This episode is about pricing the products that you’re selling online. Whether that’s Etsy, Shopify, Amazon, or wherever you happen to be, we are going to talk about how you price things and how you decide how much or how little you charge for something.
Pricing and Market Positioning:
Cost-based pricing is the most common method of pricing. You may be familiar with people who have all sorts of worksheets and calculators to help them price their listings. Often times their pricing tools look like a list of things asking you for information about how much it costs to make your products (i.e. cost of materials, how much you value your time, how much profit you want to make, etc.). Then you add it all up along with other miscellaneous factors, and now you know the dollar amount you should be charging.
Market-based pricing is the best method of pricing. The only time you’ll want to use cost-based pricing methods is when you’re figuring out if you can make enough money to survive and if a market exists that’s willing to pay for your product. Beyond that, if you’re not looking at market-based pricing, then you’re likely leaving a lot of money on the table.
The market doesn’t care what it costs you to make a product. They don’t care if you make 1000% profit, 1% profit, or lose money on everything. Bottom line, markets don’t care. Now, think of a market as your potential customers and then figure out what the market (your customers) are willing to pay.
Keep in mind that you’re not aiming for just any ole customer. If a customer shows up and says “Hey, your stuff is outrageously priced!”, then that’s a good example of someone that’s not a good fit for you. You’re product might be too expensive to them and that’s perfectly fine. They are not the customer you’re aiming for. Again, the bottom line here is that as long as you have customers, you’re perfectly fine.
If people are coming to you and saying your stuff is too expensive but they’re still buying, that’s a sign that your pricing is in a very sweet spot! You’re just painful enough for them that they’re feeling the pinch of the pricing, but they’re willing to pay because they believe in your product and they think it’s quality and enjoy the experience of buying from you.
Once you’ve figured out what the market is willing to pay, then your job is to figure out how you can make that product for as little as possible and as efficiently as possible in order to keep the most difference there. This is why companies invent new and cheaper ways to produce products. They don’t do that so they can lower the price, they do it so they can keep more profit.
How do we take something and figure out what the market value of that listing should be?
One thing that you can do when you’re trying to price listings is see who you’re competing against. Do a search on Etsy for whatever keywords you are targeting and see what the landscape looks like. Look at the search results that come up and where those things are priced compared to where your pricing falls.
It depends on how you want to present your product.
Some sellers want to be the ‘bargain brand’. Maybe they want to be the “cheaper” product that undercuts the “luxury” items. There’s definitely a market for that! There’s always people who are not willing to pay for the more expensive option. If you’re aiming to be the bargain option, you can afford to price lower than the average price of that market. Maybe your costs are lower and you’re able to do that. If that’s the case, that’s fantastic! Go for it!
If you want to position your products and portray them more as high-end merchandise (luxury items), then you can price a higher than the average. Keep in mind that your listings should also reflect their premium price. This must reflect in your photos, materials, packaging, and the actual finished product.
Something interesting happens when people look at items or products priced a little higher than all of the other products. You’ll start to see that psychologically, folks tend towards thinking higher priced items are better, more quality items.
Discounts sometimes hurt more than they help?
One of the mistakes that retailers make is conditioning their customers to expect discounts. “I will buy when this thing goes on sale!”
Car manufacturers often exemplify this. They do it in a couple of ways. No one pays sticker price for a car anymore because they’ve conditioned the public that you don’t pay sticker price and you always get some sort of a discount. Secondly, they’ve conditioned the customers to believe you have to sit around and wait for the sales and discount events to arrive before you make a purchase.
For a more handmade/crafting specific example; I know some people that won’t go to Jo-Ann Fabrics, Michaels etc. without a coupon because those businesses send out coupons frequently! Why would you ever pay full price? That becomes a culture and that’s a big mistake people make with discounts and coupons. Avoid a “Discount Culture”.
What can you do instead of offering a discount?
Let’s look at something that Apple does. Apple doesn’t discount, but they are not above giving you a bonus. During the holidays, you’ll see different promotions where let’s say you go out and buy a Macbook. Apple might then give you a $100 Gift Card to the iTunes store. Instead of a discount, they’ve given you a bonus!
That’s something you can do too and it doesn’t necessarily have to be a dollar bonus. However, even when someone like Apple gives you a $100 gift card, they’re not really giving you $100 because you’re going to turn around and spend it in their store and they are still making a profit.
You can offer similar bonuses. Let’s say you sell a necklace. Instead of offering a discount, you can throw in a bonus. You can say “Hey, buy this necklace, and get this pair of earrings for free.” Or “Buy 2 and we will throw this ring in as an added bonus.”
What’s also nice about that is you can say that this bonus is worth $20. Did it have to cost you $20? No. That just happen to be the price tag that you put for that listing. The $20 pair of earrings might actually just cost you $10. In the end, you get more mileage out of the bonus than if you just offered a flat discount.
How Discounts vs. Bonuses relate to Scarcity vs. Abundance
When people start to get into the discount state of mind, you start heading down this slippery slope of trending towards zero. Because when you start doing discounts, everyone’s like “If I can get 10% off, can I get 15%?, maybe 20%?”. Then all of a sudden they’re all looking for discounts and you’re racing your competitors down to zero. That’s not good for anybody!
What you really want to do is take them out of that scarcity mindset that there’s not enough in the world for everybody. Their bias towards the scarcity mindset is telling them that if they can’t get it at 20% off instead of 10%, then they will have to spend an extra 10% on it and that makes it not worth buying.
Instead try getting them into a mindset of abundance. You’re giving out bonuses so you’re adding value to their purchase. From the abundance point of view, the world is plentiful and there’s plenty for everybody. Differentiating between abundance and scarcity is a very important thing about discounts and bonuses that most people don’t often keep front of mind.
Sadly, most people gear towards a mindset of scarcity. Our aversion to loss (the aversion of “I just got 10% off but could I have gotten 20%?”) is so much stronger than our drive to win. That is something we should all be aware of.
How to use Marmalead to better understand the market you are in?
If you’re an Entrepreneur in Marmalead, you’re going to find charts and information on pricing throughout the app. This information is going to show you what kinds of listings are falling into the premium, midrange, and bargain categories. From there, you’ll gain a better understanding of where your product will fit into the mix depending on the features, materials, and positioning for your product. Let the market tell you what it’s willing to pay, not just a list based on your own costs. You can use all the pricing information in Marmalead to help figure out what the market is willing to pay, and which pricepoint best fits your product.
Controlling the Circumstances
You also want to control the circumstances about who you are competing with. If you’re positioned against higher priced items and you want to be the low-cost competitor, you can actually get more money than if you are competing against other lower priced items. If you are in a search where everyone is lower end discount items, then to be the low-cost competitor amongst them, you have to be even lower priced. But if you want to be the low-cost competitor in a premium search, then you don’t have to lower your price too much. You have to be lower in price, yes, but not as low as you’d have to be if everyone was lower.
Closing thoughts on Pricing
Test. Test your pricing. If you have some subset of people who think that your pricing is too expensive, you’re on the right track. As long as people are buying your product and you have a small group of people who think it’s too expensive, you’re in a good spot. If no one complains about your pricing, then you are likely leaving a lot of money on the table.
Everyone is not your customer. Know who your customer is, serve that customer and recognize that everyone who wants to complain about your pricing isn’t your customer, and you shouldn’t spend too much time worrying about them.
Happy Selling (and pricing)!