5 Strategies for Value Based E-Commerce Pricing

Value based pricing strategies for your e-commerce and m-commerce company will do your brand name a tonne of good, cement the trust and loyalty of customers, and favour your bottom-line. So naturally it isn’t a low-hanging fruit! But any other pricing structure that isn’t putting the customer first and isn’t putting in a good deal of research is bound to tank your business. For instance, cost-plus pricing strategies completely ignore what the customer thinks of the value of the product, negates the presence of competitors, and is inefficient mostly because numbers are drawn up based on a fixed margin without a view of practicality. Competitor based pricing is better than this but again doesn’t guarantee that your competitors have done the ground work either, leads to large missed opportunities, and leads to tunnel vision and a race to the bottom.
Value based pricing means your customers think that the mark-up you are offering is worth the solution you are offering to ease a pain-point, you can recover your cost price, and you can make a decent profit. This way you aren’t cheating yourself, nor are you losing customers. Instead you create an experience aligned to their wants. When a customer is happy paying you the amount you ask for, they become repeat-customers. A 5% customer retention could mean a 125% increase in profits.
After you have identified where the value comes into the value based pricing you need to execute the value-first pricing strategy.

  • You need to understand your customers to understand what value they are looking for. You do this using a buyer persona. Unlike demographics, a buyer persona doesn’t look at age, ethnicity and job profiles; instead it helps inform the sales and marketing strategies by asking about the buyer’s need, their pain points, their opinions and motivations to buy this product, the impact this product could have on their overall life, and other questions based on the typical buying cycle. It uses market research and actual customer data to draw up the ideal customer. It helps you understand what your patrons respond to – discounts, freebies, new stock, functional products, design etc. By doing all this, campaigns can be customised to resonate with the right customers.

  • Demographics might seem old school, and today they aren’t complete in themselves. However, they are necessary to give you a broad profile. You need to do a little market research to understand the age bracket, ethnicity, geographic residence/location, kind of job they work, their interests, what and who influences their buying decisions, what communication channels do they prefer, how early do they adopt new technologies…and so on. A quick way to do a survey to collect this information is to get customers or site visitors to answer a questionnaire, using incentives as bait to make them do it. Take our survey and get a chance to win a $100 gift card. This saves you months from trying to nail the right persona.

  • Figure out what product or what specific feature attracts the customer. You could use a max diff analysis to understand what they value the most. For instance, let’s say you sell utensils. From a list of woks, roasting pans, casseroles, bowls, colanders, and can openers, a customer may choose sauce pans as the most valuable item and can openers as the least. Take this a step further: you may find that from a list of style, quality, durability, sizing options and a one-month return policy, a customer may choose quality as the most valued feature and the return policy as the least. And thus you gauge your prospects.

  • Next you need to conducts a price sensitive analysis. Where a customer is willing to pay is where they see value in your product. First, pick out the 20% of your products that your buyer persona’s value enough to potentially help rake in 80% of your sales. Use only this 20% to analyse, not all of your available stock. Then figure out what price is too expensive that they would stop considering the product to buy, at what price does it start to feel expensive, what price do they consider too low as to suspect the quality, and what price would seem like a great bargain to buy. From this you will understand that the price range from high to low for a medium sized sauce pan is between $25 and $80.

  • Next use this data to tie in with your buyer persona (see, this is why you need a buyer persona). You can make a graph to understand the sensitivity of prices relating to your persona. This helps you find out which price capture the largest share of your market for your product. At $25 a small fraction of your saucepan sales will be lost owing to price sensitivity. At $80, if the profitability is high, the buyer persona equates the value with the price.

This data helps you fix a well calculated, well thought out price for your product. Understanding patterns in who will pay more for a product and who won’t, and who tends to make more expensive purchases can help you understand where to adjust your marketing and advertising to directly target customers in the right range. At the end of the day, value reigns. So harness customer communication to improve your value and watch it make a difference to your e/m-commerce business.

vajro

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