Product Pricing Strategies for Dropshipping Success in 2024

Especially when you have a dropshipping store, you will need a dropshipping pricing strategy that will work for you. Because there are so many options, pick one that works for your situation and business objectives. It can affect how many customers you will attract, how much profit margins, and how well you can compete in the market.

Many pricing strategies, like geographic pricing, won't work with most e-commerce platforms, such as Shopify, because it will not allow you to arbitrarily increase prices among customers based on where they're located. Strategies like predatory pricing make it impossible for the beginner to sell someone else's product. While you want to capture market share, underpricing your goods can seriously handicap your business's overall profitability in the long run.

This article explores several successful drop shipping pricing strategies. The strengths and weaknesses of each strategy will be described in detail. Ultimately, this analysis will give you the information to decide on price dropshipping products.

Introduction

Cost-Plus Pricing

Amongst the simplest pricing strategies for dropshipping is cost-plus pricing. Here, we calculate the Actual cost of acquiring a product, and then a predetermined Profit Margin is added. You can mark up all your products uniformly, or you can mark up your products differently depending on their category. This simplifies your pricing decisions as you have clarity on profit margins.

Advantages:

• The predictable profit margins mean we can plan finances.
• There is a very minimal requirement for market research.
• With tools such as DropCommerce, you can make bulk price adjustments, which can be implemented rapidly.

Disadvantages:

• Your prices may not match what customers perceive as the value they're getting; your prices could be too high or too low for what they expect.
• If not adjusted regularly, that can lead to awkward pricing points ($25.13 instead of $24.99, for instance).
• The problem is charging accurate overhead costs in the markup per product.

Value-Based Pricing

Value-based pricing is a highly successful approach centered on what customers perceive as the value of a product as opposed to the cost of the product. This is a great model for specialty offerings, particularly as it allows businesses to price products based on how much customers want to pay. For example, if your product is a back brace and it's worth $100 for a consumer to pay for it, you should pay that amount of money, regardless of how much it costs.

Advantages:

• These solutions maximize profits by rapidly tapping into the will to pay consumers.
• It allows the starting of loyalty programs or affiliate initiatives.
• Shipping options, packaging, and warranties can all be improved to increase value and justify a higher price.

Disadvantages:

• It is hard to measure and determine perceived value.
• Customers may feel manipulated by frequent price increases.
• If a similar product is available, your competitors can undercut the prices.

Competition-Based Pricing

Pricing based on competition is based on observing prices set by competitors and adjusting prices to match. This strategy can benefit dropshipping because you can price items similar to the market. Customers do not usually pay more than the market price for inhomogeneous products.

Advantages:

• Capability to out-price competitors and win market share.
• When you set your prices aligned to those of your competitors, you are capitalizing off their brand perception and putting half their price.
• It uses competitor pricing insights to make sensible decisions.

Disadvantages:

• Aggressive pricing strategies from new entrants in the market were susceptible.
• If your competitors have economies of scale, you may not have the margins to cover your costs.
• It requires continuous monitoring of competitor pricing and offering.

Price Skimming

Price skimming is setting a very high initial price for a product — usually to capture early adopters — and then gradually lowering it over time to appeal to a wider customer base. It's common for tech industries to release a new product at a premium price until the market is saturated.

Advantages:

• It gives you insight into consumer demand at different prices.
• It offers an opportunity for initial profit capture from early sales that offset initial product launch costs.
• Later, it cuts down the prices so that it can lure buyers.

Disadvantages:

• This may not be feasible in a market of numerous similar products.
• If prices drop shortly after, when early adopters buy it, they will feel ridiculed.
• To earn higher prices, products without strong differentiation can be a challenge to justify.

High-Low Pricing

Price skimming and high-low pricing are similar in that price skimming involves starting at a high price and then cutting the price in line with the novelty of the product. This is often the way that retailers work. For example, summer clothing is priced at a premium initially when the season is on, and the pricing falls away with dwindling demand on the approach to winter.

Advantages:

• Enables testing of demand variation at different price points.
• It will help you eliminate outdated inventory or products.
• Use customer psychology to trigger the desire for discounts.

Disadvantages:

• Customers will postpone buying now in hopes of buying more cheaply in the future.
• Creating a premium brand image is at odds with this strategy.
• Because a relationship with your suppliers means you typically won't have control over product pricing as a drop shipper.

Psychological Pricing

Psychological pricing is when you determine your pricing based on quirks in human psychology. For example, selling a product for 24.99 instead of 25 (which feels better because it represents a better bargain). Bundling a shipping cost into the product price is another way this technique addresses the shipping cost dilemma.

Advantages:

• Pricing is customized to the customer's preferences and psychological triggers.
• It integrates the brand into the pricing strategies.
• Offers actionable psychological insights that help optimize pricing structures.

Disadvantages:

• No customer trust and increased prices: If customers perceive an increase was manipulative.
• Psychological pricing that works consists of demand that does not significantly vary. For instance, it's simply not feasible on Shopify to bundle shipping costs within product prices.

Bundle Pricing

Bundle pricing is where you bundle multiple products together at one single price and make all those products available for a lower price. The strategy helps persuade consumers to buy more than they are prepared to. The fast food industry, for example, generally entices customers to get certain meals.

Advantages:

• This increases the average order value effectively.
• Helps sell lesser-known products as well as bestsellers.
• Adds value to customers with bundled options.

Disadvantages:

• Pricing bundles below individual product prices may cause a marginal reduction.
• Inventory levels of bundled products may have to be monitored as well.
• If customers were to suspect future discounts, they may not buy bundles.

Captive-Product Pricing

A captive product pricing strategy is where the first product sold is priced low so that customers will buy it, but other needed products are priced higher. We commonly see this type of strategy in marketing printers and the ink cartridges that come with them.

Advantages:

• It effectively entices customers into your products' ecosystem and increases the market share you attract.
• If you are the only provider of needed items, doing so creates a dependency on your brand.
• Easy to use subscription models for recurring revenue.

Disadvantages:

• Some customers are deterred from repeat purchases of high-cost recurring products.
• If customers for consumables turn to competitors, initial products could lose money.
• Some customers may be willing to do away with expensive consumables altogether.

Dropshipping Product Pricing Strategies: Which Ones Are Best?

After reviewing the various drop shipping pricing strategy, here are the top recommendations for pricing dropshipping products effectively:

1. Value-Based Pricing
This ranks at the top because it helps you position your product as a solution to customer problems. If you sell a product unique to you, for example back braces, when you sell to customers with back pain, the perceived value could be way above its price. Since you focus on a limited catalog, you can solve customer pain points more effectively and ultimately drive higher margins.

2. Competition-Based Pricing
This drop shipping pricing strategy is ranked very high, as it is very simple and market-responsive. So, researching your competitors lets you price competitively so that you both attract and keep customers. Additionally, this method incorporates the brand perception market for competitors into your pricing decisions, which is a factor you would like to mimic. Not discrediting any of that, it's important to ensure they're performing well enough for you to benchmark against them.

3. Bundle Pricing
This strategy is efficient as it raises your average order value by selling more of the same products and encouraging more products related to the product concerned. You can entice customers to buy more, boosting overall sales performance by offering a bundle of complementary items. It also sheds light on the customer's preferences, which will help with future marketing strategies.

Understanding how to price dropshipping products is one of the most important parts of running a profitable business online. However, all these price strategies can be applied deliberately and tailored to your unique market situation to increase profitability and enable sustainable growth of your dropshipping venture.