This is the fourth article in ShelfTrend's Entrepreneur Series contributed by our Entrepreneur of the Moment, Heather Potter.
You would think that pricing is just really simple math, but it isn’t.
When I started my own shoe brand, Shoe Envy, I was starting from a baseline of zero experience in retail so I had no idea what to charge. People were giving me all kinds of advice like charge double your wholesale cost or charge your time plus, your landed cost, plus (insert variables) and I was just confused.
So I decided to do the logical thing and work out a pricing structure based on:
What I thought they “looked” like they were worth
What I would be willing to pay
Trial and error.
There are so many reasons why none of these were the best approach.
If you’re joining us for the first time fresh, I’m Heather and I started my own online store, Shoe Envy, on the encouragement of friends and family for my epic shoe collection. Six weeks later I was in China. And just over six months later, I had set up a full supply chain and was designing, manufacturing, importing and selling my own shoe label online.
At its peak, Shoe Envy was turning over in excess of $20,000 a month from my lounge room while I upheld my regular day job. I’m here to tell you, I’m not special. The only difference between me and anyone else is I’m willing to give anything a crack. Most things, once you get into them, are really not that hard.
I am working with ShelfTrend on this Entrepreneur Series because there is opportunity out there to sell online and to make a good go of it. If I can do it, so can you. Follow along the series – I’m sure you’ll learn a thing or two.
In this article, I’m going to talk through some guiding principles for pricing your products.
Match your pricing with your brand positioning
The first step in choosing your pricing structure is deciding what kind of brand you are – cheap and cheerful or designer? This decision is paramount.
It will determine the level of quality you are committing to with your product. It will impact how you design and negotiate product features with your supplier. It will also give you a range to work with in terms of margins when settling manufacturing and shipment costs.
Pricing and brand positioning will also influence the type of customers you attract and how they feel about your product and brand.
I decided to have a crack at turning Shoe Envy into a “designer” brand. I was only ordering as few as thirty pairs in each style for some shoes and when you’re manufacturing volumes that small, your unit cost is going to be high. I also knew that I wouldn’t be able to compete the low priced women’s shoes at established retail stores. I needed to differentiate.
This was a pragmatic decision based on the practical realities of the size of my business and my supply chain.
Differentiating meant building value drivers around the Shoe Envy brand and persuading customers that we were:
Exclusive – not mass produced but manufactured in small runs of never-to-be-repeated styles
Locally designed – introducing customers to the real designer behind the brand
Ahead of the curve – introducing customers to the design ethos of the brand (we were vegan and animal friendly) and showing how it was leading trends (in an accessible way).
This was delivered via a carefully considered content and marketing strategy that I touch on in an earlier blog article about selling to loyal customers by building a tribe.
Price to suit the market and your customer
I decided to set my starting prices based on what I would be willing to pay for shoes like these if I were in a shop. This was foolish for a few reasons; starting with, as a business owner, I am not my customer. But most importantly, as the designer and manufacturer of the product, I was highly emotionally invested in it.
The first time I saw my brand on a shoe box, I squealed. The first time I saw my logo on an actual shoe, I may actually have choked up a little. I can tell you right now, nobody else was choking up over my shoes but my initial price points might have got some eyes watering!
You will always love your product more than anyone, so you can’t trust yourself to be in charge of pricing. You’ll be the first one to suggest, “ONE MILLION DOLLARS!!!” as your entry price point while your customers look at it and say, “Yeah, I’d pay ten bucks for that...”
You’ve invested a lot of money and sweat equity into developing your product, which will skew your perception of its market value. You’ve got to take the emotion out of it and let the market guide you to greater objectivity. To do this you need to know what sort of similar products are already out in market.
Although I didn’t have it at the time, ShelfTrend offers an incredible survey of the inventory that is being merchandised right now to your customer. Just looking at the Top 500 products within the category for Womens Shoes>Flats, prices already range from $0.99 to $750 on eBay Australia, but more importantly median prices are between $50 - $105. Right within the price range that happened to be my sweet spot.
Yet when I survey shoes available on offer, it is still just a large selection of ugly, pedestrian, condescending grandmother styles. Time to get back on my shoe designing horse!
ShelfTrend offers you that secret shopper experience where you can upturn the entire store looking through every piece of merchandise to know where your product fits in and how to price it.
Gasp* Customers often want more than just the lowest price.
A product price is not just a number, it is associated with all sorts of purchase behaviours and shopping psychology.
