Pricing is about more than the number that you see on a tag at the store, and it can be used to convey more information than simply how much an item costs. It can give the buyer all kinds of signals about the product, its place in the market, and its perceived value.

In the cutthroat world of e-commerce, choosing the right pricing strategy is vital. Get it right, and businesses can make more than a single sale. Get it wrong, and they could lose the customer for life.

Here, we’re going to dive into the different types of pricing strategies that can be employed. These models can be used whether you’re just starting out with an idea and a dream or you’re looking to expand an existing business to new heights.

What is an E-commerce Pricing Strategy? (And why it matters)

Making the most of an online business means making sure that you choose an ideal pricing strategy for your brand, your products, and most importantly, your customers. The best strategy takes into account a variety of factors, including costs, market demand, market competition, and more.

While pricing techniques aren’t unique to e-commerce, online businesses have a key advantage over their brick-and-mortar counterparts – they can be more agile when choosing and adapting their strategies. And that can be hugely beneficial.

Here’s why implementing a good pricing strategy is so important:

A direct impact on sales: Pricing is often, and perhaps usually, the primary factor for customers when they consider making a purchase. Pricing an item a little too high or a little too low can have an outsized impact on performance.
Positioning your brand: Choosing the right price point will depend on the market your business caters to. A prestige brand should charge higher, signalling that they offer superior quality. When the rate is too low, buyers may assume the quality to be subpar.
Customer retention is key: Opting for a strategy that allows for customer retention schemes can drive repeat custom. Discounts for regular customers can incentivize customers to return rather than shop elsewhere.
Choosing profitability or growth: Picking the most appropriate tactic for your goals can give your business much-needed focus and clarity moving forward. Balancing the need to sell at volume while maintaining product margin is an important component of any business, and a solid strategy can help lead the way.

The 3 Foundations of any Pricing Decision

Before you go for the most optimized strategy for your business, it’s important to consider the three pillars of a sustainable pricing model. These pillars consider the fundamental aspects of selling products and take into account the cost of doing business, the value afforded to the customer, and the price among your competitors.

Cost-based pricing: Simply put, consider the minimum amount that you could charge while still covering the costs associated with the sale. That might include production costs, shipping, marketing, and more. Do not risk selling at a loss; doing so could put your business in jeopardy.
Value-based pricing: This price is derived from the perceived value of the item being sold. What is the maximum sum you believe your customer is willing to pay based on the value the product offers them? This figure can then inform any future decisions that you make regarding pricing.
Context-based pricing: Few businesses are truly unique and function without competition. Context-based pricing takes into account the pricing benchmark offered by that competition. You can then use that benchmark as a starting point when considering your own pricing strategy.

Each of these foundations should be considered and can be leveraged to select a pricing strategy for your business.

10 Types of E-commerce Pricing Strategies

Now, we will discuss ten types of widely accepted pricing tactics for E-commerce stores.

1. Cost-plus pricing

Perhaps the most basic method of pricing, the cost-plus pricing approach adds a fixed percentage margin to the cost required to produce and sell the goods.

As an example, a shoe manufacturer might spend $10 on the materials required to manufacture their product. Add the $15 for labor costs and a further $15 for shipping and marketing, and the shoes must be sold for $40 to break even.

In this example, the business must then choose how much profit it needs to make on each pair of shoes and add it to the $40 break-even figure. If your business aims for a 50% margin, the shoes must be sold for at least $80.

Advantages: Simplicity is key here, and this approach makes it easy to adjust pricing later while maintaining profit. You can also be sure that each sale covers its costs with this approach.

Disadvantages: This approach ignores some of the key foundations of pricing. It doesn’t consider how much your competitors sell their products for, for example. Nor does it consider the customer’s perceived value of the product.

2. Competitive pricing

The kind of approach often used when selling a commodity; this approach bases the selling price on those offered by your competitors. You must collect pricing information from your competitors and then use that information to inform your own pricing decisions. If raw sales figures are key, this approach helps ensure customers choose your business over your competition.

