What really is a pricing strategy?

Profitable pricing is crucial for any business. In ecommerce it is especially important as price is
the number one reason to choose the place to buy for consumers shopping online. Pricing too
high will lower your sales volumes. Price your products too low and you will be leaving money
on the table. To decide how to market and price your products, you need a pricing strategy.
Naturally, there are a lot of different pricing strategies. We have explained the main ones, which
can be used as a guide for pricing your products.
Pricing strategy simplified
Pricing strategy is a plan to price your products in a systematic way to maximize profits and your
marketing message. As you can easily understand from our definition, price is just one
component of a pricing strategy.
Pricing strategy is always a part of your marketing strategy.
You want to be a cost-leader in the industry. Your marketing strategy is to pinpoint things that
actually make people believe you are the cheapest on the market. In addition to keeping the
products that people compare low-priced, it includes a clear message, design and graphics that
support the image of being cost-effective and affordable. This way people’s expectations on the
affordable price level is met. Think of IKEA for example. They design the price first and then
their supply chain will make sure the cost-effectiveness is carried (literally by you) out of the
store. It doesn’t have to look cheap, it just has to feel that way.
From early on it is good to remember that pricing strategies are affected not only by the price
alone but also by both internal factors (brand, product features, customer groups, revenue
targets) and external factors (competitors’ product features, competitors’ pricing, demand on
the market, economic factors). We will get back to these factors later on.

Common pricing strategies used in e-commerce

Based on the legendary Porter’s generic strategies, you only really have three options when
developing a strategy for your company. Pricing strategy included. The three main strategies are:
Cost leadership, a strategy where your company is focusing on generating value through low
costs that enable low prices.
Differentiation strategy is based on creating products that generate value to their customers
which make them ready to pay a premium on the value they receive. You could easily talk about
brand value in these cases.
Focus strategy aims to find a niche mark where there is a need and where your company has an
unbeatable competitive advantage over your competitors, often either through knowledge or
clever understanding over technology.
Simplified pricing strategy examples for ecommerce
Market-based pricing – Products are priced based on their price position on a given market.
Cost leadership – Cost leadership is a strategy where your company is focusing on generating
value through low costs that enable low prices.
Premium pricing – The premium pricing strategy is used by companies that use differentiation
as their generic pricing strategy. Their product pricing is often higher to pinpoint high value in
their high-end products. Premium priced products are often unique, they are differentiated with a
clever marketing strategy and have a strong brand image with lots of innovative features.
Cost-based pricing – The cost-based pricing strategy, also known as “cost-plus pricing”,
“markup pricing” and “break even pricing” is based on adding a fixed cost to the cost of
producing a product.
Price Match – Matching your pricing to competitors’ pricing. This often also includes an offline
opportunity to prove your possibility for a lower price. The price match is often used by retailers,
yet it is a controversial strategy where consumers in the end might be losing as competitors are
unwilling to lower prices.
Many of the above strategies will naturally be accompanied with some variations. For example,
in the cost leadership position a company might use ABC-analyses to understand which of the
products need to be close to market minimum and which can be priced higher, with a premium
price.
Each of the above strategies are described in more detail on a landing page made for them. To
give you a better idea of the use of these strategies in practice, let’s move on to going through
some real life examples of pricing strategies.

Ecommerce pricing strategies with company case

examples
You look at Rolex, the average price tag they have on their watches varies from $7,000 to
$12,000. Why is Rolex able to price their watches with high price tags when Daniel
Wellington offers watches at $100? Sure, Rolex watches are of great quality. Sure, they look
good as well. But the real answer is that the Rolex brand is a premium brand. A well-established
and known by people, Rolex is able to use premium pricing to price their products.
Have you ever shopped at Amazon and wondered how some of the offerings are so moderately
priced? Amazon offers an excellent example of an ecommerce company that practices cost
leadership strategy. What enables Amazon to use cost leadership and gain competitive advantage
by using it? The company has mastered the art of logistics from warehousing to transportation
not to mention the use of automated processes from packaging to office work. With the above
factors combined, Amazon is able to cut down costs while being very effective operationally.

Looking for a new car, let’s say an Audi or a BMW. Make a simple Google search online and
you quickly realize that both the competing companies are relatively close in price and in
features. Why? Because both of the above-mentioned companies are using market-based pricing
and price their products based on the products’ position on a given market.
Large and recognized companies such as Best Buy use price matching policies to beat their
competition and get more customers.
Best Buy’s Price Match Guarantee states that the company will not be beaten by price as they
will “Match the product prices of key online and local competitors for immediately available
new products (excludes clearance, refurbished and open-box items).” However, Best Buy does
not offer the price match for every product but only for products that are of the same brand,
model number and color to that they sell.

