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Six eCommerce Pricing Strategies For Brave Hearts

9 Min Read
Leading by price

Pricing is tricky. You can ask consumers how much they would pay for a product or a service, but their behavior in real-world will most likely not match their answers. After all, spending hypothetical dollars are a lot easier than spending your hard-earned money for real.

So how can you know what’s the right price? Is it your price that mainly deters your visitors from buying from you? How low should you go to match the price of your competitors? Understanding pricing strategies that you can implement on your eCommerce store can help you use pricing as an asset to maximize your sales.

Here are a few eCommerce pricing strategies you can test on your website:

1. Should You Lead with Cheap Price or Good Value?

Maybe you offer the lowest price in the market for your products. Does that mean you should make it your USP (Unique Selling Proposition)? “Yes” might seem an obvious answer here. But the truth is, it depends.

A research by Stanford University revealed that a marketing message that emphasizes the experience associated with a product is more powerful than a message that focuses on money. After all, there has to be a reason why Miller, one of the more affordable beer brands, simply says, “It’s Miller Time!”

Miller Beer brand doesn't emphasize low price in their message

Another research that confirmed the same hypothesis tested the following marketing messages for a lemonade stand:

  1. “Spend a little money and enjoy C&D’s lemonade”
  2. “Spend a little time and enjoy C&D’s lemonade”
  3. “Enjoy C&D’s lemonade” (neutral approach)

Even in this case, the second message that focused on time attracted double the number of customers. They were also willing to pay twice more for the lemonade. That’s a huge difference from subtle word play. But if you notice carefully, this does drastically change the perceived value of the lemonade.

Now this clearly shows that leading by price is not a good idea even when you’re offering cheap prices. Yet, there are cases when leading by prices is a great way to improve sales.

Our customer, Royal Discount, sells computer hardware and software from popular brands, such as Microsoft, Adobe, among others. And their competitive prices gives them a great edge over their competitors. So when they increased the font size of their discounted price on the MS Office product page, the conversions increased by 36.54%.

Of course, the value of the software is the same for the consumers, no matter from which website they buy it. As long as the prospects are sure of getting authentic software, its pricing does play a key role in the buying-decision of the consumer.

2. Optimize Your Website for Careful Spenders

A research classified three different consumer groups on the basis of their brain activity at the time of spending. Participants were found to have strikingly different pain thresholds, with tightwads feeling a sharp pain before purchasing. This was completely opposite to ‘spendthrifts,’ who didn’t feel much pain. And the middle label was ‘unconflicted.’

Researchers at the University of Pennsylvania surveyed more than 13,000 people and developed a Spendthrift-to-Tightwad scale. Here’s how they broke-down the consumer ratio according to the pain experienced by them at the time of purchasing:

Consumers differentiated on the basis of their buying behavior

Considering that 24% of your consumers (tightwad) hold hard onto their money, you really need to optimize your offers to appeal to these careful spenders.

So, your pricing strategy should make it less painful for these fence-sitters to jump on your side. While liberal and average spenders might get carried away by a message that appeals to pleasure, tightwad spenders will be more convinced about the purchase if you draw attention to the utility of the product.

For example, this ad is a good fit for spendthrifts and unconflicted:

Audi ad is perfect for spendthrifts and unconflicted consumer types

But for tightwads, an ad that talks about practical value might make more sense:

Ad for tightwads should focus on practical value of the product

Here are a few other ways you can lure these tightwad customers to buy from you:

Bundle Related Products into a Kit

Justifying one purchase is so much easier than making several small purchases.

Combo deals at Flipkart

You can even provide “Replenish supplies” option for certain products that people often order on a regular basis. Products such as supplies for toilet paper, shampoo, soap, are ordered frequently every 1-2 months. You can provide a drop-down stating X number of months, which would allow customers to choose the frequency at which people want that product to be sent to them.

Don’t forget to provide a note with this, stating the amount will be deducted every month right before the order is shipped. And that they can cancel or change the frequency for their order any time by calling at your customer care number (or whichever way you prefer).

Your Words Matter

The same University of Pennsylvania study also tested the behavior of tightwads and spendthrifts when a hypothetical offer was presented to them. The subjects had to pay $5 fee for overnight shipping of a free DVD box set. This fee was described in two ways: “A small $5 fee” and “a $5 fee.” The version with the addition of the word “small” increased offer conversions by 20% for tightwad customers.