When I started Shoe Envy, I wanted people to understand that my product was designer and create a tolerance for a price point that would be sustainable, given the higher cost of my low-volume supply chain. But I also needed to kick-start sales and make back some of my initial $20,000 product investment. So I ran a campaign to sell the shoes at heavily discounted prices as part of a launch event.
It didn’t work. Nobody bought a thing. But interestingly, when I ended the campaign and reverted the prices to “normal”, I finally picked up some sales.
Over time, I learned that people have a lot of fears about quality when buying from an unknown brand and if the prices are set too low, they assume the product will be cheap and nasty to match. By raising the price, I also raised the buyers’ expectations of how good the quality of the product would be.
In some product categories, prices are generally in the lower ranges, think nuts & bolts, hobby supplies , some fashion accessories and other commoditized items – making it a mostly low-price high-volume play. Customers are conditioned to associate the product type to a price range. But smart sellers in these categories are able to find ways to stand out from the pack by providing value in other ways.
The iPhone cover category is a great example of this where it is dominated by the disposable cheap covers, but suddenly you get the leather cases, the shock proof and the wood grain versions; and that disrupts the market and the customer is offered greater selection at a higher price point – and everyone is a winner!
But generally, price and volume are inversely related. Which basically means the less you charge the more you will sell. It also means you will need to sell more because your profit margin is likely to be lower on low-priced items.
Whichever end of the spectrum you choose to play in, what you need to find is that glorious sweet spot where you make the maximum number of sales for the highest possible price. It could take a bit of trial and error, but by knowing what is already out in market (check out ShelfTrend), you’re ahead of the game. Price benchmarking is the best tool for you to get yourself slotted into the market and making sales sooner than later.
Run promotions to drive trial and build sales momentum.
In 2016, I was finally able to afford a new production run of the ever-popular commuter flats. Knowing that this product was key to attracting the right audience to my brand, I saw it as a major opportunity to grow my database. So I relaunched the range with great fanfare, including an exceptionally tasty acquisition offer: one pair of the new product would be offered to ALL customers for $50 instead of $109.
The promotion went ballistic. Sales tripled overnight. It was super exciting watching the cart notifications pour in.
As an acquisition offer, it was hugely successful. I had new customers that trialled the brand for the first time and I also reactivated inactive customers.
A promotional offer could result in a loss, or break-even at best, but the intention is that you will attract lots of new people to your brand, get them excited, and give them such an amazing shopping experience that they will come back again and again and give you strong positive word-of-mouth promotion.
As a tactic, promotions are fantastic but can be tricky. Your offer needs to be compelling but yet, it can’t be so wildly amazing that customers won’t be willing to pay full price again. You want to resist the urge of getting lured into a price war. Monitor your competitor’s pricing, but don’t flinch when they’re on sale and you’re not.
The best safeguard for promotional effectiveness is to make sure your regular prices are competitive and when you do have a promotion, it’s special like a reward to your customers and an opportunity for new customers.
If financial management isn’t your strength, get some help.
I’m on a lot of ecommerce forums and pricing is one of the topics that gets raised all the time. It seems simple but pricing is very much tied to the product category, customer preferences, how you want to communicate your brand and the market and competitive situation. It also impacts how you’re able to pay for your overheads, make a profit and pay yourself. This is too important not to get right, so if managing margins, making pricing decisions or putting together promotions could sink your ship, get some help. The first port of call could be your accountant. The second could be a business consultant.
I approached pricing with a bit of trial and error – and it got me and my business started with a few fail fast lessons and a few bigger impact costs that I had to pay off later. But don’t be intimidated. I wanted to be realistic about the topic in my article but also give you practical advice. Don’t let pricing hold you back from starting an online business. It’s only one of many lessons that you can learn, grow and succeed in. I know you can.
Heather Potter
Heather is a journalist-turned-Public Relations extrordinaire to digital communications specialist. Having worked around the world for big brands in the commercial and NGO sectors, she decided to try her hand at building her own ecommerce business - and it worked! Although she had to close Shoe Envy for family reasons, she remains passionate about ecommerce and small business, especially enabling others with the same entrepreneurial spirit toward online success with engaging content and communications. Find her at Chilli Dog Consulting - she'd love to have a chat.
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Read The Rest Of The Series
ABOUT SHELFTREND
ShelfTrend is the go-to market research tool used by over 35,000 online businesses, both large and small.
We deliver real-time eBay marketplace data - where over 170 million people buy - so that you can research products, prices, sales and your competition.
Know more. Sell more. ShelfTrend.