An American clothing retailer Everlane is being very open about their use of cost-based pricing.
On their website they give concrete examples of how their products are priced. For a “Modern
loafer” the company pays $18,25 for materials, $29,16 for labor, $1,47 for transport, and $4,75
for duties which totals in $54. So the total cost for Everlane for producing a single “Modern
loafer” is $54 and the company has set a retail price of $168 for the product.
Why machine learning and AI are the future of
product pricing?
AI is a buzzword like no other. We sat down, wrote all we know about it and let you be the
judge. Here is a seriously indepth 50-page insights on how to use artificial intelligence in
pricing. Hope you find it useful!

Ecommerce hybrid model pricing strategy

Even though we have gone through a strategy at a time and looked at each strategy individually
in this article, it does not mean that your business should stick to a single pricing strategy. Earlier
in this article we mentioned that there is no “one-size-fits-all” model in pricing strategies and
indeed when building the best working pricing strategy for your business it is possible to mix the
components of different pricing strategies together.
A pricing strategy that a competitor of yours is using might not be a perfect fit for you but a part
of their pricing strategy combined with another pricing strategy might be just what your business
needs. The important part is that you thoroughly know your product/service, the demand for it,
your customers, your competitors, your costs, and lastly, the market that you operate in. The
above factors are core things in determining a suitable pricing strategy for your business.
What is the best pricing strategy for ecommerce today
There are now more customers available for ecommerce companies than ever before. During the
COVID-19 pandemic sales in ecommerce exploded. According to Shopify, 10 years worth of
ecommerce growth happened in three months when the pandemic peaked in the US.. Moreover,
150 million people used online shopping for the first time during the pandemic and from the 11
markets that Shopify surveyed, 84% of the consumers in those markets did their shopping online.
Competition between ecommerce businesses is also now more fierce than ever. As there are
more people looking for products online and more companies offering products for them, pricing
has become more important than ever. This naturally makes it important for businesses to
develop and deploy pricing strategies that are the best fit for them.
So what is the best ecommerce pricing strategy in today’s world?
Truth to be told, there is no single best pricing strategy that would be fitting for every
business but there is a fitting pricing strategy for every business. Finding out what the best
pricing strategy for a specific ecommerce company is requires companies to explore different
options to find the strategy that is the best fit for them. Utilizing AI-based price
optimization, Pricing automation, or Market price monitoring tools can give your pricing
strategy a competitive edge.

How to see pricing as part of your ecommerce marketing

strategy
The image of having a separate marketing strategy and pricing strategy is common. As we have
already discussed in this article, this should not be the case. Instead, a pricing strategy should be
an integrated part of an overall marketing strategy, and this applies to any ecommerce business.
We already know that by developing and executing a pricing strategy we can find the most
optimal price point for our products/services and earn the most profit. A marketing strategy is
surely also known to us all, to recap it is the action plan that we use to connect with our potential
consumers and eventually turn them into customers. In today’s ecommerce price is one of the
biggest factors that consumers think about when deciding whether to purchase something or not.
To increase sales, consumers must see and hear about your products and prices and also consider
your prices to be fitting for the product/service you are offering. Now, it really must seem like a
no-brainer to tie these two strategies together to achieve the goals mentioned above.
When you develop a pricing strategy, you probably think about your product, the market
situation, competition and demand, which all should be acknowledged in your strategy. To take
this a little bit further, think about the 4Ps of marketing (Product, Price, Place & Promotion). All
of the concepts within the 4Ps are just as important to take into consideration when drawing up a
pricing strategy as when developing a marketing strategy. By looking at the internal and external
factors from both marketing and pricing point of view you can develop a comprehensive strategy
that includes the factors known to increase profits and revenue.
As the competition in ecommerce is now more fierce than ever before, it’s even more crucial for
modern ecommerce companies to have their pricing strategy as an integrated part of their
marketing strategy. Why? The answer is simple; to stand out from the competition.

Questions regarding ecommerce pricing?

