Why do I pricing strategy?
Pricing strategy is not only about Mark-Up the product in a certain percentage and earns money.
Pricing is the only element that directly linked to profits under the marketing mix.
The last guideline we have talked about Product, and this guideline will give you the concept and pricing strategy!
What should I consider in my pricing strategy?
Cost + Profit are what you should think of! Yes, it is very simple, yet complicated.
The profit is from the sales revenue minus total cost.
Based on the simply understand, the way to increase your profit is to minimize your cost and maximize your sales.
Set your price correctly
How much should I Mark-up for the products? That is the most common question when it comes to the pricing part.
What is the current pricing strategy that you are using?
Set up your selling price based on your cost. For example, mark-up the cost by 30% as your selling price.
This is the most common way that drop-shipper used.
It is relatively simple, yet ignoring another factor, for example, the current market trend, the competitor’s price…
This would lead the price under-priced or over-priced, based on this case, you would like to indroduce 2 more pricing startegies.
This is the pricing strategy that considers your competitor’s price.
What does it mean? You will need to have market research on your competitor, to know what their current prices and estimate their cost by your calculation.
You will need to estimate from your competitor
Most of the product margin percentage is based on their brand (Except King Product), for example, if you have the margin percentage rate from Innisfree A product, then you can apply on Innisfree same product line – B product
The competitor-based pricing makes you stay with the market price and keep tracking with your competitor. If you are selling the same SKU / product, most of the (sadly) your customer will compare by price.
That creates price-war, if you want to overcome it, simply add Bundle- product or give Free items attach to the product, in this case, your customer will not able to measure the price easily. As the offering is different.
And you are able to sell a higher price than your competitor, by differentiating the offer.
The value-based pricing strategy is customer-centric, the focus is put on what much your target customer willing to pay.
The customer comes first, and then you will be based on the target price to provide value.
The value can be skincare advice, can be a premium brand image (delivered by the luxury packing)…
It is also the unique value that you can bring to your customer, it cannot be copied easily and it can help you deepen your customer relationship.
While using value-based pricing, most of the time it is something related to unique or unattachment service, in our case, that is probably a professional advisor for the product.
In this case, the selling price is completely determined by your value-specified benefits.
What about my Cost?
Regarding product cost, we have a very clear website and system to show your product cost directly, and we do not change our price as we have a stable supply rate. Product cost is the most stable element in the cost.
Shipping cost depends on the weight and location of the shipping address, this can be your cost or your customer’s cost. Depends on if you offer free shipping or not. If you do not offer free shipping and you let your customer burden the shipping cost then you will have no cost. (We do not consider free shipping at this moment, we will talk about it later on)
Payment Gateway Commission
Payment gateway commission is based on transaction cost, for example, Paypal, Stripe or Shopify payment. Be aware if you are receiving different currency, the charges might be different!
Domain / Subscription
Domain and subscription service, we charge membership fee monthly and you might have subscripted another online service – Shopify (USD$29/month), or the template & theme that you are using.
Apps, basically the Shopify system or any other e-commerce system need extra apps or plugins to make the customer journey better. We do not recommend to subscript Apps at the very beginning of your business. As there are many free apps (might have ad / logo of the company) available. Get the free version first.
Marketing Cost & Investment
Marketing investment is a MUST ! No matter you are doing social media marketing or your own online shop. There will be NO TRAFFIC & NO SALE. If you do not invest in your shop. DO NOT USE KOL / YOUTUBER at the beginning of your business. You will have nothing but only pay them money or free product. (They might bring you sales, but data is more valuable for you)
Payment terms (Hidden)
Payment terms and turnover are always being neglected by dropshippers. You have to understand that your payment gateway or marketplace will only release your profit on a monthly basis or bi-weekly basis. You will need some petty cash to settle your bill and that’s why “TIME” of the payment terms are also a cost for you.
Let me explain in this way, imagine you are selling an apple to a customer, but there is a payment term for 90 days. That means you will not get your money after 90days. So if you sell this apple and earn $1 for 90days payment terms, will you do this business?
No right? this is the concept that you should consider.
Surprisingly, most of the current dropshippers or company are simply using a cost-based markup pricing strategy, which means they are inactive to the current market trend or price.
Change your mind-set and think about if you should use competitor-based or even more value-based to make you stand-out in the market.
The right pricing strategy helps you not only increase your profit, but also let your marketing mix coordinate to product, place, promotion.
Talk to us if you have any question or problem in your current dropshipping business. We are happy to help!