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There are many factors that can have an effect upon your bottom line. You’re in business to make sales and profits. And setting the right price for your products is crucial in order to succeed online. However, figuring out how to price your products can become a task in itself, especially when the profit margins differ from product line to product line.

For example, if you’re selling jewelry then you can mark up your products 50% to 100% or more. If you’re selling computer hardware components then you should only mark up your prices 8% to 15% in order to remain competitive in a very competitive market. However, jewelry is a luxury item where as computer products are considered to be a necessity by many.
Not many businesses or consumers themselves can function without technology, yet anyone can live without jewelry. Therefore, although you would be able to set and earn a much higher profit margin on jewelry, you would most likely make more sales in the computer product industry due to high demand. Yet if you try to add a 50% mark up on computer products then most likely you won’t make any sales.
Needless to say, there are different pricing strategies to use when setting the right price for your products, and it all begins with the cost of the actual product. And although operating expenses become another key factor in determining the price of the product, internet businesses rarely incur high operating expenses if any expenses at all, other than your main expenses such as web hosting and internet service for example.

The cost of the product includes the amount paid to the distributor for the product plus any shipping or handling expenses as well.

The cost of operating your internet business includes web hosting, telephone, internet service provider, etc…

As an internet retailer, you would not be able to succeed in business if you were to sell your products below cost. Therefore, the retail price of your products should be high enough to cover the cost of the products plus expenses related to the business.

Retail Pricing Strategies

Your next step in setting your prices is to look at how your competition is pricing their products.

There are different pricing strategies and each is used according to the product line and the market as well.

Mark-up Pricing

The mark-up on the cost of the product can be calculated by adding a pre-set or standard profit margin, or percentage to the cost of the product.

For example, if a laptop computer cost $545.00 on the wholesale distributors’ website then you can add an 11% mark-up or profit margin to the cost of the product in order to bring your final sale price to $604.95 ($545.00 + 11%= $604.95).

Furthermore, to create and set a more appealing price, you can deduct $5 off the total price to create the new retail price of $599.95 which will appear more attractive to the customer than a price of $604.95

It’s also important to keep the initial mark-up high enough to cover price reductions, discounts and sales while still being able to achieve a reasonable profit. And internet retailers with a variety of product and sub-product lines would be able to use different mark-up strategies on each product as well.
Manufacturer suggested retail price

Applying the manufacturers’ suggested retail price (MSRP) is a pricing strategy used by smaller retail stores to help avoid price wars with competitors while still maintaining an acceptable profit.

Some suppliers may advertise minimum prices but might also suggest the retail prices as well. And by setting prices with the suggested retail price then the retailer no longer has to calculate and set prices. However, when using pre-set prices, the retailer is not given the opportunity to have an advantage over the competition.

Competitive pricing strategy

Web shoppers have many choices and many times are inclined to shop around in order to find the best pricing. However, internet retailers using a competitive pricing strategy will need to provide excellent customer service in order to stand out from the competition.

Setting your prices, or pricing below competition simply means to set the prices of your products lower than the prices of your competitors on those same products or same type of products.

Needless to say, this pricing strategy works very well when you’re able to negotiate the best cost on the products from the wholesale distributors while also using a marketing strategy which focuses on price specials.
Prestige pricing strategy

Pricing above the competition, or what is known as “prestige pricing” may be used by internet retailers when exclusive and unique customer service can justify the higher price of the product. And such services can include consultation, installation etc…

Internet retailers which sell high quality merchandise that isn’t available elsewhere can become very successful when pricing their products above the competition.

Psychological pricing strategy

The psychological pricing strategy is used when setting your prices to a pricing level where the buyer perceives the price to be a very good deal. And one of the most common methods used for psychological pricing is to use odd-pricing where the retailer uses prices that end in 5, 7 or 9.

The reason why psychological pricing works so well is because consumers tend to round down a price of the product to the lower dollar amount even if it’s only 5 cents less. For example, most shoppers will round down $9.95 to $9 instead of $10.
Keystone pricing strategy

The keystone pricing strategy is used when internet retailers double the cost of the product. In other words, if the cost of the product from the wholesale distributor was $100 then the retailer would mark up the price to $200 or $199.95.

However, very few products allow such margins today, especially, in a competitive industry. The only products which can be marked up 100% are jewelry products, used products, and unique products where the retailer is the creator and manufacturer of the product as well. And even then, not many retailers would use the keystone pricing strategy while trying to remain competitive.
Multiple pricing strategy

The multiple pricing strategy involves selling more than one item for one price, such as 3 items for $1, $9 or more. This method works very well for clearance, mark downs and sales events as well. Furthermore, consumers tend to purchase in larger quantities where the multiple pricing strategy is used.

