Pricing, and specifically the issue of raising prices, is a very complicated part of eCommerce. One which merchants often think about with dread. There are times though when it becomes necessary to raise prices in order to keep up with rising costs of supplies, to increase profit margins, or for any number of other reasons.
Frequently though merchants will raise their prices at a whim without the appropriate amount of research, and without employing a pricing strategy. This often leads to a loss of customers and a decrease in sales.
A rise in price does not have to go hand in hand with a decrease in sales though.
In this post we’ll discuss a few effective pricing strategies that you can use in your eCommerce store the next time you want to raise prices that will help you not only cut your losses, but increase profit as well!
Know When a Price Raise is Needed
The most important part of your pricing strategy is your research, because this is the main way you will know if it is time to raise your prices.
The first thing you should be researching is your costs. That means you need to know the prices of your materials, production, shipping, packaging, etc., so that if the price of one part of your production process rises, you will know about it, and be prepared to respond.
For example, if you sell clothes and the price of fabric rises, and you continue selling your products at the same price you will definitely see a shrinking profit margin, or even end up with a loss.
The second thing you need to stay on top of is your profit margin and your sales levels for specific products.
A product that is selling well might be a good candidate for a price raise so that you can increase your profits on it. Another product to keep your eye on would be your new products. If, for example, you started selling a new product at a lower price so that it could gain traction, you have to know when it has actually caught on in order to know when you want to raise the price.
Keeping tabs on your sales and profits, aside from obviously being necessary to your business, will also give you a good idea of when you can safely raise your prices.
1) Just Raise Your Prices
The first method you could use for raising your prices is the simplest – just raise your prices! Of course that doesn’t mean you should raise your prices at random and not say anything to your customers. That would be bad.
So what should you do?
You should do your research, determine when and by how much you need to raise your prices, and then act with full transparency. Meaning, raise your prices and tell your customers why you had to raise them.
This works best for a raise in price that comes as a result of rising costs. If, like in the example from above, you sell clothes and there has been an increase in the cost of fabric, then you can simply tell your customers that that is the reason for your price increase.
You can announce this in a blog post, on social media, or even on your website. However you feel is best to inform your customers. You could also choose not to mention it directly to your customers, but to have a formal response prepared for customers who inquire.
The advantage of this approach is that you are being very honest with your customers, and, so long as you’re not lying about the rising costs, there is no reason for them not to believe you and understand your decision. They will also be able to see from the rising prices amongst your competitors that you acted honestly.
The disadvantage of this approach is that you state very clearly to your customers that you are raising your prices. This might lead them to go to your competitors who did not mention their price increases.
If your prices remain competitive though, this problem shouldn’t really effect you.
2) Raise Prices Gradually
If you want to lessen the blow of a price raise, you might want to consider raising your prices gradually. This way there won’t be a shock caused by a larger change.
The disadvantage of this method is that by raising your prices gradually, it means that you will be raising your prices more frequently as well.
This frequency might actually cause you more problems than you think. First of all, it might be more noticeable to your customers. Secondly, and possibly more importantly, it will be harder for you to explain your price raises to your customers than if you had done it all in one shot.
3) Increase the Perceived Value of Your Products
A great way of getting away with a price raise is by increasing the perceived value of your products. Something that has a greater “value” can also be sold at a higher price.
How can you do this?
Let’s go back to the clothing example, and let’s say you specialize in jeans. You could release a “new line” of jeans that are essentially the same as your current line of jeans in terms of production costs, but with a superficial change in terms of appearance. You could then market your new line as “Premium Jeans.”
What sets your Premium Jeans apart from regular jeans? They’re made with better fabric, they’re more durable, the color is bolder. Choose whatever added value that you want to be the focus of your new product line, and focus on that in your advertising.
For example, the Gap uses it’s “Limited Edition” section to sell “premium products.”
Jeans in the Limited Edition section cost around $40 more than the Gap’s standard jeans.
By increasing the perceived added value of your product you can sell something with the same cost as your other products at a higher price.
4) Increase the Actual Value with Added Services
Another way of adding value is by actually adding value. What do I mean? Well if you can add services above and beyond the physical product that you sell, then you can add these costs in as premium prices.
For example, you could add in the option for gift wrapping, a personalized card, or a warranty. These are services that are not related to the product itself, but add value to the purchase.
By charging for a profit on these premium services you can increase your profit margin.
5) Add Premium Price Options on Your Products
An additional added value method you could use is to add different price options on all of your products. For example, you could charge different amounts for special colors or added features (this is especially good for electronics).
This pricing strategy actually gives you two advantages.
First, for those who are looking for the lowest price there is a lower price, and for those willing to spend more, you have a product to sell to them too. This can be a great way to make more profit out of the same product.
The second advantage it gives you is an anchoring price.
Think about it like when you get popcorn at the movies. You choose between the following options: Small - $7, Medium - $8, and Large - $8.50. Now if you’re considering getting a medium, you’ll probably think to yourself “Hey, it’s only another 50 cents to get the large, so I might as well get that.”
On the other hand, if you just saw the price of $8.50 you would probably think that that is too much money for popcorn.
This little psychological trick that your mind plays on you is called anchoring. You anchor your expectations for price on the prices that you already have in front of you.
By adding premium options on your product pages, you will achieve the same effect as with the popcorn. People will see the base price, and use that as their anchor when considering the premium options.
6) Offer Multi-Product Packages
If you sell related products, as I’m sure you do, you can put together product bundles that will offer added value to your customers. For example, if you sell computers you could create a bundle that contains a computer, a mouse, and a keyboard. If you sell clothing then you could sell complete outfits together.
Here’s a sample bundle from Best Buy’s website:
You can put this on your site as if it were a regular product, or you can add it on the bottom of your product pages as an upsell option. Either way, this bundle will result in a larger sale for you than you would have gotten for an individual product.
When the time comes for raising prices in your store, make sure that you think about the different methods available to you. Consider which option will fit best with your store, and which methods have worked for you in the past.
It’s tough (or impossible) to predict how your customers will react to a price change, but if you follow these methods then you certainly have the best chances of not only avoiding a negative reaction, but actually boosting your profits!