E394:🎓HOW TO CREATE & MAINTAIN THE PERFECT ECOMMERCE PRICING STRATEGY W/GUEST MENTOR PATRICK MEEGAN

How to Create and Maintain the Perfect eCommerce Pricing Strategy

In the world of eCommerce, your pricing strategy can mean the difference between being just another seller and becoming a go-to brand. But pricing isn’t just about undercutting competitors or slapping on a markup. It’s a balancing act, where art meets science, and understanding your value is just as important as understanding your costs. Today, we'll explore actionable insights on how to master pricing strategies, shared by Patrick Meegan, Managing Director of Investor Group Services (IGS).

Why Pricing Isn’t Only About Costs

One of the most common traps eCommerce brands fall into is basing their pricing only on what it costs them to produce or procure the product. Sure, you need to ensure you’re covering costs and securing a reasonable margin. But consumers don’t decide what to buy based on your costs—they look at value.

Think about it this way: pricing is about perception. If your price is too low, customers might question the quality. Too high, and you might alienate buyers who don’t see the added value. Striking the right balance requires asking yourself, “What is the perceived value of this product to my customer?”

Instead of focusing solely on cost-plus pricing, map your strategy around what your product’s worth is to your target audience. For instance, products with unique benefits or strong brand identity can often demand higher prices, while more commoditized items might need competitive pricing or bundling strategies.

The Art and Science of Setting Prices

Pricing isn’t just guesswork—it’s a mix of hard data and human psychology. On one side, you've got analytics like elasticity—how pricing impacts demand—and on the other, you have behavior and perception.

Brands often use broad rules like a fixed markup, but this can leave money on the table. Instead, consider grouping your product catalog into segments. Create a two-by-two grid with “perceived benefits” on one axis and “perceived value” on the other. High-value items with unique benefits might deserve a premium, while commodity items require a more budget-friendly approach.

For example, think about flagship products. These are your brand-defining items—the ones that bring customers through the door or drive the majority of your basket size. Pricing these effectively is critical to your overall strategy. Undervaluing them could hurt potential margins, while overpricing them might drive customers to competitors.

The Power of Bundling and Solutions

Speaking of flagship products, bundling them into solutions can make your business less vulnerable to price comparison and add much-needed clarity for shoppers. For example, if a 4x4 retailer offers “Turnkey Suspension Kits” tailored to specific vehicle models, they immediately differentiate themselves. Instead of customers piecing together individual parts (and price-shopping each one), they’re offered a complete, convenient solution.

This approach isn’t just smarter pricing—it’s smarter selling. Bundling shifts the conversation away from price toward the overall value and expertise of your brand. The result? Happier customers, higher margins, and fewer abandoned carts.

Tackling Common Pricing Pitfalls

Even experienced brands can struggle with pricing. Let’s dive into a few common issues and how to address them:

Over-Promotion and Discount Addiction

Promotions and discounts are often necessary to drive sales. But if you’re constantly running sales, you’re eroding price integrity and teaching customers to wait for discounts.

Instead of broad, sitewide sales, make discounting more intentional. Is the goal to acquire new customers? Clear out overstock? Reward loyal buyers? Build campaigns around goals, and then analyze the ROI. For example, running product-specific discounts during Black Friday might help move inventory, but blasting your entire catalog at a steep discount may just cannibalize profits.

Ignoring Inventory and Availability

Your ability to maintain pricing power is often tied to inventory availability. If customers know your flagship products are frequently out of stock, they’ll lose trust and move to a competitor. Worse, they may stop associating premium pricing with reliability.

Dynamic pricing tools—powered by AI—factor inventory, demand trends, and competitor data to keep pricing both competitive and sustainable. While these tools won’t work for every business, they’re a must for brands managing extensive catalogs or rapidly changing inventory.

B2B Pricing Challenges

If you think pricing in retail is tough, B2B takes things to another level. That’s because B2B pricing isn’t just about the product—it’s often tied to the customer.

Many B2B brands fall into the trap of custom pricing for every client. This creates massive inefficiencies, making forecasting and analytics nearly impossible. Worse, you might discover that your best customers—those driving the most revenue—are sometimes getting worse deals than smaller, less loyal accounts!

One solution is to implement tiered pricing based on volume or loyalty. For example, segment customers into a few pricing bands by purchase patterns. This approach simplifies operations while still rewarding key relationships.

The Untapped Power of Cost-to-Serve Analysis

Another overlooked challenge—both in B2C and B2B—is the cost to serve each customer. It's easy to assume all customers are equally valuable, but that’s rarely the case.

Let’s say Customer A and Customer B both purchase $10,000 worth of products annually. But Customer A frequently returns items, uses support services heavily, and negotiates discounts. Meanwhile, Customer B makes large, straightforward orders and has minimal support needs.

Clearly, Customer A is less profitable. Assessing and factoring in cost-to-serve metrics can help you prioritize resources and even adjust pricing structures. For instance, heavy-support customers could be offered higher-tiered support packages at an additional fee, ensuring costs are better aligned with revenue.

Starting Your Pricing Strategy Journey

If you’re new to strategic pricing, don’t worry. Here are two simple steps to get started:

1. Focus on Value First: Move beyond cost-plus pricing and start analyzing what your customers value most in your products. How can you justify higher prices for these benefits?

2. Segment Your Catalog: Identify where you’re undervaluing opportunities. Break products into groups based on their perceived benefits and competition levels, then treat each segment differently.

The goal is to start thinking strategically. With just a few changes, you might uncover hidden margin opportunities that can significantly impact your bottom line.

Final Thoughts

Pricing isn’t just a hurdle—it’s the ultimate opportunity. By understanding your audience, aligning your strategy with value, and embracing the right tools and insights, you can build a pricing model that grows margins without alienating customers. The key is to keep testing, adjusting, and approaching pricing as a dynamic part of your business, not a set-it-and-forget-it task.

While perfect pricing might never exist, perfecting how you think about pricing will set you apart. So, what’s your next step?

To learn more, check out the related THE eCommerce EDGE Podcast episode below: