E-commerce Pricing: Definition & Strategy

Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

E-Commerce pricing can be confusing and uncertain, especially for online businesses who have excessive competition or are not connected to their customers. Use the steps here to set your pricing strategies.

E-Commerce Pricing Basics

Pricing is a challenging project for most companies. It's possibly even more complicated for online businesses. E-Commerce, online marketing and selling to consumers, creates some challenges for companies to determine prices. The retail model is based on manufacturers suggesting a MSRP, manufacturer's suggested retail price. Some retailers may discount that price, but the MSRP is a standard price that is recommended for the sales amount offered to consumers. However, online retailers have been more aggressive in discounting and offering specials. The MSRP holds little power online because retailers are banking on selling items at a smaller mark-up and making up for the difference in volume.

Online retailers have fewer expenses than brick and mortar stores. Typically, they do not have a retail sales space, retail sales employees, and an expensive storefront. Operating online is considerably less expensive. Warehouse space for inventory is far less costly than retail space, shipping employees can handle orders quickly, and shipping costs are typically passed on to the customers. As a result, online retailers can offer lower prices. With more competitors, price cutting has become the norm. Therefore, determining a competitive online price can be difficult.

Strategies to Determine E-Commerce Pricing

Creating a pricing strategy is more than just offering the lowest price. Price is a factor, but there are other relevant influences consumers consider when making a purchase. A pricing strategy takes several factors into consideration:

1. Your unique characteristics. What makes your products and business different? Consumers want to do business with companies they trust and are connected with.

2. Ratings from other consumers. If other customers are satisfied with their purchases from your company, especially specific products that new customers are looking at, others are more likely to purchase those items. In fact, if two online retailers are offering the same product, the retailer with positive comments will likely win the sale even if the company's prices are higher. Consumers are taking a risk buying a product sight unseen. Reading a positive review from other shoppers builds their confidence and encourages them to make a purchase. Feeling confident about a purchase is more important than having the lowest price.

3. Excellent Service. Just because your customer is buying online, he may still may have questions or need assistance. Set up a process to respond quickly and politely to your customers. The faster your response time, the more trust you build with the consumer. Shoppers will pay a higher price to buy from a company they trust. Service is often more important than low price.

Nordstrom's is a prime example of a company that has created a reputation for high-quality service. It is not a low-price retailer. Consumers are willing to pay more because they know they will be taken care of if there is a problem with their purchase. This trust becomes even more vital when customers are buying online and don't have a face-to-face experience with employees at the store. Make sure your customer service policies support customers and build trust.

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