in all expenses. By understanding all of your expenses beyond the cost of producing or ordering products, you can better estimate how much you’ll need to make on each sale to keep your business running.
Factor in the obvious things like the cost of ordering products from suppliers, materials costs, and fees associated with selling online (marketplace fees, payment processing fees, etc). Be sure to include other not-so-obvious costs, like production time and packaging supplies.
Where you plan to sell
Create a list of places you plan to sell, including your branded site and marketplaces. Consider the different audiences, prices, fee requirements, and top-selling products on each channel. Evaluate how competitive your product category is.
You might find buyers for your $60 hydro flask on Amazon but struggle to find buyers on Wish, where the product selection (and pricing) is geared towards deal-seeking shoppers.
Regulations and guidelines
Many third-party marketplaces require you to maintain price parity. Under this policy, your prices must be the same wherever you sell your product, including on other marketplaces or your own website.
Other platforms, like Etsy, forbid sellers from coordinating with each other on pricing.
Make sure that you fully understand pricing rules and requirements for all the channels you sell on before tinkering with your prices.
Clearly define your target customer so you can understand how much they typically spend on products like yours. Do a deep dive into your market and what they’re willing to pay (or not) for a given item.
Even if you’re selling products that are in high demand, it’s important to set your prices strategically so that you don’t price yourself out of the market or undervalue your products. You can do hands-on research by visiting each marketplace or your top competitors’ sites and seeing what the average price is for top-selling products. Alternatively, there are product research tools like Jungle Scout that give you a deeper read into average competitiveness, margins, and demand.
Unique value proposition
Customers are more likely to pay a higher price for a product that offers them something unique or that aligns with their own values.
In a recent study of 19,000 consumers, 70% of respondents said that they’re willing to pay a premium of up to 35% for sustainable purchases (e.g., eco-friendly, recycled, or organic goods). Think about how your specific product offering improves your customers’ lives and try to quantify that in your price.
Pricing strategies in action
Below are examples of how three Wix eCommerce merchants choose to price their products today.
Online jewelers Darby Pritchards applies multiple pricing approaches. Among the most prominent is their use of penetration pricing, in line with the company's mission to offer mid-range and affordable pieces. Darby Pritchards is an easy choice among shoppers who value variety and want to stock up on jewelry for any and all occasions.
Product bundle pricing
The Spice Suite is a haven for chefs and home cooks looking for a variety of tantalizing spices, oils, and more. Her brick-and-mortar store sits in the heart of D.C. while her online store exists to make her spices accessible anywhere in the world. However to compensate for shipping and handling costs, The Spice Suite only offers bundled products online. These range from spice boxes, kitchen wear bundles, and fashion wear boxes.
Kaekoo sells handcrafted textiles, designed by artists across India, Turkey, Thailand, Africa, and Argentina. "Each piece is carefully designed & ethically created using ancestral techniques celebrated across generations," reads its Our Story page. Naturally, the brand applies value-based pricing—selling its handwoven pillows at a higher-than-average price, but for good reason.
Understanding weak versus strong pricing strategies
There is no singularly perfect or imperfect pricing strategy. Your own approach to pricing will depend on how it impacts your bottom line, what types of products you sell, and the current demand for your inventory (among other things).
Maintaining a happy medium can be difficult when it comes to pricing products since it’s easy to overlook issues that impact the effectiveness of your approach.
Here are some scenarios to consider when figuring out whether a pricing strategy is weak or strong in any given situation:
If you’re selling a broad or general range of products, you’ll have more price points to consider because there are so many types of products on the market. It’s important to analyze pricing strategies for each subcategory and product line you offer and define pricing individually based on your market research.
If you’re just starting out, make sure you account for all associated startup costs when deciding on how to price. This includes inventory, shipping, marketing, and employee salaries.
If you're selling unique items or experiences, then you’ll likely have an easier time charging higher prices (e.g., cost-plus, premium), particularly if you’re selling something that’s also in high demand like CBD-infused skin products. The more value and uniqueness you’re able to offer, the more leeway you have to charge a higher price.
If you're selling products that are in high demand or short supply, you can similarly charge a premium price. That said, make sure you avoid price gouging. For example, many merchants overcharged for hand sanitizers, masks, and other essentials when the COVID-19 pandemic first hit—only to face consequences when marketplaces and government bodies began to crack down on the practice.
If you're selling products that are commoditized or have many competitors, you'll need to be more mindful of premium pricing strategies because it’s easy to lose business to the competition.
If you're selling digital products, you can set prices based on the value you provide. You can additionally set different price points. For instance, you could offer a lower price for a basic version of your product and upsell customers to a premium version with more features for a higher price. This approach works particularly well with subscription-based pricing models where customers pay a recurring fee to access your product.
One way to ensure that your current pricing strategy is strong is to follow the producer price index. This is a program managed by the U.S. Bureau of Labor Statistics, which measures average changes in wholesale prices of domestic goods and services.
The index provides a holistic view on how inflation impacts prices for all goods and services in the U.S. and breaks down pricing changes by category. For example, the price for “final demand” goods—examples include pharmaceuticals, construction equipment, and diesel and jet fuel for the government—increased by 2.3% in March 2022 from the previous month.
So, while you may not need to purchase jet fuel for your business, knowing how the price of diesel is increasing can help you anticipate a pending spike in the cost of transporting and shipping that will likely impact your own costs.
Sell competitively with the right pricing strategy
Pricing is a complex topic, but with some careful planning and experimentation, you can find an approach that works for your business. Know your costs, do your research, consider your target audience, and test often. For more details on the ins and outs of how to start a business, check out our guide.
Editor, Wix eCommerce
Allison is the editor for the Wix eCommerce blog, with several years of experience reporting on eCommerce news, strategies, and founder stories.