One of the key dilemmas faced by aspiring dropship resellers is determining the optimal pricing for their ecommerce products.
The variety of dropship pricing strategies available means that your approach can be as unique as your products, suppliers, and overall business model. Some argue for a dynamic pricing strategy that constantly evolves through testing, while others seek a more stable approach.
Regardless of your stance, selecting the right dropship pricing strategy is a foundational step in establishing your dropship ecommerce business and significantly shapes how customers perceive your brand. It is essential for resellers to carefully assess various pricing strategies, considering both profit margins and the impression they want to leave on buyers.
Begin by evaluating the nature of the products you intend to sell. Not all products can be priced uniformly. Electronics, for instance, may sell in higher volumes but usually with thinner profit margins, while décor may have lower sales volume but offer higher margins. Once you’ve identified your product niche, tailor your pricing strategy accordingly.
Product Pricing Strategies
Engage with your supplier early in the process. A brief email to your sales representative or support desk can yield valuable insights into recommended pricing settings for specific product types. While not all suppliers may provide extensive guidance on retail pricing, establishing a good rapport with your sales representative could result in helpful advice as you embark on your journey.
Pricing strategies are vast, and the choice of strategy depends on specific circumstances. Take the time to explore the diverse options, keeping in mind that your pricing decisions will not only have an impact on your profit margins but will also influence how your customers perceive your brand. This strategic approach is fundamental to launching a successful dropship ecommerce business and laying the groundwork for enduring customer relationships.
Choosing Your Pricing Path: Popular Strategies for Success
Let’s explore some popular pricing strategies tailored for your burgeoning dropship ecommerce business:
Fixed Markup on Cost
This strategy involves adding a predetermined profit margin to the cost of your merchandise. You can opt for a fixed dollar markup or a fixed percentage markup. When deciding between a percentage and a fixed dollar markup, consider the average cost of your products. If your inventory consists mainly of low-cost items like household items or supplies from a dollar store, a percentage markup might not be the most effective. For instance, applying a 15% markup to a $10 product would only yield a $1.50 increase per item. In contrast, selecting a $3 or $5 fixed dollar markup would result in a considerably higher profit margin per item. Tailor your approach based on the nature of your product catalog to ensure a strategy that aligns with your business goals.
Tiered Markup on Cost
Consider the tiered markup on cost if your supplier boasts a diverse array of products spanning both low and high dollar values. This method proves effective when you’re concerned about setting prices too high for expensive items while struggling to generate sufficient profit from lower-cost items. The tiered structure allows you to categorize your items into different levels, tailoring markups to suit their individual price ranges.
For instance, apply a higher markup, say 50%, to items below $10, while adopting a more conservative 15% markup for items ranging from $200 to $500. The flexibility of this approach enables you to establish as many tiers as needed. Some businesses prefer a more specific tier system, employing 10 or 20 different price levels. The overarching goal remains straightforward: implement a higher markup for lower-cost items and a lower markup for higher-priced items.
This strategy can offer a competitive edge, especially when other stores employ a simple or single markup across all items. If, for example, your markup is slightly higher on electronic accessories, but the electronic devices themselves are priced more competitively, you stand a chance to win the entire shopping cart sale. Your choice between a simpler or more intricate tiered setting depends on your specific product catalog and pricing structure. For businesses dealing with a wide range of products, such as general merchandise suppliers, a tiered approach provides the necessary flexibility. Conversely, if your supplier specializes in a niche product type, a simpler pricing structure may suffice.
Markdown from MSRP
Opting for a mark-down or discount from the Manufacturer’s Suggested Retail Price (MSRP) is a widely embraced approach. Many retailers view offering a discount as a compelling reason for customers to choose their ecommerce platform. For instance, if the MSRP is $100 and you present a 20% discount, it becomes a clear saving opportunity for shoppers on your site.
However, just like setting markups, it’s crucial to assess your product range and the competitive landscape before deciding on your discount strategy. Consider whether your products predominantly fall into the low or high-dollar categories. Does your supplier provide a variety of MSRP levels for your products? Equally important, does the MSRP align with market expectations?
Don’t take the supplier’s MSRP at face value. If, for instance, the stated MSRP is $77 but several stores consistently sell the item for $50, relying solely on the MSRP for pricing may not be sensible. Electronics generally have well-recognized MSRP levels, reflecting market norms. In these cases, the MSRP may closely align with market promotions. However, smaller or niche suppliers may lack a significantly recognized MSRP level. For products like hobby items, where customer awareness of the manufacturer’s suggested price might be limited, pricing tends to be more independent of the MSRP. It’s essential to gauge the dynamics of your specific market before embracing an MSRP-based pricing model.
Manufacturer Suggested Retail Price (MSRP)
Another viable strategy involves aligning your price directly with the Manufacturer Suggested Retail Price (MSRP). This approach is favored by smaller retail establishments aiming to sidestep price wars while still securing a respectable profit. By adhering to the vendor-supplied suggested retail prices, retailers relinquish some decision-making control. However, merely relying on the MSRP without incorporating a competitive discount can hinder your ability to stand out in the market.
Psychological Pricing
Enter the world of psychological pricing, a tactic where prices are strategically set to create a perception of affordability for the consumer. A prevalent method is “odd-pricing,” where values end in 5, 7, or 9 cents. The theory suggests that consumers are inclined to round down a price from $9.95 to $9, rather than perceiving it as $10.
While the common practice involves using cents-ending values like 99 or 95, some opt for a more aggressive approach. By using unique cents-ending values such as 85, 45, or even 9 cents, sellers aim to undercut the competition continually. Though psychological pricing with cents-ending values is widespread on ecommerce websites, employing even lower cents-ending values can be particularly effective on marketplace platforms like Amazon, eBay, Walmart, and others with multiple sellers. This nuanced approach aims to consistently offer the most competitive prices in dynamic marketplace environments.
