Let’s talk about prices. Every product has a price – a number with a currency sign. Even a free product has a price; just the number is zero. You can employ many different pricing types in your business, and it can get quite complicated very fast. Let’s go through different ways to price your products and implement prices in digital commerce.
It is useful to approach price definition as a multidimensional exercise. Prices could be different across channels; they change with time or payment terms; prices could be customer-specific and have a different value in each currency you support. Let’s explore this further.
The first thing is to decide what currencies are supported in various stores and channels. Values for all supported currencies need to be stored in the Ecommerce system as they cannot be just converted on a fly. Even with a medium-size catalog, the number of price entries in your database can be large, and you need to make sure that this does not affect your system’s performance.
Regular and Sales price
Each product should have a base price. Product here means a variant. In addition to the base price, a product can have a reduced Sales price. The sales prices are defined for a specific time frame. When both prices are displayed in the storefront, the Original price is usually shown as a crossed-over value.
In some types of businesses, prices are changing all the time. To ensure that price changes are applied at the correct time, it is a good idea to upload them ahead of time into the Ecommerce system.
Net & Gross Prices
Prices in the shop can be defined as either including or excluding tax. In other words – Gross or Net prices. Which type of price to show is determined by country regulation.
Here are examples of a shopping cart from Apple.com – one in the U.S. and Germany.
In the U.S., customers are accustomed to finding additional tax costs at checkout and are familiarized with not seeing the full price on product listings. Whereas in the U.K. or E.U., customers would be taken back by an additional fee at the checkout. This is because, in the E.U., it is a legal requirement to include taxes in the product price, and customers know what to expect throughout their shopping experience.
However, B2B online business may need to have both prices defined and allow a customer to switch between showing net or gross prices in the shop. If a B2B customer wants to buy at net prices, it needs to have a customer account and provide a VAT number.
It is common to offer discounts for customers who buy in large quantities, especially in the B2B channel. This requires the business to define volume prices.
There are multiple ways to do it. The most common is the “all units” model when each unit’s price is equal to the unit price for the cheapest volume tier reached. The second model is called Tiered Pricing or Incremental Pricing Model. In the incremental model, a discount is only applied to units ordered above a specific price tier. When you are configuring volume discount, you can specify it in absolute numbers or as a percentage.
We discussed Subscription products in the Products section of the course. You can sell practically anything using the subscription plans – electricity, internet & TV, shaving kits, or even baby shoes.
Subscription pricing is complicated. A subscription product’s cost can be a combination of a one-time fee, recurring price, and consumption-based prices.
You can see all three types in this example.
Recurring Prices & Billing Cycle
Many businesses selling subscriptions implement a tiered subscription model, which offers a few different subscription options with various features and pricing levels. For example, here you can see two plans: Checkout Only and Website + Checkout.
It is also quite common to define different billing cycles – monthly and annual, for example. As nothing is better than cash up front, the yearly price offers some savings to users.
There are two ways you can implement this:
1) Using Variants
You can define each plan as the main product, add billing cycle as an attribute, and create two variants plan-monthly-billing & plan-annual-billing with different prices.
2) The second option is to introduce the billing cycle as an additional price dimension.
Recurring Price Tiers
It is quite common to offer users some form of a free trial, as ReadingIQ does here. You can configure it as two price tiers. Tier 1 for the first month with price zero and the second tier of $7.99 starting from 2nd month.
The hosting company Siteground is also using multiple tiers in its pricing. It has a discounted price for the first year and the full price afterward.
Here is an example of even more complex pricing from Keap – CRM solution for services firms. In addition to a free trial, Keap offers a reduced price for the first 3 months and has a one-time payment for Expert-Coaching.
As if multi-tiered subscription recurring prices were not complicated enough, many businesses are also using consumption-based pricing.
The consumption-based pricing charges customers per unit of usage instead of a fixed recurring rate. The amount billed is determined based on the amount of service or product consumed. Per-usage pricing is quite often used in combination with recurring prices.
Consumption-based billing is used by companies that can accurately break down their offering into small, consumable chunks.
- Utility companies
- SaaS companies
Usage units can be user seats, time used, API calls, miles driven, etc.
Ahref, which offers SEO tools, has three usage price dimensions: user seats, projects, and crawl credits. And the S3 service on Amazon gives us an example of multiple usage prices, each with tiered pricing. You can see that the cost per GB storage consumed is different for the first 50TB, the next 450TB, and after 500TB.
In many cases, businesses have special prices for specific customers or customer groups. For example, different prices can be provided for students or seniors. Students often receive lower prices because they have little or even no income, so their demand is more elastic.
We can see it here on the UniDays site.
Group prices can also be set based on customer loyalty. For instance, regular/ logged-in customers will receive more significant incentives than those who only checkout as guests. For example, Booking.com is offering special prices for loyal customers in the Genius group.
It is even more common in B2B Ecommerce, where pricing could vary per customer, contract agreement, delivery terms, or order volume.
You need to create a customized experience for hundreds or even thousands of your customers in the most efficient and automated way possible. The Price List feature will come in handy here. You can configure different sets of prices and assign them to individual customers or customer groups to avoid the overhead of making changes for every customer.
Custom Prices for Configurable Products
In the Products section, we discussed configurable products – like manufacturing parts, insurance policies, or complicated equipment.
Such products require a unique configuration before they can be purchased, and the final price depends on the customer’s choices made during the configuration.
Price Management in Ecommerce
As you see, there is a lot of complexity in Ecommerce pricing and multiple approaches to price management. It can be done inside an Ecommerce platform or in a backoffice ERP system. If your business is mostly selling online, and the price structure is relatively simple, your Ecommerce platform should have sufficient capabilities to set up and manage prices.
However, an established business that already manages its prices in the ERP system will need to integrate two systems and export prices into the Ecommerce platform.
Some businesses may choose to receive base prices from ERP but still allow price modifications through the Ecommerce platform, while others will do all changes in the ERP only.
In complex B2B scenarios, it is also possible that prices are not stored in the Ecommerce platform and are retrieved in run-time from ERP to display them to customers. Be aware that ERP systems are not designed to handle high-volume requests, and you should choose the later setup only if the volume of requests is low.
See also Product Prices in B2B Ecommerce
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