Price Elasticity for eCommerce Stores

Price Elasticity for eCommerce Stores

Sales guru, Richard Denny, made a very interesting observation about people's buying habits.  He discovered that on average only 15% of people will buy based on the cheapest price they can find and only 5% will buy based on the most expensive price.  

This leaves 80% of people in the middle who don't buy on price. 

And that’s quite a staggering thought. It means that most people have flexibility in what they are prepared to spend on a product or service. If they have flexibility in what they would spend then you have flexibility in the price that you can charge. This is called “price elasticity”.

This is a great concept is because it's so liberating: You don't have to feel as though the only way you can win the business is by being the cheapest. In fact, if you look at any of the major retail stores from Tesco to Argos to Harrods you'll find that their prices are very often not the cheapest. In other words, they are fully aware that the majority of us don't buy on price – we buy on what we think is a fair price for the product or service we’re getting in return. We buy based on the perceived value of a product or service.

Okay, so this is all very interesting but what has it got to do with your website? Well, often website owners are apprehensive about formulating a pricing strategy which isn't based on being the cheapest because they worry that it will open themselves up to comparison with their competitors.

However, it’s probably best not to worry too much about your competitors – let your competitors worry about the competitors because when times get hard and prices start crashing they will end up in a price war and it's that kind of behaviour that bankrupts businesses. Instead, base your price around the customer’s perceived value of your product or service. The more value you can demonstrate the higher your price can be. (Apple probably doesn't worry to much that it’s iPhone is about 3 times more than its average competitor.)

80% of people don't buy on price

So, for example, if you sell LCD TVs make sure that your website packed with useful information; specifications, manuals to download, pictures front and back of the TV, go the extra step and offer some free guides, advice and consultation. Then start offering high-end value; three-year extension of their warranty, free delivery, free home setup service, free technical helpline, free £10 voucher from a DVD retailer, 25% off a DVD player, and so on.

Once you start thinking about what you can offer you'll find all kinds of routes to increase your prices. So, by proving your value, your visitor will be happy to spend a little more with you than your competitors because of the huge value you add.

But, hold on, I’m not an eCommerce store…

Interestingly, this logic also applies to the service sector too because the same visitor mentality applies – people will still want to know how much you charge. If what you do is completely unique for each of your customers then offer guideline prices. You could even offer prices based on previous projects in the case studies section of your website.

Now, if you are still unconvinced that you should put your price on your website then here's a bit of research done by Gartner that might help. They discovered that finding the price on a website was the single most important piece of information visitors required. In fact, it scored nearly 30% higher than the next most important item on the list.

The fact is people are more likely to be put off by websites which conceal their price because it leaves it up to the visitor to guess what you might charge. They could guess that you’re too cheap or too expensive but either way, it is more likely to make them leave you site looking elsewhere for price reassurance.  

In summary, put your price on your website, make it really clear, demonstrate the value in what you do (which justifies your price) and above all be proud of it!