Pricing strategy webshop

Why you should have a pricing strategy for your e-commerce

It is a fact that most products can be priced at completely different levels and still sell equally well. It's all about the trust the customer has in the brand from the start, but also about things like; what options are available and how they are perceived by the customer, as well as the level of service and delivery time.

The importance of choosing the right pricing strategies

As an e-retailer, it is easy to focus only on the service and product quality of your e-commerce. It is not in any way bad, except if you want to ensure that the company survives and has the opportunity to grow. To ensure good profitability, and thus both long-term business and development opportunities, you also need to consider which pricing strategy is best for you. You can choose a single pricing strategy, or use different ones for different product categories, otherwise you end up in a constant position of reinventing the wheel when new products come in. Don't forget that your time is also worth money!

Below we go through some different pricing models that you can choose from, or mix and match based on what works best for your business. The important thing is to find out what works best for you and what gives your business the best chance to succeed and thrive.

Looking for more ways to increase profitability? Don't miss 6 tips on how to run a successful e-commerce. More tips on e-commerce can be found in our e-commerce articles.

What is cost-based pricing?

Cost-based pricing is perhaps the first to come to mind. Take the cost of purchasing or manufacturing the product, add a percentage to cover other costs and your profit. Then don't forget to multiply by 1.25% (or the equivalent VAT rate for your products) and you have your consumer price.

Always adding the same percentage to the purchase cost is an easy way to quickly price new arrivals. However, this assumes that you know what ancillary costs you have that need to be covered by this percentage - if you fail to take costs into account (e.g. warehousing and hosting), your profits will decrease rapidly. It is also important to take into account the delivery costs of your products. Postnord Portal gives you a quick overview of your shipped parcels and always the right price immediately.

What is competitive pricing?

In industries and for products where there is a very high level of competition, it is attractive to choose so-called competitive pricing. In other words, you look at the price your competitors are selling the same products for (or comparable products) and then decide what you want to sell your products for. Competitive pricing does not have to be about selling the product cheaper than the competitor, but is mainly about always knowing what the competitors are doing and adjusting your own prices accordingly.

By reviewing your competitors' prices, you can see what you can spend on purchases and costs to make your e-commerce profitable. It is therefore a good idea to carry out a competitor analysis before you make your purchases.

When should you sell cheaper than your competitors?

Perhaps you immediately thought of being cheaper than the competition when you read the phrase "competitive pricing". If you did, it's not surprising; very low prices are often referred to as "competitive". But how competitive are they really?

Before you get into a price war for the lowest price with your competitors, think about how much more you need to sell of a product to get the same profit at the lower price as you had before the price cut. If you sell 100 posters for SEK 100 each and earn SEK 5,000, but decide to sell them for SEK 80 each instead of being cheaper than your competitors. Well, you'll have to sell 167 posters to earn 5,000 SEK. Your profit is reduced from SEK 50 per poster to SEK 30. Unless you manage to pay less for purchases or other overheads in business and can therefore ensure the same profit despite the lower price.

It's generally harder to get customers to accept higher prices than lower ones, so think carefully before you cut, as you'll need to maintain the increased sales volume over time to make the same profit.

An exception might be if you sell an essential product such as laundry detergent, the price sensitivity might be lower and thus you will be able to maintain the same demand despite increased prices. This is called low price elasticity. Products with high price elasticity will have reduced demand if prices rise, because they are not necessary.

What is value-based pricing?

Value-based pricing is an interesting pricing strategy. It gives you the opportunity to work on the products you offer, as well as on the core services (such as delivery and customer service) and your brand. The higher your customers value all these elements, the higher the price you can charge for your product. A classic example is a cup of coffee, where the production cost is around a few crowns. However, the price of the coffee can range over 50 crowns depending on the value the customer perceives of everything around the coffee itself. For example, factors such as opening hours, interior design, seating, the opportunity to meet others over coffee and the atmosphere in general can be taken into account. Creating a positive customer experience is central to the success of this type of pricing.

What is hedonic pricing?

A pricing model similar to value-based pricing is hedonic pricing. The word hedonic comes from the Greek "hedone" which means pleasure and lust. According to this model, you put a price on very elusive, perceived values that lead to pleasure. The fact that a car can cost several million has very little to do with the need that the car meets, or even the design and appearance of the car - but the feeling that the customer has when riding in or driving that car. If you have a more unusual product or want to position yourself in the luxury segment, a hedonic pricing strategy may be right for you.

What is dynamic pricing?

With digitalisation, the ability to implement and maintain dynamic pricing has increased significantly. Here the price can change at any time and the idea is that you price based on demand, need at the time and other relevant factors for your particular products.

Dynamic pricing can also be called real-time pricing, precisely because the price can fluctuate and the customer who wants to make a profit can choose to buy the product when most others are not thinking about it and thus get the lower price. Maybe the ice cream in the kiosk only costs SEK 10 when it's cloudy, but SEK 20 when the sun is shining. For those who like ice cream even when it's cloudy, it's a good idea to buy it then - the queues are shorter, and the ice cream is cheaper.

Of course, it is perfectly possible to use dynamic pricing as a pricing model, whether you want to be the cheapest in the market or have a different positioning objective. However, we would recommend doing a proper review of the dynamic pricing tools before you start, as you will often need the support of software to maintain such pricing.

Factors that can make dynamic pricing work for you:

  • Competitors change their prices frequently
  • Time of day plays a big role in buying
  • Delivery time is of great importance to the customer
  • Products sell better when they are new or limited than when they are "in stock"”
  • You have many products in your e-commerce and need to be able to adjust pricing frequently for each of them

PostNord gives you full control of your deliveries regardless of pricing model

Whatever pricing strategy you choose, at PostNord we're ready to deliver your goods worldwide, safely and quickly, so that your level of service is maintained all the way from purchase to delivery of the product. If you don't already have a PostNord Portal account, you can easily create one here; whether you have a new e-commerce and want to send one parcel a week or you want to connect your e-commerce support with our logistics solutions.

Frequently asked questions about pricing strategy for e-commerce

What is a pricing strategy?

A pricing strategy is the method used to determine the price of a product.

What to consider when choosing a pricing strategy for e-commerce?

When choosing a pricing strategy for e-commerce, it is important to take into account (among other things) the current market and the price sensitivity of the product in order to find a price level that ensures good profitability and makes it possible to achieve the company's short- and long-term goals.

What are the different pricing strategies?

There are a number of different pricing strategies, some examples are cost-based pricing, competitive pricing and dynamic pricing.