Having grasped some fundamental price-setting strategies, let’s review some essential tips for crafting your pricing approach:
Fixed Dollar Addition Pricing
When it comes to wholesale dropshipping, incorporating a fixed dollar addition into your pricing strategy can be a game-changer. While setting a profit margin is crucial, it’s equally important to factor in expenses such as marketplace or dropship fees. Are your profit margins on low-dollar items sustainable? Here’s where a fixed dollar addition comes to the rescue.
Consider this scenario: You’ve established a 20% margin on your products. Applying this to a $5.49 item results in a $1.10 addition. However, by introducing a fixed $3.50 addition, you ensure coverage for dropship or listing fees, while simultaneously enhancing the margin on low-dollar items. This approach acts as a subtle yet effective “hidden” markup, especially beneficial for high-dollar items.
When processing orders, the time investment remains consistent whether dealing with a $500 or a $5 item. With a fixed dollar addition integrated into your markups, you secure a guaranteed amount for every product sale. This not only helps offset fees but also streamlines order processing times, providing a reliable foundation for your dropshipping venture.
Prices vs Shipping Costs Markup
In dropshipping, some store owners grapple with finding the right balance between competitive product prices and justifiable shipping costs. A common strategy involves setting product prices on the lower side while discreetly inflating shipping fees or adjusting product weights to compensate.
The rationale is simple: presenting a seemingly lower product price compared to competitors, while recouping the necessary margin through slightly elevated shipping charges. On the flip side, other astute owners opt for a more straightforward approach—increasing product prices significantly but advertising free shipping. This strategic move capitalizes on customers’ penchant for enticing deals and the allure of free shipping, somewhat overshadowing the displayed product prices.
Businesses often anchor their entire pricing strategy on one of these methodologies, and some may fluidly transition between them based on market dynamics or seasonal shifts. Whether sticking to a consistent approach or navigating the ebb and flow, it’s crucial to spotlight significant price discounts or shout out enticing “free” shipping promotions to capture the attention of website visitors.
A word of caution: merging shipping costs into your overall pricing strategy requires finesse and experience. Seasoned store owners adeptly ensure that the total charges strike the right balance, covering both the desired product margin and associated shipping costs. It’s a nuanced strategy, demanding careful orchestration to resonate effectively with your audience.
MAP-Based Product Pricing
In ecommerce, MAP, or “minimum advertised price,” stands as a guiding principle set by manufacturers to maintain product pricing integrity. Simply put, when you list a product, you must adhere to the stipulated MAP, failing which you risk jeopardizing your ability to resell that manufacturer’s or distributor’s products.
When dealing with extensive distributors boasting a myriad of products from countless manufacturers, it’s imperative to delve into MAP policies. Conversations with distributors unveil the nuances, as MAP enforcement can vary. Some products adhere to a “hard MAP,” strictly regulated and visibly consistent across online listings. Conversely, others might follow a more lenient “soft MAP,” more of a manufacturer’s guideline than an ironclad rule.
Understanding which products fall under MAP regulations and the level of enforcement significantly influences two crucial aspects: a) deciding whether to include the item in your resale catalog, and b) determining the pricing strategy. Ideally, a distributor should furnish MAP prices within the data feed, enabling you to establish rules that streamline competitive yet MAP-compliant product listings and safeguard your reseller privileges. It’s the delicate art of navigating MAP dynamics to ensure a competitive edge while staying in harmony with manufacturer guidelines.
Featured Product or Product-Specific Pricing
In ecommerce, there’s a gem of a strategy often overlooked – the Featured Product or Product-Specific Pricing. While many prefer the convenient “set it and forget it” method, investing time in individually pricing certain products can be a game-changer, maximizing both website traffic and conversions.
Picture this: a curated selection of 10-to-20-star products prominently displayed on your website’s main page. Most ecommerce platforms offer a nifty “featured product” display option. Savvy store owners leverage this space to showcase their hottest items, but the real opportunity lies in applying a product-specific pricing strategy.
Here’s the trick – you don’t have to slap a 5% or 10% margin on every product in your store. However, those prominently featured on your main page can benefit from a much more competitive price tag, creating an irresistible first impression.
Imagine a customer landing on your site, enticed by the instant savings on these prominently displayed items. They toss one into their cart, appreciating the price advantage over other online stores. Then comes the magic – as they continue shopping, adding 2 or 3 more accessories or related items, you start raking in additional margin.
For the price-conscious customer, who might meticulously research the “must-have” item that led them to your cart, the attractiveness of substantial savings on their favorite product often prompts them to be less sensitive to prices on additional items. It’s the art of crafting a win-win scenario – they get their coveted item at a steal, and you sweeten the deal with extra margin on complementary products, all while easing their concerns about shipping costs.
Embrace Change
In the dynamic world of wholesale dropshipping, change is constant, much like the ebb and flow of seasons or the fluctuation of inventory levels from your supplier. The key? Don’t fear change—embrace it.
Consider this: your dropship supplier adjusts product prices based on seasonal shifts or inventory dynamics. Why not synchronize your approach? Feel like slashing prices for a weekend surge in sales? Perhaps mid-week discounts will align with your strategy. How about tailoring your pricing during or after holiday sales cycles?
In the era of dropship automation software, the fear of manual price adjustments for thousands of items is a thing of the past. Whether you’re tweaking the price of 10 products or a whopping 10,000, it’s a matter of seconds, not sweat. Welcome to the new age of adaptability, where your pricing strategy evolves as swiftly as the market demands.