Cross-border e-commerce entrepreneurship complete guide from scratch (7) – How to price your products

How to price products in cross-border e-commerce entrepreneurship (Guide 7)

What is your product pricing? Most e-commerce sellers who are just starting out think that pricing is related to cost and expect to impress customers with low prices. In a sense, this idea is not wrong.

However, experienced marketers know that product pricing is not just about cost, but represents your marketing strategy, not just profit. For example, you would spend $5,000 to buy a Rolex watch, although Rolex watches are made up of glass, metal and some accessories, and the manufacturing cost is less than $500. You won’t feel like it’s not worth it because you know that the $5,000 is for the connotation represented by Rolex. But can we price our products high?

This article discusses the four guiding principles for pricing products.

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1. Cost-oriented pricing – calculate your cost

• Product cost

• Promotion cost

• Logistics and express delivery

• Website operation and labor cost

2. Competition-oriented pricing – competitive prices

• Low-price competition

• Following the market competition

• High-price competition

• Cornerstone pricing

• Unified pricing for the entire store

3. Conduct pricing experiments

• Run pricing experiments

• K.I.S.S pricing method

Conclusion on product pricing

1. Cost-oriented pricing – calculate your cost

When pricing products, you must consider product costs.

You want to make money, and customers want cheap products. Only by grasping a good balance point can both parties be satisfied and achieve a win-win situation.

Your pricing directly affects user volume.

Here we introduce a principle for product pricing: cost-oriented (based on the cost of calculation pricing).

Although this method may not make you a lot of money, you also need to learn this method, clarify your own costs, in order to ensure that you do not lose money.

Here are the 4 main directions you should consider when pricing:

Product Cost

No matter how you purchase products, you need to calculate the cost of the raw materials that will be used.

For example, if you want to price a customized bracelet, you need to consider the cost of various raw materials needed to make the bracelet, including chains, inlays, gemstones, etc.

However, raw materials are not the only factors to consider. You also need to consider supplementary materials such as packaging boxes, cloth bags, or instruction manuals, as well as the cost of all items in the packaging box.

Promotion Cost

This is one of the most critical factors to consider for any online business.

When you first start in the e-commerce industry, you need to conduct a lot of marketing activities to make customers aware of your website.

In addition, your pricing will also affect your marketing strategy. High prices indicate high product quality, and your marketing will also change as a result.

Understand your e-commerce goals and price accordingly.

Here is a pricing strategy chart:

Under different pricing strategies, marketing methods and the required promotion costs are also different. If you plan to use advertising as your main customer acquisition method, you can evaluate the average conversion cost (CPA) for such products in advertising.

Then, CPA is your product marketing cost, remember to include this cost in your pricing.

Logistics and Delivery

The cost of logistics and delivery should also include packaging costs and tariffs or other taxes. This should not need to be emphasized, as sometimes the shipping cost can even be more expensive than the goods themselves.

Shipping costs are the number one reason for customers abandoning their shopping carts, with 44% of customers citing it as the reason for abandoning their purchase.

Customers typically prefer “free” shipping and dislike paying extra fees, so it is recommended to include the delivery cost in the product price and offer free shipping.

Website Operations and Labor Costs

Starting an e-commerce business requires a lot of effort, and there are costs associated with website operations and personnel, including your own salary. Including your salary in the calculation is a healthy labor cost model, spreading the operation and labor costs across each product.

Competitive Pricing

A competitive pricing model will help you establish a foothold in the niche market. A price point that is competitive with other suppliers will meet market demand and help you attract customers.

There are three types of competitive pricing:

Low Price Competition

A pricing model where the product is always priced lower than the competitor’s price. This is a good method to use when starting an e-commerce business.

Through this method, you will become one of the most price-competitive suppliers in the market.

One of the main advantages of this pricing model is the ability to stand out in the industry. Many retailers are adopting this model, including Amazon and Walmart.

The disadvantage of this strategy is that it is difficult to obtain the expected profit necessary for business operations. This may make it difficult for the business to maintain stability in competition.

Another disadvantage is that you have to gamble on the price. Once someone else offers a lower price to compete, you will lose the corresponding market share.

Competition by Market Pricing

If you have obvious differences from competitors when selling products, this strategy can work. When you price in competition, you will not lose many customers because you charge more.

Take a simple example to see the lost sales of jeans at different prices.

When the price of a sweater is about 159 yuan, you will lose 20% of customers. This may be the market price of sweaters and a good pricing plan.

However, if you price it at 199 yuan, you will only lose about 22% of the market and earn an additional 40 yuan in profit. The reason is that customers have a psychological expectation of the “set value” of the product they purchase. When your price is higher than the market price, you will lose some customers.