Use the Hello Bar

For those of you unfamiliar with the Hello Bar, it’s a bright horizontal bar that appears on the top of the page. It contains one simple statement and a call-to-action. For fence-sitters, you can use this hello bar to show a limited-time discount offer.

Offer additional discount for fence sitters in the Hello Bar

But yes, you will have to check your revenue figures carefully to see if you are able to achieve the right balance between the number of conversions and the discount offered by you.

For example, if you’re selling 100 t-shirts daily at a Sales Price (SP) of $100, your revenue is $10000. Assuming cost of a shirt is $30, your profit is $7000. Now if you offer a 30% discount, the profit from one shirt is $40 and total profit from 100 t-shirts is $4000. Now, for the same $7000 you have to sell 175 t-shirts, which is a 75% increase. The point is that discounts will usually increase the absolute number of units sold, but since the Average Order Value (AOV) goes down, you just might end up losing money.

It’s Either Free or It Isn’t

In his book, Predictably Irrational, Dan Ariely talks about an example from Amazon. The company noted that their sales in France were drastically lower than other European countries. The reason being that they were charging a 20-cent shipping fee in France, while providing free shipping in other countries.

The point is, it doesn’t matter how less your shipping fee is, it just cannot match the charm of the word “Free.” So, if it seems affordable, waive off your shipping fee completely (or above a certain order amount), instead of charging a small fee.

3. Test Different Pricing Brackets

Too many options can indeed confuse visitors. But not providing enough options can also limit your profit potential, insists William Poundstone in his book, Priceless: The Myth of Fair Value. In the book, Poundstone elaborates this with the case study about the purchase patterns of consumers for a beer.

In the first test, two options were made available – regular beer and premium beer.

Price test 1

As is clear, majority of the people opted for premium beer. But to cater to those looking for the cheaper option, a third option was added to the mix:

Price Test 2

No one opted for the cheaper option. But this drastically changed the ratio of the regular and the premium beer. Clearly, this was a negative move. Now that it is clear that people are not interested in a cheaper option, probably adding a more expensive option than the premium beer might help?

Price Test 3

That’s right.

The example shows how important it is to anchor your prices right and test different brackets of pricing. This can especially be beneficial if you think that you are undercharging your customers.

You can even use this method to display expensive products with medium-priced products so that the latter look cheaper in comparison and improve your conversions.

4. Segment Your Visitors According to Their Purchasing Power

A 2006 study of New York’s Fulton fish market found that the dealers constantly charged less prices from Asian buyers than White buyers.

Over time, the dealers learnt that most Asian buyers readily reject higher prices and group against dealers who offer high prices. And hence, the dealers preferred this method of staying profitable.

This trend has also begin to reflect on the web space now. Offering different prices for the same products could alienate many of your customers (even giants like Amazon have gotten into trouble for this). But there is nothing wrong with offering the same price but showing more relevant deals to different visitor segments.

Orbitz is a travel website that uses this technique as their software determines if the visitor is a Mac user or a Windows PC user. They found that Mac users prefer pricier hotels than Windows PC users.

Hence, they recommended expensive deals to Mac users, whereas Windows PC users are shown relatively affordable deals. But the company insists that their prices remain same for all.

If you want to try a similar test, you can easily set it up using the segmentation feature in VWO testing.

5. Try Out the Magical Number 9

Of course, $49 and $50 are almost the same and your visitors understand that too. But studies don’t lie. And Poundstone pointed out eight studies published between 1987 and 2004 in his book that confirmed higher sales for prices ending with the number 9 ($1.79, $79, $49, and more). The average increase in sales was reported at 24%.

See how Zivame implements this on their website:

Prices ending with number 9

When MIT and the University of Chicago ran an experiment, they printed three versions of a mail order catalog. One women’s clothing item was sold for $39, while other versions of the catalog carrying the same item were priced at $34 and $44.

All three catalogs were sent to an identical sample size. $39 catalogs had more sales than the other two and also had a higher profit per sale. Don’t forget to note here that the ‘$39’ price surpassed even its cheaper counterpart ($34).

6. Think Your Products Are Too Expensive? Communicate Value Before the Price

If you are selling a scented candle for $150, it might seem expensive. But if you explain that this scented candle doesn’t melt quickly and can last for one week at a stretch, you justify the price well.

Pricing strategies can make or break your eCommerce business. And A/B testing them is usually a little more complicated than just making a design or copy change on the website. No matter how convincing the idea might sound, you should be ready to see the results go either way. This is why, testing prices on eCommerce sites is for the brave hearts. But the risks definitely have their rewards too.

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