Top 7 Pillars of An Effective eCommerce Pricing Strategy in 2024

Having a robust pricing strategy is pivotal in the competitive and highly volatile ecommerce industry. By merging data-driven insights with market understanding, businesses can set prices that not only cover costs but also attract and retain customers.

To achieve a competitive edge, it’s essential to understand the must-haves of an effective pricing strategy. In this article, we explore the top 7 elements of an effective ecommerce pricing strategy. 

1. Competitive pricing

Having competitive pricing is one of the most effective ways of achieving ecommerce competitive intelligence. Here, prices are determined based on what competitors are charging. By staying vigilant about market movements, businesses can ensure they’re neither overpricing nor undervaluing their products. Implementing competitor-based pricing involves:

• Leveraging price monitoring (which can be achieved through automated price monitoring tools).
• Leveraging price benchmarking.

Imagine two companies selling eco-friendly yoga mats. Company A launches its product at $50. Company B, observing this, might price its similar mat at $48, offering a slight discount to lure customers while still maintaining profitability.

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2. Dynamic pricing

Dynamic pricing involves adjusting prices based on real-time supply and demand and is a must-have for an effective ecommerce pricing strategy. Leveraging dynamic pricing for an online retailer involves:

• Leveraging data to setting the best price for a product or service
• Collecting and analyzing competitor market data
• Choosing the right dynamic pricing module
• Applying dynamic pricing algorithms on collected ecommerce data to automate the process
• Update prices regularly and optimize the pricing process

Dynamic pricing is particularly beneficial in the ecommerce area, where variables like web traffic, competitor pricing, and inventory levels can change rapidly.

Consider airline tickets, a prime example of dynamic pricing. During peak travel seasons or when few seats are available, prices may surge. Conversely, during off-peak times, airlines may drop prices to fill seats. In ecommerce, if a particular style of shoe is trending and stock is limited, the price may slightly increase to capitalize on the demand.

Figure 1. Dynamic-pricing modules¹

Read this to learn more about dynamic pricing in online retail.

Ever noticed products priced at $19.99 instead of $20? That’s psychological pricing in action. The idea is that consumers perceive prices ending in .99 as being lower than the next whole number. In a price-sensitive industry, psychological pricing can be an effective tool to equip your ecommerce pricing strategy.

Apple, renowned for its premium products, introduced the first-generation iPad at $499, just under the $500 mark². This strategy reinforced the notion of value while keeping the product within a perceived affordable bracket for a luxury item.

3. Psychological pricing

Ever noticed products priced at $19.99 instead of $20? That’s psychological pricing in action. The idea is that consumers perceive prices ending in .99 as being lower than the next whole number.

Apple, renowned for its premium products, introduced the first-generation iPad at $499, just under the $500 mark³. This strategy reinforced the notion of value while keeping the product within a perceived affordable bracket for a luxury item.

4. Bundle pricing

This strategy involves selling multiple products together at a price lower than the total individual costs. Bundle pricing can help incentivize customers to purchase more items together at a perceived discount, increasing overall sales volume. Additionally, it can streamline inventory management and reduce shipping costs by moving related products more efficiently, making it a must-have in your ecommerce pricing strategy.

Suppose a skincare brand sells a cleanser, toner, and moisturizer separately. But, when sold together in a ‘Skincare Set,’ they could offer a 10% discount through bundle pricing, appealing to customers seeking a complete solution.

5. Penetration pricing

Penetration pricing or the loss leader pricing strategy is important for online retailers because it allows them to quickly gain market share by offering products at a lower price than competitors, attracting a large number of customers, and fostering brand loyalty. Additionally, in the competitive digital landscape, this strategy can create buzz and virality, driving increased traffic and awareness to the online platform.

Streaming services, like Netflix, leveraged penetration pricing to initially offer low subscription prices to attract users⁴. As their content library and user base grew, so did their prices, but the value proposition kept subscribers engaged.

5.1. Price skimming vs. penetration.

The price skimming strategy is the opposite of penetration pricing. While penetration pricing reduces the prices of products to rapidly gain market share, price skimming is a strategy where you set the price of your product higher than the current market price. Retailers usually do this to achieve higher returns on investment but risk losing market share while implementing price skimming.

6. Personalized pricing

Personalization is becoming increasingly important for shoppers (Figure 2). By using data analytics, AI, and a customer’s browsing or purchase history, online retailers can offer personalized prices or deals tailored to an individual’s shopping habits and preferences. 

This kind of strategy is much harder to implement in a physical store since gathering data in an online platform is much simpler. For instance, a retailer can offer a discounted price to a regular customer to increase loyalty.

Figure 2. Customers expect brands to show that they know them on a personal level⁵

7. Peak user pricing

Unlike other generic pricing strategies like cost-plus pricing or value-based pricing, peak user pricing is more specific to the ecommerce area. Online retailers can adjust prices based on website traffic.

For instance, during peak usage times, prices might be lowered to incentivize purchases, or raised if there’s a high demand and limited stock. This strategy has the following benefits:

7.1. Demand management

By adjusting prices during peak usage times, retailers can either capitalize on high demand or, conversely, incentivize purchases during periods of lower demand. This dynamic adjustment can help even out demand, prevent stockouts, and optimize inventory turnover.

7.2. Maximized revenue

If there’s a surge in website traffic and demand exceeds supply, increasing prices can help retailers capture a higher margin on each sale. Conversely, reducing prices might attract price-sensitive shoppers during low-traffic times, leading to increased sales volume.

7.3. Enhanced user experience

By strategically adjusting prices based on traffic and user behavior, online retailers can build a sense of urgency or exclusivity, encouraging users to make quicker purchase decisions. Special pricing during off-peak hours can also be framed as exclusive deals, offering loyal users a sense of being rewarded.

This strategy is specifically effective in online stores since physical stores can’t gauge foot traffic in real-time and adjust prices instantaneously.

Further reading

• Top 5 eCommerce Data Services / Platforms
• Top 10 E-commerce Analytics Tools & Selection Guide
• E-commerce Analytics: 5 Benefits & Methods

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Resources

• 1. Benmark et al. (2017). How retailers can drive profitable growth through dynamic pricing. McKinsey & Company. Accessed. 14/August/2023.
• 2. Two teachers (2023). The Power of Psychological Pricing: How Apple Tricks Your Brain. Accessed: 10/August/2023.
• 3. Two teachers (2023). The Power of Psychological Pricing: How Apple Tricks Your Brain. Accessed: 10/August/2023.
• 4. Kosno, Marek (2022). Best Penetration Pricing Examples. Brandly360. Accessed. 11/August/2023.
• 5. McKinsey (2021). The value of getting personalization right—or wrong—is multiplying. Accessed: 11/August/2023.