Setting pricing points

[MikeCEO]

Looking for experienced Ecommerce shop owners thoughts & experiences.


Let's say I'm selling XYZ widgets(highly competitive) with a 20-40% margin on the widgets
(retail-wholesale cost=margin).
Is it better to....
(A) set my pricing points at Retail (&maybe offer free shipping, spend alot on marketing (CSE, PPC) hoping for some conversions), or is it better to
(B) set pricing at 20% above cost (minimal marketing e.g: shopping engines, search PPC) + charge actual shipping cost?

Any help is greatly appreciated.

Thanks in advance,

Mike

[PsiPro]

My girlfriend got her BA in marketing and she keeps telling me the companies with the lower prices make more money

[ryanpark.me]

Looking for experienced Ecommerce shop owners thoughts & experiences.


Let's say I'm selling XYZ widgets(highly competitive) with a 20-40% margin on the widgets
(retail-wholesale cost=margin).
Is it better to....
(A) set my pricing points at Retail (&maybe offer free shipping, spend alot on marketing (CSE, PPC) hoping for some conversions), or is it better to
(B) set pricing at 20% above cost (minimal marketing e.g: shopping engines, search PPC) + charge actual shipping cost?

Any help is greatly appreciated.

Thanks in advance,

Mike

I posted this as well on my blog to share with others:

Pricing on the Internet is much more critical then pricing a retail store, due to the lack of physical boundaries customers have the freedom to choose virtually any online store selling XYZ widgets. Given this freedom, price becomes much more important and e-commerce shops with higher prices will ultimately receive fewer sales.

This being said however, there are several factors which must be incorporated with your pricing structure in order to be successful. Having the lowest prices without a sense of customer security will do little to nothing for generating sales. As a consumer I’d be willing to pay 2-5% more knowing that my order is secure and my personal information won’t be stolen, on the other hand, I wouldn’t buy a steeply discounted product from a store I felt was unsafe. Pricing and security must go hand-in-hand as these will be the primary drivers for your store’s conversions. Determine if your site instills peace-of-mind in your customer’s better then your competitors’. If so, I would recommend pricing your products the same as your competitor’s and not undercutting them. If not, you must either increase the perceived security of your site or undercut your competitor enough that the customer will overlook the additional risk.

Moreover, it would be folly to undercut your prices while making up the difference in shipping. This is a classic eBay pricing strategy, lowball the retail price while jacking up the shipping to subsidize any losses. While this may work for one-off sales on eBay (it doesn’t work on me anymore) it does little to create loyal customers. In my experience shipping costs need only be fair for customers to proceed through the checkout. If your shipping costs are within 10% of the competition it’s unlikely a customer will abandon their cart after going through the entire sales process.

All things considered, the security of your site will dictate the prices you can charge. I would recommend focusing on increasing the perceived security of your site above that of your competitors’; once this is established I would implement a pricing strategy very close to my competitors while charging a fair price for shipping. In my opinion I feel this would be the best strategy for maximizing both sales and profits while also generating loyal customers for the long-run.

I wish you nothing but success,
Ryan