E-commerce operations: How to price products?

Let’s start by answering the first question: Why do we need to study commodity pricing?

Everyone knows that the most important thing about starting a business is to be able to do accounting. We want to do business with an input-output ratio greater than 1.

The pricing of goods is to make sure that after deducting various expenditure costs from the sales price of the goods, the product is still profitable.

As the saying goes, you may make a small profit, but I will definitely not lose money.

Since what I talked about with my friends was the pricing strategies of Taobao e-commerce, I will now focus on the women's clothing e-commerce category.

We know the logic of commodity pricing: pricing - cost = profit

Then the second question arises, what does the cost of a product include?

For example, a new piece of clothing includes the following costs:

The purchase cost of the clothes themselves, taxes, logistics and express delivery, advertising, personnel expenses, payment service fees, commodity depreciation costs, etc.

Pictures are for reference only

After figuring out these costs, we can estimate a cost model for the minimum selling price, which is the purchase price of the goods plus various miscellaneous items. This is the minimum selling price, which means that as long as we sell it this way, we will neither lose money nor make any profit.

Next is the third question, how do we do multiple pricing to cope with different sales scenarios.

Every product has its own life cycle. Take down jackets as an example. August and September of each year are the stocking period for down jackets. At the end of September, new down jackets start to be put on sale. October is the golden period for sales. At this time, there will be various promotional activities to increase sales of clothes. Around January, sales volume starts to decline. This is the clearance period, and merchants begin to slash prices to clear warehouse inventory.

Corresponding to the product life cycle are several price ranges of the product. As far as I know, there are roughly the following prices: new price, activity price, big sale price, and daily price.

These four prices are explained separately. The new price, as the name suggests, is the price of the product after a new link is added. The event price represents the price of the product when participating in daily small activities, such as the New Force Week. The big sale price represents the price of goods during major holidays, such as Double Eleven. The daily price is the price of the product when there is no promotion.

Generally speaking, new product prices and promotional prices are set at lower prices. Why are they set like this?

The purpose is to increase the conversion rate of new product links as much as possible during the first few days of new product launches, provide higher permissions for the links, and allow Taobao to allocate more free users to the links for viewing, thereby reducing our promotion costs in the later stages.

This starts with Taobao’s sales logic. We all know that Taobao has been making product recommendations tailored to each individual, with the aim of better matching products with consumer demand and recommending suitable products to buyers in need as much as possible.

In order to achieve this goal, Taobao has its own algorithm, which is a black box and we don’t know what the algorithm specifically is. To describe it roughly, after each product is linked to a new link, the system will give the link a weight value, which includes views, click-through rate, conversion rate, order volume, stay time, etc. The system will evaluate the link weight once in a while. Links with high weight will be judged as high-quality links, and more traffic support will be given to free users, giving you more page displays, etc.

At the same time, for users, a product with sales of tens of thousands per month and a large number of positive reviews will make them feel more at ease to buy. A new product with no sales and reviews will also greatly affect user conversion.

Therefore, on the one hand, in order to make the newly posted links have a higher weight on Taobao, and on the other hand, in order to quickly increase sales and the number of positive reviews after the new products are launched, merchants generally adopt profit-sharing promotions within a few days of the launch of new products, and quickly increase sales of new products through lower launch prices.

As the name suggests, the big sale price is the selling price during major promotional festivals. During major sales nodes throughout the year, in conjunction with Taobao's official activities, big sales can be used to quickly improve store sales performance, such as Double Eleven and Double Twelve. The sales volume in a few days can reach the store's sales performance of 2-3 months.

These are the rules for product pricing in various scenarios for your reference.

Finally, let’s think further: Is the above pricing method universal?

Obviously, it cannot be applied to all scenarios, so I looked up relevant information and found that there are three common commodity pricing methods:

The first thinking area is competition-oriented pricing strategy

That’s the competitor’s price. After products and services come out, the first thing you need to look at is whether this product has any competitors or similar products. If there are particularly similar products, you can only adopt the "competitor pricing method", that is, think about the pricing issue based on the price-performance ratio of your own products and your competitors' products.

If you are making casual wear, there are brands like Uniqlo, Heilan Home, and Septwolves, all of which are there. No matter what you do, it will be difficult to get rid of this price range. Therefore, you must carefully consider the relationship between yourself, your competitors, and your customers to carefully test pricing.

The second area of ​​consideration is cost-based pricing strategy

This is pricing based on your own costs, which is another area of ​​pricing. Most companies do not actually have a strong ability to influence customers, so their business goal is only to break even and have a normal rate of return. Perhaps most companies are in this situation.

The advantage of this strategy is that it is simple to operate and does not require a lot of customer research and market research, and it can ensure a certain profit margin for the product. This article mainly describes this method.

Depending on the industry, the proportion of raw material cost in the price, that is, the proportion of cost markup, will be different. In many industries, direct material costs are around 30% to 40%, and the market often does not accept prices that are too high.

The third area of ​​thinking: value-oriented pricing strategy

It is based on the degree to which customer needs are met. In the book "Blue Ocean Strategy", King and Maubergne mentioned a particularly important concept, which I would like to pass on to you here. Think about a restaurant, a bar and a cinema; their functions and products are completely different. The first two provide an environment for chatting and dining, while the latter provides you with a visual entertainment process. But in the view of King and Mauborgne, people go to restaurants, bars and movie theaters for the same purpose: to go out and relax in the evening. In this sense, their prices can be referenced to each other.

Adopting this strategy requires not only market research but also customer analysis. Research your customers’ purchasing behavior to understand their reasons for online shopping and the product features they value.

The benefit of tedious research is that it can help obtain higher product profits and increase product sales overall.

Finally, what I want to say is that there is no best, only the most suitable one.

The most important thing is to figure out which model is best for your type of business. A successful pricing strategy can give you another advantage over your competitors.

Author: Adult Xiaofan

Source: Adult Xiaofan