If you’re a small eCommerce business, you may find it challenging to pick the right pricing strategy for your offer. Low price strategy sounds luring for sure, especially when you don’t have a unique product, but let’s see what are the pros and cons of this model.

Before we go in depth on how good or bad low pricing is, let’s cover the five steps you need to undertake so you can get a better picture of what works for you.

• Set some goals you want to achieve
• Analyze the pricing situation of the market you’re in
• Create a detailed buyer’s persona sheet
• Analyze your direct competitors and their pricing plan
• Create your own pricing strategy and an execution plan

How your perfect buyer persona should look like

You can also check some of the other pricing strategies perfect for small companies we’ve covered if setting low price tags isn’t your thing.

Low Price Strategy Philosophy

The goal of setting up a low price strategy plan is to trigger increase in demand for the product while the company manages to gain a certain share of the market. The strategy is employed most often in two cases:

• When the product has no competitive advantage
• Where economies of scale can be achieved

One of the most used low price strategy models is the market penetration one, which we’ll take as our focus point in this article. Successful implementation of cost leadership requires:

• Low prices
• Satisfactory quality
• Certain number of customers above the threshold

Low Price Strategy Pros

Some of the reasons why small eCommerce businesses may benefit from using a market penetration low pricing strategy:

Increased Sales Volume

This is probably the main reason why you’re considering setting low prices for your products or services. Your sales will skyrocket, or at least they have the potential to do so, which by itself will put you in a position to set the trend for your competitors and while you’re at it position yourself on the market.

Assuming you’ve built a certain customer base and you’ve been successful when trying to present the value of your product, there’s good chance users will switch from your competitor’s products to your offer. After all, you provide quality like everybody else yet you got the lowest prices.

Decrease in Production Costs

This is something you probably haven’t considered when scanning through the pros and cons of a low price strategy. It’s highly dependable from the type of business you run and the nature of your product, but here are some ways lower prices resulting in increased sales can save you money during the process of production:

• Faster turnaround time of your inventory – You’ll sell so many products you won’t need to keep them stored for a long time, placing storage costs at the minimum. This becomes even better if you’re a reseller and opens the doors towards drop shipping.
• Discounted prices for higher volume orders from your suppliers – Once you establish a high volume of sales because of the competitive prices you offer, you’ll be able to order higher amounts of the production elements you need, which will probably lead to huge discounts from your suppliers.

If you have a hard to produce item, start thinking about different strategy

Reaching Wider Audiences

Remember those people that switched from your competitors to your brand because of the low prices and decent quality you offer? Well, it’s quite possible this group will spread the word about your product or service to their peers, family and friends.

Remember, there’s no better marketing than word-of-mouth, no matter the communication channel it happens on.

Another target audience you should think about is the economy orientated bunch. These people aren’t willing to purchase the product you offer as long as it’s in the premium price range that your competitors set. Once you give them the opportunity to get what they want without paying too much, you build a community of loyal followers.

Low Price Strategy Cons

Credibility

The Internet is great because it provides you with the opportunity to compete on a global level, but there’s also a downside to this benefit.

Operating in the eCommerce world means your audience is able to compare your prices with hundreds if not thousands of your competitors, so you can find yourself in a situation where a company from China has the same offer as you, but can afford to have even lower prices with shipping not being an issue.

This way you automatically lose credibility among the audience you target because you claim to have the lowest prices, but in reality you can’t deliver.

You compete with all the companies from around the world, not only the ones you can find in your local store.

Discounts

Promotions and discounts are a huge part of your marketing. With low pricing you will find yourself in a situation where you can’t conduct the occasional sale, so you’ll lose a great deal of sales in holiday periods like Black Friday sales, when all of your competitors with premium pricing can afford to give a hefty discount.

Even if you can afford to give a discounted price, your audience can see this as a sign that you actually don’t provide the lowest price on the market.

Perception of Quality

Sometimes or better said in most cases, low competitive pricing can be a double headed knife. The strategy relies on offering lower prices than your competition no matter the demand on the market and your production costs.

On the long run this will create an overall perception of lower quality among your audience, so businesses with premium prices that offer the same quality as you’re, can still have a greater volume of sales.

Customer Service

It’s not just about customer service. By accepting to make minimal profit or no profit at all during the beginning of your campaign, you’re sacrificing on the quality of some departments in your company.

Speaking about eCommerce businesses, the department that experiences the hugest hit is customer service. If you aren’t able to provide a satisfying customer service and employ CS representatives, you should seriously consider a different pricing strategy.

Low Price Strategy and Small eCommerce Businesses

One of the things that can happen when employing a low price strategy is starting a price war with your direct competitors. If you’re a small company or a one-man show, it’s probably for the best to avoid wars with your competitors at the beginning.

Actually, you should always avoid starting a price war at all costs. Here are some of the things you can undertake to avoid a pricing battle with your competitors:

• Work on your branding – Having a strong brand will give you the opportunity to choose between different pricing strategies.
• Provide a clear added value – Your customer must know why he’s choosing your product.
• Create your own specific niche – Be specific with your target audience and create a highly customizable offer.
• Determine if a product is profitable or not before you produce it – Find out is it worth to even start selling a certain product.

How did you set up the price for your offer the first time you started selling products online and what were the results? Share what you learned from your experience.