High Price Competition

Finally, you can price your product in a position of high-price competition.

This strategy is effective for certain niche products or if your product positioning is correct.

Few people believe that Apple’s raw material costs are several times that of PC materials. However, for Apple users, its price matches the other values provided by the product.

Anchor Pricing

Anchor pricing is another way to reduce the pricing risk you face.

The model is very simple – you double the price of the product you are selling. So if you buy a watch from a supplier for $20 each, you sell the watch for $40.

A 100% markup means you can earn enough money to cover your costs and provide enough profit to keep the store running.

At the beginning of your business, your costs will be higher. You need to allocate various costs among the several products you sell, including website, research and inventory costs.

Before you start building a large customer base and getting more product SKUs, each product needs to have a higher markup in order to pay for your costs. This may sound like robbery, but in fact this is a pricing rule commonly used by early cross-border e-commerce sellers. If the purchase price is 19 RMB, the selling price is directly set at 19 US dollars. As long as the difference between you and the market price is not too great, you can use this method.

Uniform pricing throughout the store

Everything is only $9.9! Pricing all products at the same price in your online store is a very attractive niche, such as all men’s watches for $59.

However, not all products are suitable for a uniform pricing model, such as similar functional models of drones or cameras, where similar prices can be confusing. As shown in the picture below.

As long as you remain slightly different from your competitors, your target audience will still want to buy your items. Even by adding extra packaging and quoting higher prices, you can sell cheap products at higher prices.

Three Squirrels is a typical example. Generally, nuts in supermarkets retail for about 50 yuan per kilogram, while Three Squirrels can sell 100 grams of nuts for 18 yuan through bagging, which is equivalent to 90 yuan per kilogram.

3: Conducting Pricing Experiment

If you are unsure which pricing strategy to adopt, you can conduct a pricing experiment.

Running a Pricing Experiment

Pricing is one of the most effective ways to increase conversion rates. It can help you optimize your e-commerce business and get the most profit out of your store.

When running a pricing experiment, try running a certain pricing model for a period of time. This can help you understand which pricing is more suitable for the niche market you are in.

K.I.S.S Pricing Method

K.I.S.S stands for “Keep It Simple, Stupid!” The KISS principle is the highest level of user experience, meaning that it is simple enough for even idiots to use, hence it is also known as the “lazy people’s principle”.

Pricing doesn’t have to be too complicated. Instead of spending hours calculating prices, it’s better to use those hours to test data trends under different prices.

Start with numbers that make sense for your business, costs, and how you define your target customers. Then create an effective number from there.

Over time, you can make adjustments and tests to see if this is the best price for you. If the product is not selling well, test higher and lower prices. Sometimes, a lower price can make the product look cheaper, while a higher price can make it look more high-end.

If your product is priced low, consider using a 9 at the end of the price. The reason why the product price is usually $14.99 instead of $15.00 is that it looks more like 14 dollars than 15 dollars. This is called the odd pricing strategy.

However, if your product is priced higher, consider using the integer pricing method, because more digits after the decimal point usually give people the feeling of being cheap.

Once you have a basic concept, use the following questions to help you optimize your pricing:

1. Can this price cover my costs?

This includes product development, transportation, indirect costs, and advertising expenses. Consider the electricity, internet, and office rental fees related to business operations.

2. Can I break even after launching marketing and promotional activities?

Determine the break-even point for business income and expenses after deducting all miscellaneous expenses and marketing strategy costs. The break-even point is the sales amount that must be achieved before the company enters the profit period.

3. How much buffer space do I have?

To maintain competitiveness, you may change pricing models multiple times. Make sure you know your profit margin and the percentage of markup you can offer. Checking the MSRP can help you price better.

Product Pricing Conclusion

There are many ways to price products, and different pricing rules will be adopted according to your e-commerce model and marketing strategy. However, regardless of the method, the following factors need to be considered:

First, the selling price can cover your cost. Fully understand your operating, management, and marketing costs. If you cannot afford the costs, your e-commerce business opportunity is doomed to fail from day one.

Second, understand your position in the market and how to position your brand. As long as you understand your strategy, you can price above or below the market price.

Walmart and Amazon have established huge brands with discount prices, while Rolex and Tesla have established brands focused on high-end consumers. Clearly define your market positioning and price accordingly.

Finally, maintain competitiveness. If necessary, test prices and find the best way to help you increase profits and customer base.

E-commerce needs to be adapted and improved regularly, especially for independent e-commerce websites. Continuously improving your online store and adjusting prices will help customers gain the maximum benefit and good experience from your business, increasing customer loyalty.

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