7 E-Commerce Pricing Strategies to Max Profits

For businesses, nailing the e-commerce pricing strategy is the first step to maximizing profits. 

With the right pricing model (and approach to discounting), businesses can protect their margins, edge out their competitors, and make the most of their market share. 

But pricing doesn’t just impact customer behavior—it reflects overall business health, too. Warren Buffet famously said, “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.”

Brands looking to drive conversions, optimize margins, and enhance customer perception of their products must understand their pricing model options. Below, explore the top seven pricing and discount strategies successful e-commerce businesses leverage to grow.

Understanding the role of pricing in e-commerce success

For any business, pricing is an element that simply can’t be overlooked. That’s because pricing directly impacts:

• Customer behavior – Customers most often purchase competitively priced products that fit their budgets. 
• Brand positioning – Customers tend to associate higher prices with higher quality; so, businesses that lean on higher pricing must deliver on quality to maintain their reputation in the marketplace.
• Overall revenue – Since pricing directly influences customer buying behavior and the market’s perception of a brand, it also directly impacts overall revenue—the sheer amount of overall sales.

But competitive pricing can’t come at the cost of profitability. Price a product too low, and margins suffer; price it too high, and potentially lose out on sales. 

Finding the right balance between price and profit is key. 

Effective e-commerce pricing strategies to maximize profits

Businesses have numerous pricing models to choose from in e-commerce. The seven strategies below are some of the most popular for today’s online brands. 

1. Cost-plus pricing: Ensuring profit margins

One of the simplest ways e-commerce companies can protect their margins is via cost-plus pricing: selling their product at a price that covers costs plus an additional markup. 

But what does that look like?

• An e-commerce brand selling reusable water bottles wants to use cost-plus pricing. Their first step? Determining the total cost of getting each bottle to the consumer.
• The brand totals the cost of fabrication, marketing, shipping, and overhead per bottle—$20 per bottle, for instance. 
• If they sold each bottle for $20, they wouldn’t make a profit. So, per the cost-plus method, they add a markup to each bottle to ensure profitable sales. 
• While markups vary across niches, let’s say that this brand sells all of its bottles at a 25% markup. $20 per bottle in costs plus a $5 markup equals a sale price of $25 per bottle. 

This pricing model works well for businesses looking to stabilize their profits; each bottle sold is guaranteed to earn a profit. However, this model doesn’t always align with market demand. 

Cost-plus pricing doesn’t always consider additional variables like:

• Competitor pricing.
• Consumer perception of value.
• Sales-focused techniques (e.g., bundling, bulk discounts, loyalty rewards).

2. Competitive pricing: Staying aligned with the market

Speaking of competitor pricing, some brands opt to adjust their prices based on market variables. With competitive pricing, businesses track how their competitors price a product to determine the price of their own. 

Brands can track their competitors’ pricing in two ways:

• Manually – Researching the market and logging competitors’ pricing in a spreadsheet or software tool. 
• Automatically – Using technology to automate competitor price tracking. 

This model helps businesses stay competitive. If, for instance, the hypothetical water bottle brand above is selling bottles at a higher price than the rest of the market, they might expect to lose sales to competitors selling the same product for a lower cost. 

3. Value-based pricing: Charging based on perceived worth

Another e-commerce pricing option is value-based pricing: determining a price based on how much consumers think they should have to pay for a product. 

Let’s return to our hypothetical:

• If consumers expect to pay $30 or more for a reusable water bottle and a brand is only charging $25, customers may purchase that bottle to take advantage of a perceived “deal.” 
• On the other hand, customers expecting to pay $30 may pass on lower-priced options if they think that lower prices indicate lower quality. 

Determining customers’ perceived value of a product (and their response to prices that don’t meet their expectations) can be a complex process—one that requires an investment in market research. This is why value-based pricing is usually best suited to premium brands with the resources to invest in such research. 

4. Psychological pricing: Leveraging buyer psychology

Similar to value-based pricing, many brands leverage what they know about customer buying behavior to price products based on customer psychology. 

Several approaches can fall within this category, including:

• Charm pricing – When businesses use prices that aren’t “round” numbers, they can capitalize on customers’ perceptions that a product is cheaper. For instance, if a business sells a water bottle for $24.99 instead of $25, customers may instinctively interpret this price as being closer to $24 than $25. 
• Bundling – Selling two products as part of one “bundle” (like a reusable water bottle and a straw) could give customers the impression that they’re getting a higher value for their money spent.
• Anchor pricing – Striking through an “original” price before listing a lower one could convince customers they’re getting a deal. The struck-through price is the “anchor” in anchor pricing—it sets a customer expectation for the price before presenting them with a more attractive, cheaper one. 

All of these have the potential to increase customers’ perceived value of a product; convincing customers that they’re getting a deal can make a product seem more desirable.

5. Dynamic pricing: Real-time adjustments for maximum revenue

For e-commerce brands looking to take a technological approach to pricing, using AI tools to adjust product prices on market fluctuations is a highly viable strategy—one that many businesses are already using with success. 

