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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.
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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.
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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. |
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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. |
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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. |
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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. |
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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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