5 key points to consider when pricing a product
One of the factors that plays an effective role in the purchase decision of customers is pricing. Product pricing is one of the most emphasized topics in e-commerce. Product pricing can define the brand’s image in the eyes of the customer and make it easier to give an idea of the product and what it offers. Therefore, the issue of product pricing, which can also help change the dynamics of competition, naturally requires careful work. So, how should you think and what decisions should you make when deciding on pricing a product?
1) Product cost
Cost is a very important issue that must be taken into consideration when setting a price. The concept of cost, which closely affects the rate of profit or loss, gives information about the amount of material resources that are spent during the production phase of the product.
These costs are divided into fixed costs and variable costs. Costs that do not vary depending on the quantity of production and sales are called fixed costs. Expenses such as salary, heating expenses, fuel burned or insurance can also be assessed in this cost group. Variable costs are production costs that vary according to the type of product. Expenses such as logistics, materials used and packaging or paint used belong to this group.
Total cost can be obtained by combining variable and fixed costs. As an e-commerce business, it is important that you set a price that at least covers the cost of purchasing or producing the product. In highly competitive products or a market for new products, you may prefer to sell by keeping the selling price below cost initially. However, after a certain point, you can cover your loss by increasing the selling price.
2) supply and demand
The structure of the market in which the company operates, the characteristics of the target group in the market, and the structure of demand are the external factors affecting price decisions. Depending on the product category, the price component usually plays a major role in the demand for the product in one form or another. However, if the demand balance is fluctuating, even a small change in the price can alter the number of orders.
3) The state of competition
While setting prices for the products you will sell on your e-commerce site, it pays to keep a close eye on what your competitors are selling the same or similar products on. Thus, you can adopt parallel strategies or set new prices that allow you to differentiate.
In markets where there are many buyers and sellers in commerce, competition is defined as “imperfect competition”. Imperfect competition can also be mentioned in e-commerce. In this sense, sellers can sell their products at different prices by differentiating their products with the help of non-price factors. For example; Stand out from the competition by applying free shipping, credit card campaigns, payment options, gift points, and discounts.
4) Legal obligations
Another issue that needs to be taken into consideration while pricing products in e-commerce is the legal regulations applied by the country. The most important examples are value-added tax, value-added tax, sales and purchase tax, and customs tax.
5) pricing strategies
The price of a product sold by an e-commerce site should not be too low to allow profit or high enough to prevent demand for the product. You can use the following common techniques when setting prices for your products in your e-commerce company.
a) Cost-oriented pricing
Costs form the basis of this product pricing approach. It can be dealt with in two ways namely cost plus (profit margin) and profit-oriented pricing.
Cost plus (margin) pricing: Cost plus pricing, which is one of the most widely used pricing methods, means getting the price of a product by putting a certain profit margin on the cost price of the product.
Profit-Oriented Pricing: In this method, where the sales target is set, since the e-commerce company aims to reach a certain amount of profit, the company can start earning from the respective product after all expenses are met.
b) Competition-oriented pricing
One of the most important conveniences that e-commerce provides to consumers is that it allows them to instantly compare the prices of the product they are considering purchasing from different sellers. While pricing the products you offer on your e-commerce website, you can choose the pricing method by looking at your competitors’ prices, i.e. you can price in the current way.
It’s a good idea to include the marketing budget you allocate for each product you sell through your e-commerce site in your individual product pricing. You can set your rates in detail by running AdWords ads, social media outreach, or marketing, packaging, and other expenses.
In fact, there is a pricing strategy for every product in the trade, according to its own market. E-commerce companies can set their prices according to their dynamics and products, keeping in mind the mentioned points. In addition to pricing, another important point that affects sales is whether your e-commerce store meets customer expectations.