Pricing is an integral part of business; every merchant should consider it carefully. Your pricing strategy should be the one that will see your business grow well. We understand that one cannot set prices through feelings or a random method. If you do not have a dropshipping pricing strategy, then you ought to read this article to get started. Also, if you have one and it is not working well with you, follow this piece to improve. Remember, a good drop shipping pricing strategy should earn you as many profits as possible.
Why are pricing strategies essential?
A pricing strategy is a process or method that a company or merchants use to set the prices of commodities. In most cases, the pricing strategy is based on various expenses that have led to one acquiring the product. Some include tax, marketing fee, app costs, hosting price, and psychology.
Below are some types of pricing strategies:
I. Retail pricing strategy
It is a strategy that retailers use to price products. Most retailers could want to double the price they bought the product to get enormous profit margins, but pricing differs. A retailer should first assess the impact that a price will bring before placing it. Following the pricing strategies below, a retailer will have easier decision-making when it comes to retail pricing.
II. Keystone pricing
Here a retailer doubles the wholesale price to get the retail price. However, keystone pricing can work on some products while it fails on others. For instance, if the product is scarce and has a slow turnover and high handling and shipping prices, then doubling the product price may work well or even higher. On the other hand, if the product is readily available and sells quickly, doubling its price will mess you up; it must be lower. Keystone pricing has one advantage of being simple and may earn healthy profit margins. Its disadvantage is that it may be unreasonable for a retailer to mark up the price of a product so highly.
III. The manufacturer suggested retail pricing.
The manufacturers may set prices that retailers will use to sell their products to standardize products in the market. The prices may vary from one location to another, depending on the market. Manufacturers will expect the retailers to use the price set but may give a slight provision for change. If the retailer deviates from the price, the manufacturer may discontinue them from selling those products.
The advantage of manufacturer-suggested retail pricing is that it saves a retailer time for setting prices. A disadvantage is that the price may not consider other extra costs that a retailer may undergo when handling the product, which may bring losses or fewer profits.
IV. Bundle pricing
The retailers may decide to sell multiple products for a single price. One may sell the underwear, socks, and vest as a package. Also known as multiple pricing, it helps sell large volumes of products though it may reduce profits.
V. Penetration or discount pricing
Shoppers will always like rebates, coupons, and different markdowns. Discount pricing is so important in a business because it will create jam in your business and help you offload the stock that is not moving. It will attract many customers who are price conscious into your business. If the product is new, a lower price will automatically make it gain a market share rapidly. Using discounts should not often be since it may prevent customers from buying your products at regular prices. In addition, it may create negative psychology in the customers towards your products.
VI. Psychological pricing
Merchants experience pain when they spend money. To minimize the pain, they tend to use odd numbers at the end of the prices to lure customers. When customers see a product selling at $5.99, they will feel that the price is lower than $6. These customers see in their mind that the product sales at $5, which is a dollar less than $6. These charm sales are likely to increase sales by some percentage. Number 9 seems to be a magic number in setting such prices. An advantage of charm pricing is that it triggers impulse buying on customers, increasing sales; people cannot resist purchasing goods when they see number nine at the end of the price. Unfortunately, the price may create some mistrust because a whole dollar looks transparent and clean.
VII. Premium pricing
You may consider putting prices too high so that customers may feel your brand is luxurious and prestigious. When you market your brand at high-end places like private beaches, customers will want to pay higher for a product that other sellers sell at a far low price. It may be hilarious, but with confidence, differentiate yourself and try that. Provide value to the clients. In this strategy, the consumers will consider your products to be higher than your competitors, which is advantageous. On the other hand, the prices may be too high to implement. If the customers become sensitive and buy similar products from others, you may lose the market.
So what is the importance of pricing? The importance of pricing can take two dimensions:
Pricing leads as other things come second
Pricing impacts profit increase.
1. Pricing leads as other things come second.
Did you know that a price that you attach to a product defines its worthiness and that of your business? Many things work towards strengthening the prices in your industry. Through your business, people get employment and money that support themselves and those around them. Businesses also satisfy people’s needs for goods and services, and through taxes, they help the public.
There is a lot of streamlining and creativity that makes businesses stand. Many people take much energy and time to build their businesses. Further, merchants use capital and cash to make their businesses succeed. Businesses also have various parts like marketing, delivery of goods, and employees. Considering the value of a business, one cannot put prices anyhow: it needs a strategy. Prices are payback to the effort that you have put into your business and should be taken seriously. All the activities in the industry justify the price that you have placed.
2. Pricing impacts profit increase.
Pricing is among the key things that have a direct impact on profit maximization. When a company has a reasonable price optimization strategy, it will reap more profits in its business. When yields are low, merchants tend to concentrate on streamlining costs or increasing marketing, not knowing that it all begins with pricing. People should address the elephant in the room to increase their profits. Take pricing seriously by choosing a good pricing strategy.
Aspects you should be considering for dropshipping pricing strategies
i. Business expenses
Merchants need to outline their expenses before setting prices. The costs of months ahead should be on paper and with about 10% inflation to cater to unseen costs. Some charges include shipping costs, wholesale product costs, marketing costs, website fees, monthly recurring costs, salaries, and the emergency fund.
ii. Competitor pricing
Analyze the prices of the competitors in your niche. See how they have set their prices and brand popularity. Let your analysis concentrate on the online stores that sell products under your niche. Try to avoid already established retailers with big boxes like Walmart, Amazon, and AliExpress.
iii. Advertising or marketing
Determine how heavy your products need advertising. Some businesses need the services of influencers, which require the inclusion of influencer fees. Others need only social media, like the use of Facebook Ads that also have some fee. The initial stages of a business require adequate direct advertising to make the brand stand out. Merchants may spend relatively large amounts at this stage.
iv. Discount marketing
Know the discount percentage when setting the price and ensure that you align the percentages to the market value. Discounts boost businesses when they are new by proving to the customers the goodness of the products. However, the discounts should not be many because they may hurt your brand in the end.
v. Profit margins
Sometimes the merchants should know the amount that they plan to make in their businesses. The fact is that dropshippers should make profits since they have nothing to do with breaking even. Explore the niches that have high profits, where you can employ a good drop shipping pricing strategy. Niches like fashion have high profits compared to electronics. Look at the standards in the industry before setting prices.
Having a dropshipping pricing strategy is critical to any business. In dropshipping, merchants should embrace the idea of choosing the best drop shipping pricing strategies to earn maximum profits. Learn that pricing is the head in the business to where every activity attaches itself. As much as you do marketing, minimize costs, have more employees, and do other things, they all will land to the prices you choose. Reasonable prices enhance your profit base that leads to the growth of your business. Consider having your dropshipping pricing strategy fast if you do not have one. Moreover, if there is one, align it with the requirements above.