Imagine you’re selling apples on a market stall. The market beside you is also selling the same apples. Customers are likely to choose the stall with the cheapest offer when making their purchase.

Advantages: You’re less likely to lose customers to your competitors, driving your sales as a result.

Disadvantages: Using our apples example, it’s easy to see how a price war could erupt. If a race to the bottom ensues, it’s vital to ensure you don’t fall into the trap of selling your apples at a loss – a trap that can be all too easy to fall into.

3. Value-based pricing

Value-based pricing relies on understanding the maximum amount of money that your customer base is willing to spend on your product. Their decision will be based on the perceived value of that product, ignoring how much it costs to produce, transport, market, etc.

Customers are likely to pay more for a product that they believe is made from quality materials or produced to a high standard. This alone could cause them to value competing products differently, even if they are functionally identical.

A great example of value-based pricing is Apple. Its goods are largely comparable to those made by its competitors, yet it can charge more for those products. Brand loyalty, coupled with the use of quality components and industrial design, adds value that the customer is willing to pay extra for.

Advantages: This approach can help foster brand loyalty while allowing for much higher margins than some of the other approaches.

Disadvantages: You must have a deep understanding of the market as well as your potential customer base for this approach to work. Misjudge either, and you could choose a wildly incorrect price.

4. Dynamic pricing

A more complicated approach to pricing, dynamic pricing adjusts the figure charged for a product in real-time based on a variety of factors. Those factors often include demand for the item, any offers or pricing changes among competitors, current inventory levels, and more.

Dynamic pricing offers the kind of flexibility that other approaches lack. But it can be divisive, especially among repeat customers who find themselves paying different prices for the same product.

One of the most notable examples of this pricing strategy is employed by hotels and airlines. They monitor demand and availability for rooms and seats and then dynamically adjust their prices accordingly. Amazon prices also change frequently due to dynamic pricing.

Advantages: This approach means businesses can increase their prices at a time when customers are most inclined to pay them. It allows them to maximize revenue when demand is at its peak while reducing prices when it falters.

Disadvantages: Customers can be confused by the changing prices, especially if they have previously bought the same product at a different price. Frequent price changes can diminish trust in the business, which can have dire consequences in the long term.

5. Price skimming

Price skimming involves launching a new product at an inflated price with the intention of reducing it to the intended price later. This approach gives businesses more room to adjust prices if the demand weakens or new competitors enter the market.

This approach is also popular among companies that sell goods that tend to be replaced on a regular, predictable time cycle. Smartphone makers, for example, sometimes reduce the price of their phones as they get ready to release a new one. This allows them to sell through older inventory before a new product arrives. Customers also get the opportunity to buy the current model for less, even though a newer one may be just around the corner.

However, research suggests that price skimming may not be the optimal approach for businesses selling so-called “fad” items. In such cases, the report finds that “firms are likely better off setting their introductory price at a lower level and then increasing the price to a peak reflecting the market's maximum tolerable price before reducing it to further motivate sales.”

Advantages: Businesses that use price skimming can more quickly recoup any of the initial costs associated with launching a new product. Research and development costs are likely to be covered by early, full-value sales to the most loyal customers.

Disadvantages: Savvy shoppers may choose to avoid buying your new product because they know that it will be available for less at a later date.

6. Penetration pricing

Almost the exact opposite approach to price skimming, penetration pricing sells a new item at an unusually low sum initially. This allows businesses to capture market share early in the item’s life cycle. It’s also particularly useful when a new market is being created, with low introductory prices giving way to higher ones once the market has been established.

Subscription models are a great example of penetration pricing. They regularly offer incredibly low prices initially, such as $1 for the first month for new customers. Once that customer has been captured, the price returns to its usual level for subsequent months.

Advantages: Penetration pricing gives businesses the opportunity to capture a market and new customers quickly. This can have the effect of discouraging competitors from entering the space, at least initially.

Disadvantages: Lower initial pricing brings with it lower margins. It’s also possible that customers may choose to shop elsewhere once the introductory price comes to an end. Customer churn can be a problem for businesses and can make it difficult to project revenue moving forward.

