Ecommerce Pricing Strategies That Will Help You Increase Your Bottom Line
Updated July 2022
Something everyone in business struggles with is pricing. If things sell quickly, we worry that maybe we could have priced higher and made more money. If things aren’t selling at all we are quick to cut prices, rationalizing that “any sale is better than no sale” and eat away at our profits in the process.
The thing about pricing is that getting it right isn’t just dumb luck. There are strategies (with actual science and psychology to back them up) that can help you figure out how to position your products and services to optimize profit.
1. Cheaper Isn’t Always Better
This is an example of how what you say about your pricing matters almost as much as what the actual price is. (Copywriters worldwide are applauding me right now!) Imagine someone selling fake designer sunglasses on a street corner. Their only sales pitch is that they are cheaper than their competition (either other fakes or the real thing). They don’t tell you why (inferior materials, cheap labor, potentially stolen goods, whatever), they are just telling you that you’re not going to find a cheaper pair of sunglasses anywhere. Do you buy it? Of course, you don’t! Because your mind immediately thought it was a scam or a trick. Why would they be pointing out their competitor’s pricing if there wasn’t something great about their own product that they could promote instead? Leaning on price alone as a differentiator is a race to the bottom.
Takeaway: Don’t mention your competitors or their prices unless you can also provide damn good reasons why you’re a more affordable alternative. Explain that you have better purchasing power or a more refined process or more high-tech manufacturing facilities or whatever it is. Let that be the differentiator and the pricing won’t matter.
2. Give Them a Price Anchor
Price anchoring is a nifty little pricing psychology hack that I often compare to the jewelry case at Costco. Have you ever lingered a while at the Costco jewelry case? It’s a price anchoring master class. Why? Because there is always that one singular engagement ring that is glittering and giant and comes with a price tag of something like $99,193.74. This makes you laugh in horror because who in their right mind would buy this? No one. But you know what suddenly looks super awesome? That very reasonably priced and almost as sparkly stunner right next to it. Why does Costco put this anchor ring in the case? To make the prices of all other rings seem like a bargain. Once your mind has been shocked by the first price, all other prices will seem reasonable by comparison.
Takeaway: When giving people options, make sure there are perceivable differences in cost and value. On the off chance someone goes for your super-premium option you’re in the money but in the everyday scenario, the item you really want to sell will seem like the best deal by comparison.
3. Play With The Digits
There are tons of different articles, strategies, and theories out there about how the way we present the price of what we’re selling affects the bottom line and they can all agree on this: when in doubt, shift the digits up or down.
Down Shift (Charm Pricing)
Charm pricing is so ubiquitous that it’s everywhere and even though we’re all super aware of it, none of us seems to be immune to it. It is wildly effective! It’s basically reducing the price by one cent to a number that ends in 9 (or 5, but 9 is more popular).
So: making something that is $10.00 ➞ $9.99
Why this works: scientists aren’t 100% in agreement on why but one theory is that because the price is specific that we feel like its value is calculated very precisely. Others say that because we calculate the value of a product or service based on the perceived loss that we read $9.99 as cheaper than $10.00 or that we feel like we’ve saved money by buying something for $9 rather than $10.
Up Shift (Prestige Pricing)
On the flip side, shifting prices up by a cent or rounding them to even numbers and removing the decimals can have equally powerful effects.
For example: making something that was $197.82 ➞ $200
Prestige pricing works well in situations where you’re selling based on emotions and feelings and less on rationale. For example, if you’ve positioned your product as the premium option in the market shifting the price up to a round number can help validate the copy and drive up sales. Where $197.82 would be perceived as a “sale” price or markdown, $200 feels like the right type of price for something premium.
Takeaway: Depending on your positioning, shifting your prices up or down a digit can have a big impact. The most important thing is that the pricing layout (how the numbers themselves are actually presented) aligns with the copy and positioning of your product. Buyers are quick to suss out any sort of dissonance between what they’re being told and what they’re being sold so if your copy says premium but your price says discount, they’re going to click away.
4. Use Price Tiers to Your Advantage
This principle seems to almost contradict #1 above but there’s a method to the madness, I promise! This one comes from Priceless: The Myth of Fair Value which is a great book if you’re into this topic like I am. If this book doesn’t exactly sound like your idea of a fun weekend read, no worries, here’s the breakdown of one of the studies which may blow your mind a little at first but will definitely help you structure your price tiers better!
The study looked at beer purchasing patterns (as all good studies should).
Round 1: Two beer options
Out of 100 Beers Sold:
Outcome: People preferred the fancy beer 4 out of 5 times.
Round 2: Two original beer options + with a new option priced lower
Out of 100 Beers Sold:
Outcome: Now the premium beer seems too expensive and since the cheap beer is priced so closely to the mid-range beer, the midrange beer seems like the best option.
Round 3: Two original beer options + with a new option priced higher
Out of 100 Beers Sold:
Outcome: Surprise! People like nice things and some people will always buy the most expensive option but now the mid-range (formally premium) choice seems like the smartest way to go.
Takeaway: If you’re going to bracket your prices into tiers, always anchor up as opposed to down. Cheers!
5. Limit Their Choices
It has been proven time and again that among our many great skills as humans, making decisions amongst too many options is not one of them. Shoppers given too many things to choose from will often opt to do nothing or defer a purchase because 1) we know we suck at making decisions and fear making the wrong one and 2) we tend to over-analyze things that are presented as very complex sending us into “analysis paralysis.”
In the example of using pricing tiers (above), a safe max is three. And if you’re thinking right now that if three options are good then 10 must be better let me tell you NO. Wrong. Stop this.
Takeaway: If there isn’t much difference between similar products or services you offer, consider eliminating or consolidating to present fewer options to your customers or clients. Offering a curated selection of products or services will almost always beat offering an endless array of options shoppers feel bewildered trying to sift through.
The Bottom Line (Pun Intended)
When working on pricing for your online shop or eCommerce store, it’s important to think about all of the different factors that can impact whether that “Add to Cart” button gets clicked. It’s certainly not simple but it doesn’t have to be a guessing game either. Taking some time to familiarize yourself with various eCommerce pricing strategies can help you feel more confident in setting your prices while also improving your bottom line.
