Forums: Discussions for entrepreneurs and small business.

We all know that pricing is a critical component of your businesses success... but how do you price and how do you price online?  Do you drop your price when a recession hits? 

Here is an article on online pricing strategy discussing the topic in more detail.

My opinion is that how you price depends on what type of product you sell - whether it is a one time purchase, a repeat purchase or a purchase with the opportunity to up sell.  However, I never have experienced success taking the Walmart approach.  For the small business, its hard to reach that kind of volume and compete in that arena. 

And when it comes to dropping your price in a recession, I have found that (so far) holding it steady and offering special discounts works better than cutting the price all together.  I have also confirmed this in my reading of several case studies.

However, thoughts would be much appreciated.

Most companies I worked for had a retail price for the average customer.  These were people who made one time purchases.  For customers who purchases throughout the year, we set up a discount program depending on dollar amount purchased during the year.  We also offered a discount for large purchases over say $2,000.00.


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Low prices and tight profit margins work well for high-volume sales. So it comes down to how much volume does an online business have. Consider Dell, who were able to reduce costs by being only online, no standalone stores. Their profit margin was very thin.

They did very well, building volume because their prices were so much lower than every other computer vendor. Then other vendors did the same, everyone`s margins shrank, and now the whole PC industry is in trouble. People aren`t upgrading every year, they`re happy with what they have. Most people buy a machine online, and standalone stores are fading.

So now where`s the volume?

I think the issue isn`t about pricing. Instead, it`s about the crossover point between an item being unusual or rare, and that item becoming a commodity. So the rule I`m imagining would be something like low prices for commodity items, higher prices for rare items.

Original art is rare, so there`s little competition by other pieces that look the same. The competition shifts to the buyer side. Bacon is a commodity, so there`s much competition by other brands of bacon. Competition shifts to the seller side.

I`d propose that when competition is on the selling side, prices drop. When it`s on the buyer side, prices rise.

In the linked article, I believe the most important piece of information is that not all people shop by price. For many people, "price is no object." They`re not interested in how much a thing costs, other than a *general* sense of whether it`s in the overall ballpark.

Many people want speed, quality, convenience, or unusual. A discussion about lowering prices only applies to people selling to price-conscious buyers. If you`re not selling to those customers, then price really doesn`t matter much.