7. Charm pricing

Also known as psychological pricing, this strategy uses different methods to make a product appear better value, or the cost appear lower, than it really is. This approach is why you often see products sold with prices that end with 99 cents.

Psychologically, an item that sells for $9.99 seems more affordable than something that sells for $10, despite the single-cent price difference. Prices that end in an odd figure are often perceived as better deals than those ending in an even figure.

Advantages: By increasing the perceived affordability of an item, businesses can help drive impulse purchases.

Disadvantages: Charm pricing can backfire depending on your business and customer base. Premium brands with customers who expect to pay larger sums may find this approach cheapens their buying experience. It can also appear manipulative to those who are aware of the approach.

8. Bundle pricing

Bundle pricing is a great way to increase a business’s average order value, or AOV. The approach is simple; combine multiple cheaper products into a single, more costly bundle with a small savings compared to buying them individually. This approach can also be used when selling a commodity to drive sales of multiple units rather than single sales.

One example of bundle pricing is the way it’s often cheaper to buy a bag of apples than it would be to buy the same number of apples individually. Alternatively, you may see a retailer sell a newly released game console bundled with games and accessories. The bundle almost always costs less than the price of the individual items combined. This strategy also allows businesses to bundle slower-selling products with more popular ones, refreshing their inventory.

Further, a Harvard Business Review analysis found that bundling items that could normally be bought individually outperforms those that must be bought together by as much as 35%. Customers likely find it easier to appreciate the value proposition when items also have individual prices attached to them.

Advantages: Bundle pricing is a great way to increase your business’s average order value and helps ensure that slower-selling products don’t clog up your inventory.

Disadvantages: It’s vital to consider your bundles carefully. While bundles are a good way to sell items that haven’t proven popular on their own, they can have a negative impact on sales. Customers may choose not to make the purchase if they don’t benefit from all of the products included in the bundle.

9. Tiered pricing

If you have different types of the same product available, tiered pricing is a strategy that can be implemented. By offering different versions of a product at different price points, you automatically widen the pool of available customers.

Examples of tiered pricing are everywhere, but perhaps most prevalent when selling services. A business that sells software services may offer $10/mo (Basic), $50/mo (Pro), and $200/mo (Enterprise) tiers. Each tier adds additional features that warrant the increase in price, while the business still has a low-priced offering for the value-conscious customers.

Commercial consultancy firm Simon-Kucher notes that the tiered model can more closely align with the customer’s perceived value. It can also aid decision-making, with the default decision typically being the middle tier.

Advantages: This technique offers options for different segments, capturing more of the customer base than might otherwise be available.

Disadvantages: While tiered pricing gives customers more options and price points to consider, it could add confusion to their purchase. Each tier must be sufficiently differentiated from the others, with clear pricing, to make it easy for customers to choose the right tier for them.

10. Loss-leading pricing

Loss-leading is one pricing strategy that can be particularly useful for new businesses. By initially selling a product for less than it costs to produce, businesses can quickly build a customer base and increase their sales.

It’s also hoped that by selling a product at a loss, customers will also buy other items at the same time. Loss-leader products can be used to get a customer into a store or onto an online platform in the hope that they will browse through other products during their visit. Examples include grocery stores that offer a specific item at an incredibly low price with the expectation that customers will also buy their other groceries during the visit.

Advantages: Loss-leading can drive massive footfall and website traffic, which then has the potential for cross-selling of other products and services at the point of sale.

Disadvantages: This approach only works if a sufficient number of customers also buy other products at the same time they buy the loss-leading item. If not, the business risks making significant losses.

Strategy comparison table

Choosing an ideal pricing strategy isn’t always straightforward. This quick-reference chart of some of the most common pricing strategies may help you reach a decision in less time.

How to Pick the Best Pricing Strategy for your Store?

Adopting an effective pricing strategy for your business will depend on a variety of factors, including your business model and its target market. It’s important to have both of those decided and understood before deciding what to charge for its products.

