Are your products priced correctly? Are you missing out on sales because your prices are either too high or too low? How do you know if customers see your products as high-end or bargain-bin? Well, in this episode of the Jam, we take a look at market-based pricing on Etsy!
Kicking off pricing
And today we’re doing something kind of fun. We’re going to kick off a three-part series where we’re going to do a little bit of a point-counter-point, and we’re going to be talking about pricing! There are a few different ways to price things. We’re going to be talking about market-based pricing or cost-plus pricing. We’re going to have one episode devoted to each of those. Then in the third episode, we’re going to compare and contrast the two.
Market-based pricing on Etsy
So today, in our first of this three-part series, we’re talking about market-based pricing. First, let’s talk about what market-based pricing is. Market-based pricing is understanding what buyers are willing to pay for your product. Which is obviously important. Buyers don’t care what your costs are. They want to trade their hard-earned money for what’s valuable to them, and they won’t pay a penny more than it’s worth. Customers will happily pay less, but most of the time, they’ll think something is wrong if you charge too little.
Pros of market-based pricing on Etsy
So let’s dive into some pros and cons of market-based pricing. The first pro of using market-based pricing is that it’s competitive with what shoppers are willing to pay. This is the whole point of market-based pricing. You’re going to be charging what customers want to pay for your product. This is great because you’re hitting it spot on.
When customers go out and do a search on Etsy and see what the price of everything is, they’re going to get a sense of, “OK, I’m interested in XYZ. It’s going to cost me about this much money.” If you’re way off from that as a seller in either direction, then you’re not really in line with what that market is being priced.
You will earn what you’re worth
The next pro is that you’re going to get what you’re worth. Not a penny more, not a penny less. If you nail it with market-based pricing. You wouldn’t go take a job without having an idea of what the market rate is. No matter what type of job interview you’re going to, you’ve got some idea of what you’re going to get paid.
Of course, you’re going to be thrilled if who you’re interviewing with is like, “Oh yeah, we’re going to pay you double what you’re asking for,” but even then, you’re probably going to wonder what the catch is.
Positioning yourself based on your price
Another pro for using market-based pricing is that you’re positioning yourself based on that price. If you want to be a bargain-level product, you can position yourself that way. If you want to be more mid-range, you can position yourself that way. If you want to be a premium product, you position yourself above the market. You do this, so you have control over where you want your products to appear relative to the other products in that market.
A great example
We’ve talked about this psychological anchoring with wine. In studies, people think that the more expensive bottle of wine is a better wine, and the less expensive wine is not good. To an extent, that is true. Those big jugs of wine are not great. And you’re probably not going to love every high-dollar bottle of wine either.
There are some great wines right there in the mid-range, but it can be hard to tell which is which. If you tell someone in a blind test that a certain bottle of wine is of higher quality, they’re going to assume how good or not good a bottle is depending on which bottle they choose to believe the premium bottle is.
Marmalead can help
Another pro is that Marmalead can help you with market-based pricing. Yes, you can do this on Etsy if you go and look up what your top-performing keywords are and then put those back into Etsy, do a simple search, and look at where things are priced. But it’s hard to get a good sense of the numbers by doing that.
If you put those same keywords into Marmalead, we’ll clearly break this down for you and show you what the average price is. We’ll also show you a price spread for that keyword as well. Now, you probably don’t want to do this for just a single keyword because your market isn’t just that one keyword you’re targeting. Your market’s going to be much bigger than that.
So, you’ll want to put a handful of keywords through Marmalead. And again, that’s really where that time saving comes into you. If you’re putting individual keywords into Etsy and looking at numbers that way, it will take quite a while.
Cons of market-based pricing on Etsy
So those are some pros for using market-based pricing. Now, there are also some cons that you need to be aware of if you want to use market-based pricing. We want to make sure you can account for these when you’re producing your numbers.
Your pricing may be less than a cost based approach
If you’re looking purely at what the market is willing to spend on something. You say, “OK, well, clearly this is where I should be if I want to be a middle of the road product. I should be charging fifteen dollars for this product,” but your costs for creating that are actually more than fifteen dollars, you’re not going to be making money. That’s one reason why you wouldn’t want to purely use market-based pricing for how you’re arriving at your product prices.
For example, let’s say I’m trying to figure out my cost for a bar of soap. It’s going to cost me way more than a big facility. A company like Dove is going to make a bar of soap for way less than any of us will make a bar of soap. It would be really hard to compete with them because they have scale. They have massive factories. They’re buying things in bulk, etc.
If you’re just getting started and doing a cost-based approach to your pricing, it’s going to be higher. In terms of the market-based pricing (because that’s what we’re talking about), it might look like it’s less than the cost-based approach.
Let’s say you’re buying a gallon of something versus later on when you’re buying hundreds of gallons of something as you are producing at scale. You’ve got to think about that as well. This is why it’s important to make sure you’re looking at your actual market when you’re doing your research.
Let’s take gold jewelry, for example. If you’re doing solid gold jewelry, you want to make sure you’re comparing yourself against that market and not gold-plated jewelry. Gold-plated jewelry is going to have a vastly different price benchmark.
This is why we included it as one of the cons. It is more work, but it’s worth it. It’s a core part of your business. So yes, market-based research pricing, we call it a con. But it’s one of those cons that’s not really a con. However, it does require a little bit more work and more thought. You actually have to do the research versus just plugging in some numbers, throwing in a personal profit percent, and boom, there’s your price.
Not as much as you would like
Another con for market-based pricing is that you may (after you do that research) discover that you can’t, in fact, charge as much as you were hoping to charge for your product. You might go out there and find out that you were anticipating being able to charge twenty-five dollars for your product because it seems like that’s what it’s worth. It might even be the price you’ve charged in the past. But when you look at the market, it doesn’t support that price. This is definitely something to consider.
We’re not saying to give up at this point. We’re saying if you find out that you’re not able to charge as much as you hoped, instead of giving up, explore the boundaries. Explore adjacent markets. Explore how you can make this product for less, or find out how to move into a market where you can get what you wanted.
Final thoughts for market-based pricing on Etsy
So there you go! There’s an overview of what market-based pricing is for your products. We went through some pros and cons, and we hope you now have a better understanding of this topic. Stick around for next time when we will be talking about cost-plus pricing and how to achieve that with your products.
Then again, in the Jam after that, we’re going to weigh the two against each other, so make sure you look for those upcoming blog posts and Jam episodes heading your way soon!
Happy selling, everyone!
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