Quantity or quality. At the risk of oversimplification, these are the two buckets that make up your eCommerce traffic. You can get a lot of people checking out your brand online. Or you can get the right people.
It’s finding that balance that is so critical to success. We’re going to focus on the quality side of things in this blog—specifically, how you can convert more visitors into paying customers through effective eCommerce pricing.
That’s right. One of the best ways to convert browsers into buyers is with the right prices, increasing the number of quality eyes on your brand.
But what is the right price? The answer depends on where you’re selling your products: either on an eCommerce marketplace or your own brand’s website. You may be tempted to use the same pricing strategies on each channel, but that’s a mistake. Instead, treat each like the unique opportunity they are. When done well, you’ll have more quality traffic through better-converting pricing strategies.
Let’s get started.
Marketplace or Website: What’s the Difference?
First, it helps to understand the differences between an eCommerce marketplace and a website for you, as a brand manufacturer or a retailer.
In the U.S., the main marketplaces are Amazon, Walmart, and eBay. Marketplaces have 3rd-party sellers competing to sell the same or similar products—and one product can have multiple listings, including an offer from the marketplace retailer itself (known as a 1P listing).
Marketplaces often offer a lower barrier to entry for sellers, however. For example, you can sign up to be an Amazon seller a lot faster than you can build your own website. With the popular U.S. marketplaces of Amazon, eBay, Walmart, and others, you have existing awareness and traffic to leverage. Plus, the infrastructure is already in place to help warehouse, sell, and ship your products.
What are the implications of all this on pricing? For starters, repricing frequency is much higher compared to eCommerce websites. Sellers often reprice in near real-time. This fast-paced, automated repricing allows sellers to compete for the “Buy Box,” which most marketplaces have. Buy Box winners tend to get 80 percent of total sales for a product. Amazon and Walmart have algorithms to determine which listing wins the Buy Box—while price is a very important factor, other things like seller feedback and ratings are also considered.
For our purposes, an eCommerce website is a site owned and operated by your company. It’s unique to your brand and the products sold there are yours alone, not millions of items from hundreds of thousands of sellers. This tactic gives you more control over your brand. For one, you aren’t listed right next to a competitor. You also control the assortment, the marketing, the sales funnel, and everything else. In general, sellers here either sell solely through their website or as a mix of their site plus a marketplace.
Factors not always present on a marketplace appear here. For instance, you may consider channel pricing strategies and price parity when selling via your dedicated website. You may also have multiple departments and categories with unique pricing strategies, or employ teams focused on pricing to help out.
Overall, marketplaces tend to carry greater inventory and have lower startup costs, while websites require a greater initial investment but afford more customization and control to your business. All the differences are important to remember because they affect pricing strategies.
Pricing for eCommerce Marketplaces
Pricing for an eCommerce marketplace is all about being competitive, maximizing your position on the website (so you aren’t lost in a sea of competition), and being attractive enough for shoppers to add you to their carts.
Here are a few pricing strategies to achieve those goals.
Calculate Your Price Bounds
One of the first steps you should take is to determine your price bounds. What is the minimum price you are comfortable with? The maximum price? Depending on your repricing tool, you should be able to set price bounds automatically so your repricing efforts are controlled.
This is especially important in an eCommerce marketplace, as many sellers price aggressively or the marketplace is known for the lowest prices on the web (like Amazon). This can be a problem for you if you don’t have a minimum price bound, as you could accidentally reprice below a comfortable limit.
On the other hand, a too-high price could make you uncompetitive or hurt your brand image. Both a floor and a ceiling for your prices are must-haves when pricing for an eCommerce marketplace.
Avoid Drastic Price Changes
Shoppers on marketplaces tend to expect consistency, and their comfort level with your prices will play a role in how well you sell. For instance, you should avoid drastic price changes on Amazon, Walmart, or another marketplace.
You want to present your brand as a consistent, stable seller. You also want to protect your profits so you can turn marketplace selling into a long-term strategy. Dropping your prices aggressively, especially below profitability, can be a short-term play to boost sales that doesn’t translate well on a marketplace.
There are times when you want to switch up prices more often, such as a promotional period or holiday season. But in general, smaller, consistent price changes can be a smarter play for many marketplace sellers compared to massive swings up or down.
Shoppers on marketplaces tend to expect consistency, and their comfort level with your prices will play a role in how well you sell.
Price Low and Aggressive
Just because you don’t change prices drastically doesn’t mean you can’t price aggressively. This is especially true if you’re selling on Amazon, for example. Amazon is known for having the lowest-in-the-market prices, and sellers here are expected to be priced low as well. Highly competitive prices are also a good selling point when you’re trying to win against many other competitors.
