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How Much Should I Charge? — Pricing Part 2: Making More eCommerce Profit

Upendo Ventures: How Much Should I Charge? — Pricing Part 2: Making More eCommerce Profit

This is the second in a 2-part series on pricing products to sell effectively online.

eCommerce is a mega-trend and competition is fierce. Selecting the right price for your products is a critical part of your success. In part 1 of this series, we talked about how to find the right price to charge for your products online from a business analysis point of view. In this article, we will focus on the tips and techniques that can help an eCommerce business increase profitability within a competitive landscape.

Can I Raise My Prices?

In highly competitive segments — including low-priced consumer goods — pricing can be THE determining factor in whether or not a customer chooses to do business with you over your competitors. Believing this, many competitors compete on price only. It is common to see resellers on Amazon selling goods for one penny less than another.

The truth is that all products in every market have what is called "price elasticity." Think of it this way … the fact that one coffee shop charges $1.95 and another charges $2 is not likely to materially alter your behavior. You will make your coffee-purchase decision based upon one or more other factors — the quality of the coffee, the convenience of the location, the friendliness of the staff, the insulated cup ... things like that. The coffee at one shop is definitely a substitute good for the coffee at the other and the going rate is within a reasonable range so as not to alter behavior.

This is Price Elasticity of Demand.

Importantly, price elasticity varies by target market and industry. But that economic principle means that you do not necessarily have to be the lowest priced option If there is a set of conditions or circumstances that would encourage a customer to not consider price as a material factor.

The Effect of Technology on eCommerce Prices

During a recent panel discussion that was streaming online I heard an VC investor say, "Technology is relentlessly deflationary." I wish could give the guy credit, but I was listening to the event as a podcast and do not know which panelist was speaking at the time. But the point really stuck with me and rings true. Technology makes all kinds of businesses more efficient and drives down costs. Technology also allows consumers to be better educated about product differentiation and to compare pricing on the fly from their smartphones. This forces businesses to pass on the value of gained efficiencies to the consumer.

The Big Question: "How Do I Make More Money Selling Online?”"

As we stated in Part 1 of this article series, in a competitive market, comparable goods tend to drive towards a similar price over time. But you can generate a better profit margin — and thus a better Return on Capital (ROC) — using modern eCommerce techniques and a little psychology. In this article, we are going to provide a high-level overview of some of the ways you can do that. This will not be a comprehensive list, but it will be a great jumping-off place to get you thinking differently about price and sales.

Complimentary vs Substitute Goods: Two Terms We Need to Know

Before we get into the list of techniques, there are two terms that we need to become familiar with: Complimentary Goods and Substitute Goods.

Complimentary Goods are products that work together to create more perceived value for the consumer. An example of this would be how a phone case and earbuds might be complementary to a cell phone purchase.

Substitute Goods are — generally speaking — products where if a consumer purchases one they do not necessarily need to purchase the other. These can be products that compete directly or that compete indirectly. An example of directly competing products might be an Apple MacBook and a Microsoft Surface. Both are modern laptop computers and a consumer who chooses one will most likely not also purchase the other. An example of indirectly competing products might be if a customer is choosing between a truck or an SUV for their next vehicle. Even though they do not compete directly, a customer purchasing one will not likely purchase the other.

Most of the businesses that you might consider to be your competition provide substitute goods of some kind.

Product Differentiation

There are two kinds of eCommerce sites: those that manufacture their own products and those that resell products made by others. Both kinds can be very successful. If you are manufacturing your own products, then it is a bit easier to create Product Differentiation. Product Differentiation is simply the way that one product is different from or better than a competing product. If you can make the case that your product is objectively better, then a few dollars of pricing difference will not be a factor one way or the other.

This differentiation is communicated via the quality of the content on your product pages. And this is where a lot of eCommerce sites fall down.

One of the most common errors we see with eCommerce sites that sell products manufactured by others is that they tend to use the product names, photos, and the description provided by the manufacturers. Not only does this hurt search rankings (SEO), but customers who read the same descriptions and see the same photos time and time again as they are comparing websites only have the price left to compare.


As we mentioned in Part 1 of this series, brand has significant power. When a brand is well established, the brand itself becomes the differentiator. Louis Vuitton handbags enjoy such a position. No matter how good the quality and style of competing handbags, Louis Vuitton products can charge more in the current market because of the power of their brand. Although some may argue, at least a part of the reason that Apple can charge more for their computers is because of the brand value.

If your brand is viewed by the market as aspirational, desirable, or simply better, then you can (and should) charge more for it.

Service is a Differentiator

As you are thinking about how to differentiate your products in the market, remember that a product can be more valuable to a consumer because of better-perceived service. For example, if you can communicate a better return and exchange policy and/or extended warranty this can be valuable to your customers. And one of the biggest trends in eCommerce right now if installment payment financing for more expensive consumer goods — sometimes referred to by the acronym BNPL (Buy Now Pay Later). These can be provided by third-party services that assume the payment risk. These options have been shown to positively impact conversions and increase average order value.

The same is true when companies accept Express Payment options — things like PayPal, ApplePay, and AmazonPay. The convenience and sense of security that consumers feel when they have these kinds of options can increase conversions.

Importantly, it’s not enough to simply have all these service options available. They need to be clearly communicated on your site and easy to access — and that requires good development.

