“The moment you make a mistake in pricing, you’re eating into your reputation or profits.” - Katharine Paine.
Katharine Paine, the CEO of KD Paine and Partners and a renowned author, has hit the head of the nail right there. In any marketplace, price management is a humongous task which dives virtually into all units of a marketplace. From choosing a revenue model to creating a budget for marketing, a penny miscalculated could lead to a larger fall. Therefore, a fool-proof price management strategy is absolutely important. Today, our focus is on product pricing, which is undoubtedly the most crucial aspect of any marketplace.
The fact that almost 60% of online shoppers consider a product’s price as the first criteria of their buying decision is enough to pay attention to your marketplace’s pricing strategy. If your products’ pricing is too high, your marketplace could get outrun in the competition. Pricing products too low and people will start questioning the quality of your products. This might also adversely affect your sellers’ profit margin. Achieving that sweet price spot can unlock the door to flourishing revenue potential and prolific customer base.
We aren’t here to give you a board full of pricing formulas because, honestly, every business is unique and requires unique pricing strategies. This blog is all about simple yet effective, practically applicable tips that will help you maintain a good pricing strategy for your marketplace.
P.S.: Some of these tips have been shared by our very own WCFM user-entrepreneurs who are successfully running their dream projects through these strategies! 😉
How to maintain ideal pricing on your marketplace
In reality, marketplace owners hardly have much hand in setting the price of the products available on their platform. Essentially, it is the sellers who set the price for the products that they are selling. But that doesn’t mean you (marketplace owner/admin) can do nothing to establish a good pricing strategy for your marketplace. Here are a few ways to achieve the same:
Analyzing the competition and your customers
This is pretty obvious – you should know what others are doing! Competition in marketplace business is pretty tough and your goal should be to stay ahead of your competitors. And, therefore, being aware of the latest developments of peer businesses is the first step towards the same.
Low pricing isn’t always the best way to grab more customers. Free shipping, better customer service and offers are the new crowd-pullers. Get an idea on how other successful marketplaces are pricing their products and what benefits are provided to the customers as well as their platform’s seller. Gather all these information and tweak them to suit your marketplace.
Customers tend to stick to those marketplaces that provide the best value. Know what your targeted customers want. Some customers want lower pricing while some wouldn’t mind paying extra for faster deliveries. Start surveying existing as well as potential customers to know their requirements and trends to discover what works for them.
Being vocal with your sellers
Communication is the key to establishing a long lasting relationship. Sellers and consumers are the two flip sides of a coin and are equally integral to your marketplace. So, if you strive towards excellent customer experience, you should also mind the concerns and benefits of your sellers.
After a good market research, you would probably come to have an idea of your products’ pricing. Once your sellers enroll in your marketplace, get an idea of their profit margins, shipping costs and other peripherals and discuss your ideal products rate and also your commission rates with them in order to arrive at a balanced value. Direct communication might be possible when there are fewer sellers. As the number increases, establish means of communication like email or grievance forms so that your sellers can talk out their issues.
Set pricing guidelines for your sellers
According to a survey made by Wiser, 96% of consumers prefer to compare prices before buying anything online. This might give you an idea how competitive marketplace businesses can be. In such scenarios, if your sellers project absurd prices for their items, chances are you’re missing out the game.
In order to win the price war, your sellers might lower the rates beyond convention – which is highly unethical. This is where the Minimum Advertised Price (MAP) policy comes into action. The MAP policy ensures that sellers won’t sell their products lower than the agreed minimal price set by the manufacturers. Establishing strict conformation by the MAP policies will force your sellers to lay out fair pricing. You would also need to constantly monitor if your sellers are abiding by the MAP policies. Putting forward harsh measures against disobedience of the rules will also ensure riddance of fake and unauthorized sellers.
Consider variable commission rates
We all know that your commission rates could affect the actual selling price of the products. If you set unnecessarily high commission rates for your sellers, they might just inflate the selling price in order to compensate for their losses. But that doesn’t mean you have to settle for low commission rates every time.
A commission of, suppose, 20% for a $5 item is $1, but the same percentage for a $500 item is $100. Deducting $100 from a $500 product seems painful for the seller, given there are other taxes that the seller has to bear with. Items like FMCG and other daily-needs products have more frequent sales than luxury items and generate more frequent revenue. Therefore, sellers selling low cost-high sale items would still accept higher commission rates than those sellers who sell expensive items but only a few times a year. Hence, the ideal take is low commission for highly valued items and higher commission for low cost and frequently sold items/services.
If you run a horizontal marketplace with a variety of products, setting variable commissions depending on the different categories of products can keep a balance between the seller and owner profit margins. For example, Amazon’s commission rate varies from 6% to almost 45% depending on the different categories of products.
Variable commissions are especially beneficial for those sellers who sell more than one type of product. If you charge lower rates for their luxury products/services, they would not mind paying higher rates for their low cost-high sale items. This sense of balance would encourage them to set a better price across all their products.
Run deals and offers
Who doesn’t like offers and discounts? In a survey by RetailMeNot, nearly 74% of Americans consider deals and discounts as the top factor in deciding what to buy and where to buy online. Therefore, deals and promotional offers should always be a part of any pricing strategy.
And here’s how you can work this to your favor! Run sale events on your marketplace and advise your sellers to provide discounts and deals on their products. Sellers who do have the scope for a discounted price margin can offer discounts for the customers. However, at times, other marketplaces might provide lower rates for a certain product than your seller. Now, it might happen that the seller, due to his calculated profit margin or other reasons, doesn’t want to reduce the price. In such cases, you (as the admin of the marketplace) can run discount offers on the product to slash down the prices. This will not only attract more customers but also regulate sellers’ high prices. Surely, this might reduce your profit a bit, but this will be beneficial in the long run.
Product price, packaging, delivery time, customer experience and reputation are some of the most important factors influencing the buying decision of today’s consumers. Having any of these factors wrong can prove to be a huge obstacle for your marketplace’s success. These little, tried and tested strategies would help you understand how you should manage the pricing game of your marketplace. The key is to maintain a harmony between your sellers’ as well as your profits.
In today’s competitive age, every marketplace is trying to woo their customers with low pricing. Aggressively low pricing can never be beneficial and can do more harm than good. Creating a balance between price and value is what every marketplace should strive for. Keep monitoring your seller prices as well as others’ prices and implement necessary measures to maintain a good pricing pattern on your marketplace. This will also help you understand whether you need to optimize your marketplace pricing or not. Hope you found this article useful!