Looking at Amazon specifically, winning the Buy Box is a major step toward more sales and price can be a contributing factor to earning that placement. Competitive, low prices on Amazon might be what you need to win the Buy Box, alongside other factors like fast shipping times, strong reviews and ratings, and fewer returns or replacements.
Use Value-Based Pricing
Another eCommerce pricing strategy that can work well on marketplaces is value-based pricing. Value-based pricing is defined as using consumer and market research to set a price that aligns with shoppers’ perceived value of a product. It also factors in seasonality and timing to determine a price, as shoppers may be willing to pay a higher or lower price depending on the time of the year.
Value-based pricing is all about research. You want to understand your target audience extremely well and leverage their buying factors to set an optimal price. It also requires many minor price adjustments over time. Use these slight tweaks to test prices and find the right balance between competitive, aggressive prices and higher profit margins.
Simply put, value-based prices are lower when demand is low and higher when demand is greater.
Pricing for eCommerce Websites
Let’s shift focus to your own website. While both eCommerce stores serve online shoppers, marketplace pricing and website pricing do differ.
Your own website opens up more avenues for creativity and testing, plus more pricing strategies could be successful here compared to a marketplace. There are fewer restrictions imposed by the marketplace itself, less competition (naturally), and more control over your branding and product positioning to help support prices.
Here are a few ideas to get started.
Use Penetration Pricing to Get an Initial Boost
Penetration pricing can be an excellent way to price a product to sell, especially if it’s a new product in the market or facing steep competition. Penetration pricing is all about pricing low to increase sales at the expense of margins. It’s viable for your own website because you have fewer restrictions from the marketplace and more digital real estate to advertise, promote, and explain your strategy.
Overall, it can help increase interest from consumers, fend off competitors who can’t price that low, or improve brand loyalty among shoppers due to the perceived value gained by the low price. For more on this strategy, check out our blog that includes the pros and cons of penetration pricing.
Price for Cross-Sells and Upsells
Selling via your own website can open up more opportunities for you to get creative with marketing. For example, you can sell more packages and bundles and price accordingly. Perhaps you set a low price on Product A, but a higher-margin price on Products B and C. Products A, B, and C all work well together, so shoppers are likely to buy all three at once. You might take a loss on Product A but make your margins back on the whole deal.
You can also bundle all three products together, or create web pages that demonstrate the value of multiple products to win larger basket sizes. On a marketplace, you’d be limited by the space afforded to you as a seller. On your own website, the options are nearly endless for how you want to package, advertise, and bundle your assortment—and which pricing strategies you want to use.
Penetration pricing can be an excellent way to price a product to sell, especially if it’s a new product in the market or facing steep competition.
Turn to Markdowns and Promotions
Furthermore, your website pricing approach should include markdowns and promotions. These might not be an option on marketplaces, but such discounts become viable when you’re selling on a website you control.
What you can do is look ahead to the entire year’s retail calendar. What are some major promotional periods? When are the peak holidays for your business? Plan for promotions to run at these times. You can also get aggressive with markdowns if you need to move stale inventory or just use a good ol’ sale as a way to increase shopper excitement.
What you don’t need to do is be locked into one static price or always sell at “full price.” You can get creative with your promotions and use them as a major pricing strategy on your website.
Run Exclusives and Specials
Another excellent pro in the website column is the ability to run exclusives and specials. Since it’s your own store, you can decide to offer an early-bird special, a loyal-customer special, or another tactic whenever you want. Perhaps a surprise Saturday sale—just for being Saturday—fits into your brand’s voice. Go for it!
Looking at exclusives, you can also sell products that are unique to your specific store. This allows you to price them higher due to the rarity in the market, or use these exclusives as a way to reward loyal customers or launch a new product. You can also give you discount codes via social media or email. It’s your own site, so there are plenty of options to play with prices. Test out different options that match your overall brand and price position.
Treat Marketplaces and Websites as Unique Stores
All in all, your eCommerce pricing strategy should be unique and tailored to the specific website. Amazon, Walmart, eBay, and the like are not the same as yourbrand.com. Why should the prices be the same?
Pricing for a marketplace should include:
- More frequent repricing with the goal of winning the Buy Box
- Competitive prices within the context of your financial requirements
- Price bounds to avoid a race to the bottom
On the other hand, pricing for an eCommerce website should include:
- Channel pricing strategies and price parity considerations
- Strategies that support business objectives, such as price position relative to the competition
- More cross-department collaboration, including category managers, pricing analysts, sales and marketing, and others
Set up unique strategies for each to best serve your customers and your bottom line. Think about the competition you face on each and the expected user experiences. Use that information, plus data on the market, seasonality, demand, price elasticity, and other factors, to craft the right price at the right time. Of course, don’t forget to test your pricing tactics and measure the results! Then, you can decide with confidence which way is the best path forward.
Editor’s Note: Contributing writer is Tom Lee, Sr. Product Manager at Wiser Solutions.