Price point: What is it, and how does it differ from price?
The pricing strategy is, by far, one of the major head-scratchers for e-commerce business owners and managers. When your prices are too high – you lose customers. When your prices are too low – you don’t make enough money. And this is where price points come into play. What are the price points? And how can you use this knowledge to devise a perfect pricing strategy in your e-commerce business?
Let us start with the basics:
A market price definition
According to Investopedia:
The market price is the current price at which an asset or service can be bought or sold. The price at which quantity supplied equals quantity demanded is the market price.
Several factors affect the market price, i.a. current market conditions and moods, the product’s quantity and availability, laws and regulations, etc. The relation between the price of a product and the amount demanded is often presented graphically as the demand curve. Generally speaking, we can say that as the price of a given product grows, the requested quantity decreases. Here’s how it usually looks like:
Of course, the demand curve can differ between products. How can you understand how it looks like with the products in your offer? According to Hermann Simon, you can do so by:
- Asking industry and internal experts for their opinion
- Conducting customer surveys
- Performing real-life experiments and tests
Now, if you understand how the demand curve works in the case of your products, you can optimize your pricing strategy. While a market price is simply the actual amount of money for a product at a specific time, e-commerce entrepreneurs are more interested in the price points. Let’s take a look at them.
What is the price point?
In short, a price point is the specific price level that allows you to:
- Make the most money possible
- Maintain customer’s interest in your offer
In other words, a price point means a perfect balance between the money you make and the customer demand. At this point, you’re most likely wondering, how can I set a price point?
HOW TO REACH THE PERFECT PRICE POINT
Actually, the best way to assess how much customers are willing to pay for your products is through various tests. Also, bear in mind that price points are by no means constant. That’s why the e-commerce sector utilizes dynamic pricing. It’s a strategy based on continuous price monitoring and adjustments (we’ll get to that).
What should you take into account when attempting to set a price point?
- The current market price of a specific product
- Your competitors’ prices
- Possible supply volumes
- Current market conditions and legal regulations
For starters, you can begin with the most straightforward technique – A/B tests. Try different prices, and see how the market responds.
Another approach you can try is based on rising prices. Consider a simple example of a company that sells online products. They have a special offer for early birds – 100 USD for the first 10 customers. Next, they raise the price by 20% – 120 USD for the next 10 people, and so on. This way, they can easily assess when people stop buying. Also, with this technique, you create a sense of urgency, so people are more willing to buy from you.
Furthermore, you can do the exact opposite and try price skimming. In this approach, a product’s initial price decreases over time. Price skimming is widespread concerning products that quickly become outdated (i.a. tech products). Some online stores also use product bundles. Product bundling is also a quick way to sell more and raise your AOV (Average Order Value). The idea is based on creating an inseparable set of products with a small discount.
Finding price points: Dynamic pricing
The most reliable way to reach and maintain price points in your store is based on dynamic pricing (also known as price automation). For starters, you receive a tool that allows you to change prices in your online store automatically based on predefined rules and market conditions.
With dynamic pricing, Dealavo’s algorithms constantly monitor your prices and the market to set and maintain the prices that will bring you the highest profit.
Our intelligent AI-based algorithms work 24/7 and ensure that you can maximize profits. Here’s how it works:
- You determine which products’ prices will be based on dynamic pricing.
- You define the rules by which you want to set prices. You can find the whole list here. For example, you can set a rule to be included among the first 3 offers in a specific sales channel (e.g., Google Shopping).
- Based on data collected from the market, ERP systems, sales channels, etc., Dealavo’s system suggests optimal prices.
Our price monitoring tool also comes with an analytics feature that allows you to verify how prices have changed over time and what impact these changes had on your profits and performance. It sounds interesting, doesn’t it? So, what your next steps should be?
- Fill in the contact form to have a call during which we could understand your needs and discuss how we can help
- See the demo of Dealavo’s price monitoring tool
- Choose the products you would like to monitor
- Choose the websites you would like to track prices on. These can be marketplaces, price comparison websites, or other online shops
- Our team will do the rest, and you can count your higher profits!