The E-commerce environment can be a hard place to survive for many companies. There is already Amazon, Alibaba or Google holding most of the market share. And especially in dropshipping, the competition is increasing every day.
Businesses are looking for cutting costs and corners one way or another to keep up with the industry. Here's where most stores consider looking into which are pricing strategies and dropshipping. According to Bigcommerce research in 2017, 87% of 1005 respondents stated that price was the most important purchasing decision factor. Do you know what was number 2? With 80%, shipping cost and speed.
So, if you have better prices and delivery than your competition, it's highly likely that you're going to have more sales growth and profit margins. But, do you know what it takes to do that?
In dropshipping, you can provide more or less a good experience to your customers but setting up a pricing strategy is trickier than you might think.
If you're new to pricing I must say that it's much more than undercutting your competitors' prices. You don't want to give away profit margins but you'd like to provide better prices. And you can do this by collecting market data via using an automated competitor price monitoring technology and making smarter decisions.
1. Don't ignore your costs
If you focus on the competition alone and ignore your costs, your dropshipping business is likely to fail. To be profitable, you must be careful about each cost, in particular when attempting to adjust your prices to the prices of your competitors. The better cost optimizer will have more room for experimenting with prices which will give the upper hand.
2. Factor in shipping costs
When it comes to dropshipping the items you’re selling are traveling internationally and shipping times can take up to two weeks. For many customers, this is far too long. If you can't do it like Amazon don't be discouraged. Consumers will accept long shipping times if they believe they’re getting a good deal.
For this, many retailers add the shipping cost to their product and offer “free” shipping. As you can see, the shipping cost isn’t actually free, it's just incorporated into the price of the product.
You can also seek out products from suppliers with no shipping cost. This can be lucrative for many dropshippers as it eliminates the need to include the shipping price in the product price and will increase your margins.
3. Don’t go too low
Low prices indeed bring you the attention of shoppers and some of them will convert into customers. But, we recommend you not to do this as a long-term strategy. You should at least price your products at the highest of the lowest price. Which means, you should be positioned just below the cheapest price. Take a look at the chart below to find out what you're missing when you're pricing your products lower than you should.
4. Analyze category and brand products
Typically, most e-commerce prices are based on a certain brand or category level decisions due to particular supplier deals. Taking this into consideration, micro-managing each product price isn't efficient nor manageable. One method to overcome this is by grouping products of a particular category or a brand and comparing your own for every competitor separately.In this way, you will discover the advantages and disadvantages of various competitors regarding similar categories and brands. After carefully analyzing, you can adjust your price levels based on the results you get. To do this automatically you can even use a pricing software.
5. Take advantage of out-of-stock
What's more important than pricing and shipping in e-commerce? The availability of the product. No matter how competitive your site is if you don't have the product ready to be purchased consumers are going to look anywhere else. Knowing which products are out of stock in your market is puts your business in a very advantageous position. And in dropshipping, this is much more important because you're racing with many others for similar prices.
6. Prepare for seasonal campaigns
Examine historical pricing trends of your competitors to find out about their sales such as nighttime flash sales and weekend discounts. If you know the trends of your competitors, then you can anticipate when to take action. The real purpose here is to capture a loyal base of customers. If you aren't prepared for certain expectations on special days, you will even lose existing customers to the company next door.
7. Be ready for returns
Returns are a natural factor of both online and offline shopping. This is especially common in the dropshipping industry where sellers have less control over the quality of the products. If people do want to return their items you need to factor in that risk. Some merchants offer free returns, but obviously, this cost needs to be accounted for. You can do this quite easily by looking at the percentage of returns you have and add that on as a percentage of sales.
Before you make a sale, you should clearly outline your returns policy so there is no confusion in the unfortunate event a customer wants to return their item(s).
To wrap things up
In e-commerce, many other factors affect buying decisions besides pricing like product photos, website design, etc. If you got those in line and want to increase your sales growth you might look into the tips we've specified above. Such activities will boost profits and increase sales to help you outperform your competitors in the long and fierce e-commerce market.