Introduction
Your product pricing is vitally important. There are several approaches to define your pricing strategy. In this article, we will look at how to optimize the product price after setting the initial price using your pricing strategy. If you're looking for a good overview of different pricing strategies, we’ve added some references at the end of this article.
Before we get started we wanted to cover one point on what to included when determining your real cost price, this should include the following:
- The cost of producing the product
- The cost of the packaging
- The landed cost, i.e the cost of getting the product form where ever it was produced to your warehouse.
- The storage cost
- The cost of shipping the product to your customer
- The cost of handling returns
Having established your true cost price and set your initial price inline with your pricing strategy you are then in a position to test the price to find answers to these questions:
- Is the price too high? Would setting it lower result in more sales
- Is the price too low? Can we set the price higher without impacting sales
How to implement
There are a number of ways you can test your pricing, depending on the tools available to you. The basic premise is that you want to test just the price on its own, everything else should remain the same.
If you're on Shopify testing your price is easy, the AbProfit - A/B Price Testing app allows you to test product prices for a single product easily. You can run this app and test different prices to all traffic on your website
For any other platform you'll have to take am more manual approach, there are two ways you can do this:
- Manual: Change the price for a a week and measure the impact, do this over a two week period, the first week is your control week, at the end of the first week change the price. It's very important to keep all other factors the same when doing (ie. marketing)
- Email: if you have an email with 20000+ subscribers you can use email to test the price:some text
- Set up multiple versions of the same product each with a different price, making sure they are only accessible via a direct link
- Send the same email to your your list, but spilt the traffic equally across each version of the product.
How to measure impact
We'd suggest measuring three metrics;
- Quantity sold
- Revenue
- Profit
The most important metric will depend on your priority, profit would normally be considered the priority but you may want to maximise quantity sold.
Examples
Garden Supplies Retailer
During covid the cost of shipping goods around the world tripled in few short months, for those merchants that manufacture products abroad this caused a huge problem.
Knowing that they were going to have to increase prices for some of their core product lines this merchant wanted to see if increasing the price would effect sales. Each product lien was manufactured in China and had to be ordered 6 months in advance, so in order to test the price increase they changed the price of the products immediately to see the effect on sales.
This was a product that retailed for £12, they increased the price to £14 six months in advance. The result was no noticeable decrease in sales, doing this simple test allowed them to order the next batch of product confident that the quantity sold would not be impacted. Of course they also have the added benefit of increased margins for the current batch of products
The Souvenir Retailer
Having had a souvenir jewellery item produced especially for them with the price set as low as possible this merchant found they weren't selling any items. Not being able to reduce the price they decided to increase it and doubled the price.
The result was the item starting selling well, evidently the initial price was too low and gave the impression of a poor quality item.
