How to Conduct an Ecommerce Pricing Analysis

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Your pricing strategy is one of the most critical aspects of running your ecommerce business, which is why it is crucial to ensure your prices have a basis in reality. As you may have guessed, there’s considerably more to implementing a pricing strategy than simply assigning prices to products. The best way to get it right is to conduct an ecommerce pricing analysis and here’s how to do that.

Determine Your Cost Structures

To start, you’ll need to gather some information about your situation to help you determine where your pricing should be. Begin by reviewing your budgets to get a handle on the costs associated with running your business. If you’re making the products yourself, this should include manufacturing costs as well as overhead and distribution.

Evaluate Your Brand Image

How do you want your business to be perceived by consumers? Are you looked upon as a purveyor of luxury goods? Have you cultivated an image as an off-price retailer? How your customers see you has a significant effect on what you can charge, as well as your costs. If you’re providing a luxury experience, your costs will be higher as you’ll have to provide the accoutrements luxury buyers expect. Conversely, if you’re seen as a great place to get a deal, your operating costs will be lower, but your prices will have to be as well.

Volume Considerations

Your sales volume will also play a significant role in your pricing strategy. If you’re selling small items in large numbers you might be able to charge less per unit and make your profit of the sheer number of products you sell. However, if you’re looking to do something like start a furniture business, you’ll need to make more on each individual sale of large items like sofas and bedroom furniture. In this instance, you’ll likely need to build in a wider profit margin than you would for higher volume items.

Research Competitors’ Pricing

To a large extent, your competitors will determine what you can charge. This is why it is important to get a handle on your costs first so you can see what you need to make against what the market will bear. In addition to looking at what they charge, evaluate their business models against yours. This way, you can be certain you’re comparing like to like. You should also take into consideration what their responses might be when you come into the market and how much margin you’ll have to respond if they lower their prices to compete against you more effectively.

Market Positioning

Once you have all this information in hand, you can determine if this is a market you should enter at all. If it is, you’ll also know how you should position yourself in it. Going back to our furniture store example, if you’re offering handcrafted furniture of superior quality and a fabulous style to which none of your competition has access, you can charge pretty much whatever your customers are willing to pay.

On the other hand, if you’re coming in with readily accessible furniture of average quality, you’ll have to find a way to set yourself apart. While price is a good start, relying on this method means you’ll spend more on marketing, as you’ll need a constant stream of new customers. Discount shoppers tend to be a fickle lot, with very little loyalty, so your ongoing promotion costs will be higher.

One of the biggest mistakes you can make when you’re starting a business is shooting from the hip on pricing. With all the cost, competition and positioning considerations you’ll need to make, taking the time to conduct an ecommerce pricing analysis up front will greatly increase your chances of success.