The Biggest Danger In Ecommerce

How To Price Strategically

As Dan Kennedy says, "There is no strategic benefit to being the second cheapest in the marketplace, but there is for being the most expensive."

Buying decisions are based on value (and price is only a part of that equation).

The customer asks themselves if they’d rather have the benefit of your product or keep the money in their pocket.

Therefore, you must focus on the value delivered by your product over your competitors (or buying nothing at all).

Pricing Consideration #1 - Positioning

The cheapest product is seldom the best.

But if the customer can’t tell the difference between your product and the competition, then they’ll often choose by price.

If your product is actually better than competitors, then you should be able to justify a premium price in the market.

So think about positioning your product in the competitive landscape, but don’t try to tell me that you can offer “cheaper” AND “better” at the same time.

Pricing Consideration #2 - Customer Acquisition

I believe that ecommerce companies should have their direct marketing costs above the Gross Profit line (I call it Gross Profit After Marketing Costs).

Basically, you should know when you invest your allowable Customer Acquisition Cost (CAC) in marketing, you’re going to get a customer back i.e. invest $20 to get $40 in revenue.

Which means you need to factor in your allowable CAC when calculating your price.

Because traffic generation is probably going to be the biggest investment in your business if you want sustainable growth.

Pricing Consideration #3 - Retail Expansion

Please remember that most retailers expect a 50% Gross Margin for themselves if they’re selling your product in their stores.

So if you sell it to them for $20, then they’ll need to retail it for $40 (or more).

If you have a wholesale distributor in the chain, they’ll also expect their 50% mark up as well e.g. you sell it for $10, the wholesaler sells it for $20, and the retailer sells it for $40.

Which means underpricing competitors online can stop you getting retail distribution down the road (and seriously limit your growth).

Don’t Be Afraid Of High Prices

Too many vegan business owners invest extra money in quality ingredients, environmentally friendly manufacturing, and sustainable packaging.

Then we turn around and try to sell the products cheaper than our competitors who cut all the corners (and wonder why our business struggles).

I know we’d all like vegan products to cost the same as “regular” products, but the reality is we pay extra because we believe in doing things the right way (both as consumers and business owners).

We just have to make sure we communicate that value and educate customers on why they’re choosing the best.