How to carry out your pricing strategy
After you have made up your mind on using a specific pricing strategy, you have completed
phase one. Drawing up a pricing strategy is one thing, setting the strategy into action is a whole
other ball game. Next we are going to go through the steps that you should take when carrying
out your pricing strategy in your organization.
Research
Do your research before you rush in and end up executing a wrong strategy. Identify your
market, goals, product, business, costs, customers, and competitors. Then, based on your
findings, pick the most fitting pricing strategy and start the process of taking it into action.
Choose the right person to run the project
As said before, carrying out your pricing strategy may not be a walk in the park. The process is a
lot harder than developing a pricing strategy. An experienced professional should spearhead the
project so nothing is left unnoticed and even the smallest detail is taken into consideration.
Ideally the project should be led by someone that has already dealt with implementing a pricing
strategy in the past.
Make everyone in your organization understand and value the strategy
Launching a pricing strategy is a team effort. Every employee of your organization no matter the
function they work in, should be well aware of the pricing strategy that you have chosen to
deploy, understand the reasons behind it and acknowledge the importance of a functioning
pricing strategy. Prepare your management to be able to educate other members of your
company about the pricing strategy and to pinpoint the objectives that are aimed to be achieved
with the use of the strategy.
Communicate and make sure everyone knows what they are supposed to do
The process of carrying out a pricing strategy cannot succeed if tasks related to it are done in
silos. To ensure that a pricing strategy and pricing decisions are being carried out properly there
should be a continuous information flow and no doubts about who is responsible for each part of
the process. It is not too uncommon for companies to divide certain tasks related to a specific
area of business between different functions (e.g. product team focuses on developing a product
and finance team focuses on the pricing of the product but the teams don’t really know what the
other team is actually doing.) To successfully execute a pricing strategy every team taking part in
the process should be on the same page about the strategy. Take sales & marketing for example –
If they are not informed, how are they supposed to sell the pricing strategy to customers?
Once you get going, don’t just set and forget, instead analyze and reoptimize
When carrying out a pricing strategy, its performance should be monitored continuously.
Profitability, to be exact. How do you do that? Before launching the strategy be sure to
develop pricing metrics for the strategy. Follow the metrics from the beginning to keep track of
how the strategy is performing. A simple spreadsheet is enough to mark down and analyze the
metrics. The more data you have, the easier it is to reshape the strategy if needed. Remember to
analyze the data critically and then make adjustments.
Proceed slowly but surely
No change happens overnight and when setting a pricing strategy into action, it may take more
than only refining your pricing processes. Take small steps instead of leaps, analyze results, and
reoptimize. By adopting this mentality early on, it will benefit you in the long run when and if
you have to make changes to your pricing strategy.
Following these steps will get you started with setting your pricing strategy into action.
Remember that careful planning and preparation is the key to successfully carrying out your
pricing strategy.

What are the tools you need for your pricing strategy
Knowledge is power and when you are creating a pricing strategy, knowledge is a real power
tool. The way a business prices their products/services should be based on the idea that price is
constantly living and moving instead of being a static object. With this in mind, the factors listed
down below should be looked at from the same point of view as they also can change over time.
To keep it simple, let’s focus on the practical things that you must keep in mind when developing
a pricing strategy:
Your brand
How do people see your company and brand? When they see your logo, do they think high-end
high priced products or the opposite? Do they recognize your name instantly or is your brand
completely unknown to them? People tend to pay more for products that they recognize as high
quality and in contrast they can relate low price to low quality.
Customers
Who is your ideal customer to begin with, where are they located, how much are they expected
to pay for your products and how are they expected to react to an increase or decrease of a price?
By getting to know your customers it is a lot easier for you to define the fitting pricing strategy
for your business.
Competitors
There are three main things that you should think of when thinkin about your competitors. 1.
What is it that they are selling? 2. What price tags do they have on their products? 3. What is the
difference between their products and your products? Knowing what your competitors are
selling, how much they are charging and what the differences between their product and your
product are will allow you to price your products better.
Costs
It is simply impossible to develop a pricing strategy, not to mention set a price for a product
without knowing how much you are spending to produce, store, market, and sell that product.
Remember to think about the complete cost structure of your business when developing a pricing
strategy.

Additional tools for enchancing your pricing strategy

Price optimization, pricing automation and price monitoring are all concepts that you can deploy
to improve your existing pricing strategies and to develop more informed and better pricing
strategies.
Price optimization
Our price optimization is based on artificial intelligence and machine learning. The system
studies prices over time and understands the demand for each individual product, finally settling
for the most profitable price point. To put it simply, our tool tries out different prices for your
products and eventually finds the optimal prices that will earn you the most profit.
Pricing automation
Our pricing automation tool allows you to set pricing strategies, change prices easily and plan
& execute campaigns. The tool also makes it easy for you to compare your pricing strategy to
competitors’ pricing strategies.
Price monitoring
With price monitoring you can make more informed decisions that are based on real data
regarding your pricing strategies. Price monitoring allows you to monitor the pricing situation on
a given market, your competitors’ price changes, campaigns and their stock levels.

Strategic Pricing Coordinating the

Drivers of Profitability
ByThomas T. Nagle, John Hogan, Joseph Zale
The economic forces that determine profitability change whenever technology, regulation, market
information, consumer preferences, or relative costs change. Consequently, companies that grow
profitably in changing markets often need to break old rules and create new pricing models. For example,
Netflix changed the model for renting films from the daily rate at video stores to a time-independent
membership model.

Producers of new online media created a new metric for pricing ads-cost per click-that aligns the cost of
an ad more closely to its value than was possible in traditional media.

Apple changed the market for music in part by pricing songs rather than albums.

Unfortunately, few managers, even those in marketing, have received practical training in how to make
strategic pricing decisions such as these. Most companies still make pricing decisions in reaction to
change rather than in anticipation of it. This is unfortunate given that the need for rapid and thoughtful
adaptations to changing markets has never been greater.
The information revolution has made prices everywhere more transparent, making customers increasingly
price sensitive. The globalization of markets, even for services, has increased the number of competitors
and often lowered their cost of sales.

The high rate of technological change in many industries has created new sources of value for customers,
but not necessarily led to increases in profit for the producers. Still, those companies that have the
capability to create and implement strategies that take account of these changes are well rewarded for
their efforts.