Cost in Marketing Mix for eCommerce Planning

From a business’s point of view, the price of a product or service is the amount you set for the

item/s the customers/consumers will get from your business. Shifting to the perspective of your

customers/consumers, the price becomes the cost. It represents the amount your

customers/consumers will pay for your product(s) or service(s).

Cost is Crucial

It is important to determine of overall cost – not price – of your product to the customer. It also

depends on the type of market you are targeting to capture. In layman’s terms, consumers use

price as a reference for perceived quality. If you charge a higher price, customers’ expectations

will be higher. Furthermore, if your price is in the medium range, but you offer a premium level

of service (above customer expectations for the price paid), you can expect high customer

satisfaction.

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Three Common Types of Consumers:

Status-conscious – These consumers want first-rate products or services and are willing to pay

for the cost of the item(s). They look at these products/services and corresponding costs as a way

to define and maintain their status.

Convenience-conscious – These consumers will pay for the cost of the product(s) or services(s)

if they find them convenient. They are willing to pay extra as long as their purchase means

convenience.

Budget- conscious – These consumers buy products or services that fit their budget. They are the

people who want more value for their money. Thus, they are always on the lookout for lower-

cost product(s) or service(s).

As you evaluate cost, consider these guidelines:

What research have you done to determine if that figure is reasonable and affordable for your target?

Is your product or service still profitable at that price your customer is able/ willing to pay?

What will the consumer’s total, or real, cost be for obtaining your product or service?

How will local, state and federal taxes impact the total cost of the product or service?

Keep in mind that price alone doesn’t usually convince the consumer to buy, so setting a low price won’t necessarily drive sales and could hurt your bottom line.

Some Different Pricing Strategies

When setting prices, companies need to consider a wide range of factors including production

and distribution costs, competitor offerings, positioning strategies and the target user base.

Pricing at a Premium

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Premium pricing is often effective in the early days of a product’s life cycle and ideal for a

market of unique goods. Because customers need to perceive products as being worth the price,

companies have to strive hard to bring-out a value perception for its brand.

Premium fashion brands sold on eCommerce platforms are examples of Premium Pricing.

Marketplaces such as Myntra and Jabong are selling designer clothes by Satya Paul, Karan Johar,

Rohit Bal, etc. as well as hosting international brands like vero moda, tresmode and lavie.

Pricing for Market Penetration

The aim here is to attract buyers by offering lower prices on goods and services. Initially, this

pricing strategy does tend towards a loss of income. However, increase in awareness can drive

profits and help businesses to make their mark. Once you get a foothold, you might end up

raising your cost to better reflect the state of your brand’s value in the market.

Paytm is a living example in terms of its growth and scale. It now allows users to transfer funds

to bank accounts for free (0% processing free). This move has further encouraged digital

payments and has help built a large customer-base for Paytm.

Economy Pricing

Used by a wide range of businesses including FMCG players and discount retailers, economy

pricing aims to attract the most price-conscious of consumers. The goal is to minimize the costs

associated with marketing and production in order to keep product prices down. As a result,

customers can purchase the products they without having a second thought. While it is indeed an

effective way for big retailers like Big Bazaar, it is not recommendable for smaller marketers

whose volumes of sale would be much smaller.

Psychology Pricing

Psychology pricing refers to techniques that marketers use to encourage customers to respond on

emotional levels rather than logical ones.  For example, often you will find products on

eCommerce sites as well as on retail touch-points; the price would be Rs.199 for a particular

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product.  This Rs.199 sounds way better to human perception than if it was Rs.200. The aim is to

increase demand by creating an illusion of enhanced value for the consumer.

Examples are aplenty; you could find any other product on every eCommerce site as well as in a

retail shop bearing Rs.199 tag instead of a whole figure of Rs.200.

Bundle Pricing

With bundle pricing, small businesses sell multiple products (bulk) for a lower rate than

consumers would face if they purchased each item individually. An effective way of moving

unsold items that are taking up space in the inventory, it can also increase the value perception in

the eyes of your customers, since you are giving them something for free.

Example: Flipkart’s Big Billion Day sale offered three bundles of the Xbox One 1TB console

down to Rs. 24,999 (MRP Rs. 39,990).

Conclusion

A focus on this ‘C’ will help find ways to actually increase the price of the item while decreasing

the cost through steps that have a minimal influence on the company’s bottom line.

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