A key step is to first understand your business’s brand identity, a decision that informs other aspects of your business as a whole. A premium brand with premium products will benefit from a pricing strategy that speaks to that. Counter to that, a business selling budget products will go for the strategy that is the polar opposite – choosing a pricing strategy that best fits that target market.

Selecting a pricing strategy also requires a fundamental understanding of your customers. Discount pricing will attract bargain hunters and the budget-conscious, while premium pricing will attract customers who expect a quality product and are willing to pay a premium price for it.

Another aspect that can often be overlooked is your product’s life cycle. Some businesses sell products in a year-long cycle before releasing a new version. Such a product would benefit from price skimming (start high, then reduce) rather than taking the penetration pricing (start low, increase the price later) approach.

Some pricing structures are also more involved and require more management than others. Dynamic pricing, for example, requires a deep understanding of the market and the business’s competitive environment. Sophisticated software can be employed here, but a team capable of managing the process is extremely important if you want to take the dynamic pricing approach.

For smaller businesses, whether you’re just starting out or have a small team, more basic, static pricing strategies can be incredibly beneficial. Cost-plus pricing, competitive pricing, and value pricing are much easier to manage with more predictable outcomes.

However, no pricing strategy remains the same throughout a product or business’s life. It’s always important to test and optimize a business’s pricing strategy regularly and over the long term. Monitoring your competition, A/B testing of different price points, and an increased understanding of your market and customer base will help you avoid pricing mistakes and stay firm on your strategy as your business and product lineup mature.

How to Test and Optimize Your Pricing Over Time?

Pricing strategies are only as good as the data that you use to pick them. It indicates you have to revisit your chosen strategy regularly to ensure that it’s the most appropriate one for your business in the current market and with the current competition taken into account.

There are a few different tools at your disposal when it comes time to revisit your pricing strategy. They can all be used individually, but you should expect the best results when you leverage the power of all three.

A/B testing

You can get a better understanding of how value-conscious your potential customers are by running an A/B test. This involves offering the same product at two different prices to different customers. You can then look at the sales data to see which price saw the most sales and the highest profit. This data can then be used to inform future pricing strategies.

Monitor price floors

How much you sell a product for is only half of the equation. It’s also important to ensure that you have the latest data in terms of how much it costs to produce the product. Material costs, labor, and shipping costs should all be checked to ensure you have the right information, ensuring you can price the product accordingly.

Consider price sensitivity

Very few customers shop with little thought given to the cost of a product. Consider surveying customers to better understand what they consider to be the value proposition for your product. Do they think that it’s too expensive, or does a low price make them worry that it hasn’t been made to a high quality?

Only by taking into account all of this information can you make an informed decision about your pricing strategy in the long term and whether it needs to be adjusted.

How to Combine Different Pricing Strategies to Increase Conversion?

While choosing a pricing strategy is important, the most successful businesses use a hybrid strategy that leverages multiple approaches at different times to get the best possible results.

By layering different psychological triggers, you can protect your business from changing consumer mindsets by targeting multiple groups simultaneously.

For example, consider a three-pronged approach such as:

The hook: Use loss-leading pricing on a particularly popular product as a way to get potential customers into your store or entice them to visit your website. Once the customer is there, make sure that they see other products that they may be interested in.

The upsell: Add bundle pricing to the mix, recommending additional products that could be added to the customer’s cart during the checkout process. Customers may choose to add two other products to their cart to create a three-product bundle with the item they originally intended to buy.

The closer: Apply charm pricing (such as $19.99 rather than $20) to help customers overcome price-related buying decisions. Further up the price range, consider selling products for an odd figure, such as $499 rather than $500.

Conclusion

Your pricing strategy isn't just a number on a tag — it's one of the most powerful levers in your business. The brands that get it right don't rely on guesswork; they build their approach on a clear understanding of their customers, their competitors, their market, and their own bottom line.

But strategy alone isn't enough. The businesses that truly thrive treat pricing as a living decision — one they revisit, question, and refine as conditions change. Get that part right, and you won't just survive the competition. You'll stay a step ahead of it.