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Pricing Your ProductsJune 3th, 2008 As e-commerce gets more and more complex, so do pricing strategies for online business. It's not simply about cost-plus pricing and profit maximization. Choosing a pricing strategy is a delicate maneuver that entails redefining business objectives; it's a precise balancing act that requires the consideration of a number of different factors - factors that continually change over time and require frequent monitoring. Today, shrewd shoppers use search agents to locate the lowest prices on the Net. New, untested pricing techniques are being launched with unpredictable results. Tactics like 'demand aggregation' and 'reversed fixed pricing' are being applied, and keeping tabs on not just competition pricing - but pricing strategies - is all part of the game. To succeed with your online business you must remail one step ahead of all of these traditional pricing factors as well as the technologies now available to monitor pricing online. |
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Right now, two basic pricing models stand out - and each maintains a different objective. The first is a penetration strategy whose initial goal is to sell as many products as possible at a low-to-no profit margin. This model shoots for the long-term objectives of establishing a unique and powerful company presence on the web and in acquiring a legion of loyal, life-long customers.
The second model - premium pricing strategy - is oriented toward the short-term goal of revenue maximization and hefty profit margins. The sacrifice here may be longevity, loyalty, and an entrenched Internet position. However, for some types of products, this solution may be the most sound.
Irregardless of any model you choose, the rapid pace of e-commerce continues to facilitate changes in the marketplace and new innovations online. When it comes to pricing, online entrepreneurs should be more and better informed than both their competition and their most savvy customers. Information about market demand and where competitor-pricing stands can determine how products should be priced and which products should be priced low or high-margin. Similarly, understanding the pricing strategies of the competition helps you understand their long and short-term business goals - and can help you fine-tune yours.
Here, keep thinking about ways to innovate, consider ways to provide a niche product or original service, and certainly invent techniques to differentiate yourself from the competition. Innovation in marketing, shipping and customer service can be the key to company differentiation, as can the development of proprietary products and products exhibiting innovative features and functions. Another option is to 'bundle' products or services - or products and services - in novel configurations that meet (or create) specialized customer needs. Here, comparison-shopping and search agents will not work because the product you offer is now one-of-a-kind.
All of these considerations should factor into choosing a pricing strategy - and all have a major impact on how you price your products, on how you stand out from the crowd. Once you price your product, the job is not over. Be prepared to monitor changes in technology, marketing trends and competitor pricing and pricing strategy. Stay informed and make any adjustments necessary to remain competitive.