Add Complementary Products and Services Through Upselling

As we discussed in Part 1, part of the calculation in setting your pricing is your Cost of Customer Acquisition (CCA). It’s part of the pricing model we detailed. Your results may vary substantially, but industry averages for CCA range from $7 in the travel sector to more than $300 for cell phone carriers.

If you can sell a second product — or even a third — to the same website visitor, you can capture those additional sales without paying an additional CCA. The difference is pure profitability. Adding additional offers of complementary products and services to your product pages and the checkout process is a great way to accomplish that.

The Bundle

One of the most competitive businesses that sell online today is digital still and video cameras. Not only is the market very price sensitive, but the major manufacturers control the sale price by contract. Any retailer reselling cameras made by Canon or Olympus is required to not sell the camera below a certain price. If they do, they can have their distribution yanked. These cameras cannot be sold by competing on price and they are absolutely undifferentiated from the competitors since they are selling the exact same model of a camera from a global brand.

Independent camera retailers — especially those who sell on Amazon — get around this restriction by selling camera bundles. Since they are precluded from selling on price, they crate packages that include things like lenses, filters, lighting rigs, tripods, and memory cards to make their offer stand out. You may have purchased one of these bundles yourself. Here is an example for the Canon M50 camera.

Note that some vendors are selling the camera for a flat, competitive rate. Others have created elaborate bundles that often cost more. But the perceived value of the bundle can be quite high.

The point is that if you can create bundles of products around your core offer, the one-click ability to get everything a customer wants or needs to maximize their utility has a very powerful allure. The result can be better margins per sale and a better ROC.

The Shipping Game

In our pricing model from Part 1, Shipping is a major input to price. It has become a given that eCommerce brands need to offer free shipping in order to be competitive. Many eCommerce merchants have found that so long as the total offer is competitive, shipping does not necessarily need to be "free" at least not for a single item.

Since the marginal costs of shipping a second item is small, you might be able to strike a balance by offering free shipping with a minimum purchase. This is very common. The second method is to offer a low, flat-rate shipping with every order — $5 is common among retailers, $15 is common for the wine and spirits sector. In this model a portion of the shipping is included in the price and a portion is paid separately by the consumer.

Repeat Purchases: Retargeting and Email Marketing for ALTV

The most common — and most effective — method for increasing eCommerce profitability is to maximize the cost of customer acquisition. There are many channels for this, but the two most successful are Retargeting Advertising and Email Marketing.

You’ve likely experienced Retargeting Ads yourself. You visit a site and look at a few products. Whether you purchased or not, sometime later you are visiting another news or information site and see an ad for the specific brand or product you had looked at before. Those are Retargeting Ads.

Retargeting ads are significantly less expensive than Google Adwords or Facebook ads. Retargeting advertising is a way to increase the conversions of previous site visitors. Increasing the conversion rate is the same as lowering the CCA.

The same is true for email marketing. Getting second or third sales from the same customer increases the value of that customer. If you take the total amount of sales and divide it by the total number of customers you arrive at an important eCommerce metric: Average Life-Time Value (ALTV). Since you have already paid the marketing cost to acquire that customer, every additional sale to that customer increases the ALTV and reduces the impact of CCA.

Email marketing is relatively inexpensive when compared to other forms of marketing and is the best way to maintain the relationship with existing customers. This is one of the reasons that most successful eCommerce merchants work hard to get customers to subscribe to marketing communications via email — even offering substantial discounts for the privilege. It is our opinion that email marketing needs to not just be a part of your eCommerce strategy, it needs to be a priority. It will not help you raise your prices, but it will help you make each customer more profitable.

The Win-Win-Win: Cause Marketing

One of the most popular eCommerce strategies today is to differentiate your company and/or product by associating it with a charity or cause. This can be a triple-win — benefitting the customer, a noble cause, and your eCommerce business. This is because even if a product is a few dollars more expensive, if a portion of the sale is legitimately donated to a non-controversial charity or cause, the customer can feel good about making the purchase at a marginally higher price point. Everyone wins.


This article I Part 2 in our series on pricing eCommerce products. In the internet age, price and pricing are some of the most difficult challenges a business can face. In this article, we have described several methods for maintaining a higher price point and/or higher profitability on eCommerce sales. But this list is far from comprehensive.

Take me to — Pricing Part 1: Selling Physical Products Online.

If you need help or have questions about selling your products online reach out for a private consultation.

Links and References

A discussion on determining Cost of Customer Acquisition (CCA) and industry averages via Entrepreneur Magazine:

An overview of Complimentary Goods from Wikipedia:

An overview of Substitute Goods from Wikipedia:

An overview of Price Elasticity of Demand from Investorpedia:

An article on the positive impact of installment payments/BNPL options on eCommerce:

An article demonstrating that offering PayPal as an Express Payment option increases conversions and lowers cart abandonment:

Information from Stripe showing that offering ApplePay also increases conversions:

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About the Author

Jeffery J. HardyCommunication Strategist
Upendo Ventures
Jeff is a 25-year veteran of communications serving the technology fields. He has worked at the super-large tech behemoths of yesterday and the small entrepreneurial shops of tomorrow across the landscape of software, hosting, and cloud. He is a communications and social science nerd — and that means he creates a lot of content covering messaging, technology, leadership, and economics.

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