Discount pricing strategy

The discount pricing and price reduction strategy is a natural part of the retail industry, online and off. And discount pricing can include the use of coupons, rebates, seasonal sales and other promotional markdowns as well. And although little to no profits are made on discount pricing, retailers are hoping that consumers will purchase other products at higher margins while visiting their website. And many times, it’s that discount pricing that draws in traffic to create more sales and consumer awareness as well.

Setting your own prices

Setting your prices is easy to do. And a simple method for setting your own pricing is to simply check what your competitors are selling those same products for and then meet, beat or slightly exceed their pricing. And if you have to exceed their pricing by $5 or more then look for extra ways to justify your prices by adding special, unique services and outstanding customer support.

Just be sure to mark-up and set your prices high enough to cover the cost of the product and make a decent profit while remaining competitive as well.
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Main Article Index Page
How to Succeed in Your Online Store Business
How to Start Your Online Store Business
How to Choose Your Niche Market
How to Create an Effective Business Name
Check for Domain Name Availability
How to Register Your Business Name
Should You Use a PO Box or Home Address
How to Choose the Right Business Entity for You
Sole Proprietorships Explained
Corporations Explained
Partnerships Explained
Limited Liability Companies Explained
Incorporate Your Business Online
How to Obtain Your Sales Tax License
The Best Selling Products Online (Intro)
1. Books
2. Computers, Computer Hardware
NEW:Start a Computer Reseller Business Online
3. Computer Software
4. Consumer Electronics
5. Apparel, Clothing
6. Toys/Video Games
7. Videos DVD’s
8. Health and Beauty
9. Music
10. Jewelry
11. Office Supplies
12. Linens/Home Décor
13. Flowers
14. Sporting Goods
15. Footwear, Shoes
16. Small Appliances
17. Tools and Garden
18. Gifts
About Distribution
Choosing the Right Distributors
How to Get Signed-Up With DropShip Distributors
Books Distributors, DropShippers, Wholesalers
Computers, Hardware, Software DropShippers
Apparel, Clothing Distributors, DropShippers
Toys/Video Games DropShippers, Wholesalers
Video DVD  DropShippers, Wholesalers
Health and Beauty Distributors, DropShippers
Consumer Electronics DropShippers
Music Distributors, DropShippers, Wholesalers
Jewelry Distributors, DropShippers, Wholesalers
Office Supply Distributors, DropShippers
Linens/Home Décor DropShippers, Wholesalers
Flowers Distributors, DropShippers, Wholesalers
Sporting Goods Distributors, DropShippers
Footwear, Shoes Distributors, DropShippers
Small Appliances DropShippers, Wholesalers
Tools and Garden DropShippers, Wholesalers
Gifts Distributors, DropShippers, Wholesalers
How to Find More DropShippers, Wholesalers
How to Open Your Online Store
How to Build Your Own Online Store
How to Build Effective Product WebPages
Building Your eStore with Website Templates
Designing, Planning and Organizing Your eStore
Implementing Graphic Elements
How to Create Your Own Company Logo
Create Search Engine Optimized Product Pages
How to Create a Content Rich Website
Choosing Your Web Host Provider
Create a Search Engine Optimized Domain Name
Check for Domain Name Availability
Top Web Building Software Programs
Top 10 Web Host Providers
Top 10 Complete eCommerce Solutions
Top Website Developers
All About Shopping Carts
All About Payment Processing
All About Merchant Accounts
Using PayPal as a Payment Processing Solution
More Merchant Account Providers
All Merchant Account Providers
Setting Your Prices
Setting Shipping Charges
Maintaining Your Online Store
Your Internet Marketing Master Plan
All about Search Engines
The Top Search Engines
Search Engine Optimization Guide Pt.1
Search Engine Optimization Guide Pt.2
All about Building and Exchanging Links
Purchasing Text Link Ads
All about Press Release Marketing
All about Pay-Per-Click Marketing
All about Discussion Forum Marketing
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All about Banner Advertising
How Offering Free Shipping Can Boost Sales
All about 800 Toll Free Numbers
How to Beat the Competition
How to Run an Online Store Business
Dealing with Customers
How to Minimize Interaction with Customers
How to Deal with Customers via Email
How to Take and Place Orders
Paying for Products with Your Customers’ Money
How to Collect Sales Tax for Internet Sales
Avoiding Credit Card Fraud
How to Ship International and Overseas
How You Get Paid Each and Every Day
Dealing with Product Returns and Exchanges
Sample Return Policy and Procedures
Sample Privacy Policy
Sample Terms and Conditions Policy
Internet Business Resources
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