How to Build the Perfect Online Store – Part 5 – Pricing Strategies

The pricing of products online is a complex, important issue. Market forces apply, particularly to non-branded products. Intense competition ensures that the consumer benefits by being able to shop for products at the lowest possible price. This is exemplified by the success of eBay, which is essentially a price-driven marketplace. If sellers under-price products, they do not make enough profit to survive, thus regulating the price at which products are sold. For simple products, this price can be just above the level needed to pay the eBay commission. This means that the long-term survivors in the non-branded products marketplace are sellers who can source products at the lowest prices. In essence successful non-branded selling is based on buying skill rather than selling skill.  

The situation is different for branded products. Consumers want the lowest possible price but with provisos. They want the brand to hold its value, to be supported and not to be cheapened. In turn the owner of the brand wishes to invest in these qualities and wants his partners in the supply chain to do the same. The manufacturer cannot build a committed supply chain if someone is allowed to waltz in and undercut everyone’s hard work. This is unfair and bad for the manufacturer.  

Equally the consumer wants to know where he stands and pay what he thinks is a fair price. He does not want to find that someone a week later is selling it a lot cheaper. This is even worse if the product has been bought as a gift. The donor does not want to pay $50 for example, only for the recipient to find that the same thing could be bought for $25.

 Fortunately common sense and wisdom prevails in the United States where it does not in other parts of the world, notably Europe. In the United States a Minimum Advertised Price can be applied legally. For more information, look up Resale Price Maintenance on Wikipedia. This means that the manufacturer can contractually bind its wholesalers and retailers not to offer its products below specified minimum prices. This is a great help both to retailer and consumer.  

The existence of a minimum advertised price is actually beneficial to the consumer.  He/she still has the freedom to buy other branded or non-branded products at lower prices but he/she knows that if he/she buys a your branded product, he/she will have paid a fair price and will have the guarantee of buying a genuine thing of beauty and lasting value. The value is in the brand. The seller, if he chooses to sell at the Minimum Advertised Price can confidently claim that his product will not be available at a lower price elsewhere. In effect, it gives the seller the opportunity to provide a price guarantee.