Small retailers are facing a really big problem right now.
A lot of the time, they find themselves locked in a price war with giant corporations like Amazon, Best Buy, and Walmart.
The sheer size of those retailers, and the kind of distribution models and logistics they use, can mean they can afford to sell things at prices that would bankrupt a smaller company.
This is an issue for both online and brick-and-mortar stores.
So if you're dropshipping or otherwise running an ecommerce business, it can be tough to get customers when Amazon sells the same thing at a cheaper price.
There are some ways around this, though.
With the right strategy, you can keep prices reasonable without losing a ton of revenue.
Two ways of doing this are using “charm pricing” — that's where you use psychological principles to make something ”feel” cheaper than it is” — and implementing a customer loyalty program.
In a recent article from Entrepreneur, the author explains how these strategies can help you compete with titans like Amazon, Costco, and Pricefixer.
Add a little charm to your price.
Charm pricing is the strategy sellers use when they woo the customers with the delusion of a discounted or cheaper price, but in reality, there is only an insignificant 1 to 5 cent reduction.
For instance, selling a product for $7.99 rather than $8.00 is charm pricing.
The 99s and 95s work well because consumers assume that the prices are discounted and tend to look more at the whole number in a decimal.
Granted, this has become a very popular strategy world over in shopping malls and online service companies, but it doesn’t work as well today as it did many years ago.
In the age of debit cards, online commerce and pay-what-you-want (PWYW) pricing models, consumers have more control than ever before over what they’re willing to spend.
Studies show that when a purchase is rational, unrounded numbers convert higher.
That’s why home buyers pay more money when prices are specific, but when a purchase is emotional, like say a TV subscription, round numbers convert higher because they’re processed by the brain more fluently.
For all these reasons, you have to consider carefully if charm pricing is what will solve your pricing dilemma.
Generally, research shows people assume rounded prices to be inflated. This is why companies like Netflix and Amazon meet customers somewhere in the middle by removing the cents.
Use low price as a perk for membership and loyalty.
Companies like Costco offer lowest prices for customers who become members.
Costco has been outperforming Target and Wal-mart for a few years with their no-advertising, big-on-membership strategy.
Executive members enjoy an annual 2 percent reward (up to $750) on qualified Costco purchases.
They also receive additional benefits and greater discounts on many Costco services, including Costco Travel.
The advantage of this strategy is that members individually feel valued. The guarantee of lowest prices also means the members would not buy elsewhere what they can get at your store. Such members also have the tendency of publicizing your brand to their loved ones.
Businesses that operate this model of pricing often see a steady climb in purchases because non-members will buy from them using member’s portfolios.
If loyalty earns lower prices, then you will soon have more customers than you know what to do with.
You can find more ways to avoid losing price wars with Amazon over at Entrepreneur.