Pricing might seem like a pretty standard and inconsequential part of your business, but it’s quite a lot more important than you think. The kind of e-commerce website pricing scheme you choose can make a big difference to your customers, their perception of your brand, and, in the end, your success.

A lot of what lies behind the pricing is deeply psychological. Your customer won’t be able to tell you why they’re comfortable with your pricing and uncomfortable with someone else’s. But diving into the psychology behind it can help you get a bit of a leg up on the competition. Here’s what you should know about e-commerce website pricing schemes.

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What Are E-Commerce Website Pricing Schemes?

E-commerce website pricing schemes are pretty much what they sound like—strategic approaches that businesses use to price their products competitively in the market. There are various standard frameworks because there needs to be some logic behind pricing. Some work better for certain types of companies, audiences, and products.

Types of E-Commerce Pricing Models

There are plenty of different types of pricing models because there are tons of different types of businesses out there. Here’s a quick dive into the various types of pricing and how they work.

Cost-Plus Pricing

This is a simple model that’s pretty easy to set up. You buy goods at a certain price and add a specific mark-up to it. It’s that easy! It’s a common model in retail because you know you’ll make back your upfront costs plus a little extra.

It’s a straightforward, think-free model, but it might not work well in highly competitive markets because it doesn’t take your competitors’ pricing into account at all. It’s all about you and your initial costs.

Penetration Pricing

This type of pricing is quite strategic and often used by new businesses to get off to a fast start. The thing is… You have to come into the market with lower-than-everyone-else prices. This can attract customers pretty fast, but it has some downsides.

One, people could assume that low price = low quality. This can leave your brand with a negative reputation from the start, so there’s a bit of danger to this method. Two, the model relies on increasing your prices at a later stage to cover losses, which means you’re less likely to attract repeat customers, and unless your marketing is amazing, you might not even attract first-time customers later.

Premium Pricing

Premium pricing is a bit of reverse psychology. To show your products off as luxury or high-quality, you’ll price them a little higher than others on the market—which works surprisingly well when your product has some kind of unique selling point that others don’t.

It’s a good choice if your audience is in the market of luxury items, but keep in mind that price-conscious customers are much less likely to buy. You need to understand your target market well to use this pricing model confidently.

Competitive Pricing

This price model is all about how much your competitors are charging. In overly saturated markets, out-pricing your competitors could be what gets you the business, but it can also reduce your profile margins and lead to unpleasant price wars that make business uncomfortable.

Value-Based Pricing

Value-based pricing is based on the customer’s perceived value of your product. It’s quite separate from things like production costs or initial buying costs. But you can’t just use this on anything—you need to do deep research into your target audience and make sure your product is truly unique.

Dynamic Pricing

Dynamic pricing fluctuates based on a bunch of things, like demand, competition, and other business-related factors. Things like travel and hospitality often use this pricing model, but e-commerce can use it too—it’s handy for seasonal pricing changes, like Black Friday or other periods of higher demand.

It can make pricing a bit unpredictable, though, which might begin to annoy customers. It can also become tedious for you to adjust your pricing based on external factors continuously.

What Influences E-Commerce Pricing?

Pricing isn’t really a cut-and-dry kind of thing. It’s easily influenced by many things, things you should be paying attention to if you want to maximize your profits without angering your customers!

Market Demand and Supply

High demand and low supply is the perfect time for increased prices because customers will pay to get what you’re selling. When demand is low, and supply is high, customers can get what you’re selling anywhere, so lower prices will be better sellers.

Competitor Pricing Strategies

Basing your pricing on your competitors’ prices is a good tactic in very saturated markets. If your competitors lower their prices, you may need to respond in a similar way, or you could be left behind. Value-added offers can also be a good choice here.

E-Commerce Website Pricing Schemes And Factors Of Pricing

Customer Perception and Behaviour

The way your customer sees the value of your product changes how much they’re willing to pay for it. For example, lots of positive reviews, especially if they include a couple of high-profile reviews from celebrities or authorities.

Cost of Goods Sold

The original cost of your products makes a difference to your pricing. You need to factor in things like production, shipping, and your own operational expenses to make sure your prices cover those and give you some profit on top of those.

Brand Positioning

If you’re positioned as a luxury brand, premium prices are more in line with that kind of value. On the other hand, if you’re a budget brand, lower prices are expected because your target market is looking for value-for-money products.

Seasonality

Seasonal availability changes supply and demand. Peak seasons and holidays can increase prices because demand is higher. Off-peak times might need some creative pricing strategies, like promos and discounts, to increase sales.

What is the Psychology Behind Pricing Strategies?

Pricing is quite a psychological game. It’s more than just a number—there are plenty of psychological ticks behind that price tag to get people to buy.

Price Anchoring

This is a clever technique in which you present an initial high price to the customer but later offer it at a lower price. For example, you might price a product at $150 initially and then drop it to $100 later. The new price seems like a great bargain for clients who saw the initial price, even if you’re still making a big profit on it. “Perceived savings” is a big psychological trick to get people to buy.

Odd-Even Pricing

Interestingly, prices ending in odd numbers tend to be seen as bigger bargains than even-ended or round-numbered prices. For example, customers are more likely to buy a product priced at $19.99 rather than the same product at $20.

Odd pricing is common in most retail environments, but even pricing is often used in luxury markets, which subtly conveys that the products are exclusive and of higher quality.

Price Skimming

Price skimming works well in markets like technology, where innovative and novel products are in high demand. Businesses take advantage of the hype around new products and increase initial prices, which then gradually come down over time.

Decoy Pricing

Decoy pricing is a sneaky but effective tactic. You’ll have 3 options for your customer to choose from, with the middle one being the “decoy.” For example, a small box of popcorn might cost $3. The next size box may cost $5.50, and the biggest box may cost $6. The middle box is the decoy.

Customers will automatically consider the middle option as a happy medium, but when noticing that the large is just $0.50 more, they’re more likely to choose it because it seems like much better value for money. Subtle, but smart!

Conclusion

Picking an e-commerce website pricing scheme is a pretty important part of your business. Not every one of these schemes will work for every business, so before you make your decision, get a good idea of your business model, your competition, and your target audience. A deep understanding of these things will help you choose a pricing model that really works for you and for your customers.

About the Author

Paul Wheeler runs a web design agency that helps small businesses optimize their websites for business success. He aims to educate business owners on all things website-related at his own website, Reviews for Website Hosting.