Dynamic pricing requires businesses to use machine learning platforms to constantly monitor the market for:

• Changes in demand.
• Competitor pricing adjustments.
• Scarcity or limited inventory.

These platforms then recommend (or automatically adjust) pricing based on up-to-the-minute demand, inventory, and competition data. 

For e-commerce brands in highly competitive markets that experience fluctuating demand, dynamic pricing can be the ticket to consistent sales. It combines the logic of cost-plus pricing with the principles behind competitive or value-based pricing while leveraging the pricing efforts of competitors who may not be using such tools. 

6. Tiered & bundle pricing: Increasing order value

If a hypothetical reusable water bottle brand is performing well with low-value sales (i.e., selling one or two water bottles at a time), it could use tiered or bundled pricing to encourage loyal or high-intent buyers to increase the overall value of orders. 

For instance:

• A high-intent prospect explores the brand’s e-commerce site, adding a single water bottle to their cart. 
• The customer is presented with an option to bundle their purchase: perhaps by adding a straw or purchasing a multi-pack of bottles. 
• If they’re presented with a bundling option that decreases the unit price of each item, they may be more inclined to purchase more products than they originally intended to. 

This approach is an excellent option for businesses looking to improve their average order value (AOV), but it may not be the right match for brands still working to grow their brand reputation or increase customer loyalty. 

7. Subscription & loyalty pricing: Enhancing customer retention

Speaking of loyalty, e-commerce brands can also use tried-and-true pricing tactics to reward (and encourage) customer retention:

• Membership pricing – Offering “members” or “subscribers” regular discount codes, lower prices, or other perks like free shipping. 
• Subscription discounts – “Subscribe and save” pricing options that offer lower prices for multiple purchases.
• Loyalty program perks – Points redemption, exclusive discounts, and early access to sale events to entice customers to make repeat purchases.

For brands looking to build long-term customer relationships (that, perhaps, aren’t ready to focus on AOV yet), loyalty-based pricing models can pave the way to long-term retention and word-of-mouth marketing (which can supplement other marketing services options). 

How to choose the right pricing strategy 

So, which of these pricing models should e-commerce businesses choose? Ultimately, the right fit depends on a brand’s:

• Product type – While customers may only purchase a new reusable water bottle once every few years, they may purchase more “consumable” products more regularly. The latter may be a better fit for loyalty or dynamic models while the former could be better suited to cost-plus or psychological pricing. 
• Target audience – For businesses targeting high earners, customers may be more concerned with value than ticket price. So, value-related pricing models could produce the best results.
• Competition – In many cases, e-commerce brands in highly competitive niches can simply emulate their competitors’ pricing models to meet market (and customer) expectations. 

These are just a few of the variables that should inform businesses’ pricing approaches. Brands can also adjust their methods over time based on the results of A/B testing: a tactic that measures how well customers respond to different models. 

Measuring success: Key pricing metrics to track

E-commerce brands can use several key performance indicators (KPIs) to measure the effectiveness of their pricing strategies:

• Profit margins – How reliably pricing covers costs and delivers profits.

• Conversion rates – How pricing impacts customer buying behavior.

• Customer lifetime value (CLV) – How well pricing encourages repeat purchases.
• Price elasticity – How customers respond to price changes over time.

These KPIs connect pricing to some of the most important indicators of overall business success: profitability, total sales, customer loyalty, and customers’ perception of product value. 

Optimizing your pricing strategy for long-term growth

Choosing the right pricing model for profitability and customer satisfaction is a must for e-commerce businesses. But finding the right fit can take time: Brands should continuously test and refine their pricing strategies based on market trends and their own performance data. 

E-commerce brands looking to optimize their pricing and digital marketing strategies should turn to Power Digital: a world-class, tech-enabled growth marketing agency that’s transforming companies into industry powerhouses. 

Discover the power of a data-driven, fully integrated digital marketing strategy now.

Sources: 

PricePoint Partners. Finding Your Pricing Power. https://pricepointpartners.com/blog/finding-your-pricing-power/

Indeed. Cost-PLus Pricing: Advantages, Disadvantages, and Example. https://www.indeed.com/career-advice/career-development/cost-plus-pricing 

Investopedia. Value-Based Pricing: An Overview of This Pricing Strategy. https://www.investopedia.com/terms/v/valuebasedpricing.asp 

Business. The Rule of 9s: Will Charm Pricing Work for Your Business?. https://www.business.com/articles/will-charm-pricing-work-for-your-business/ 

Indeed. What Is a Bundle Pricing Strategy and Who Can Use It?. https://www.indeed.com/career-advice/career-development/bundle-pricing-strategy 

US News. What Is Dynamic Pricing, and Why Has It Made Everything So Expensive?. https://money.usnews.com/money/personal-finance/articles/what-is-dynamic-pricing 

Corporate Finance Institute. Average Order Value (AOV). https://corporatefinanceinstitute.com/resources/valuation/average-order-value-aov/