How to Price Drop Ship Products
Want to close more sales? Implement a pricing strategy that entices customers to buy now.
In this article I will uncover the three most common retail pricing strategies, and let you in a little secret that you can use to sell more drop ship products than you ever thought possible.
Popular Retail Pricing Strategies
There are three main pricing strategies used in the retail market: demand-oriented, cost-oriented, and competition-oriented. Each strategy uses a different approach to attract specific types of consumers. To select the best strategy for your drop ship products, you must consider your target demographic.
Your target demographic is the group of consumers that are interested in the type drop ship products that you sell. Determining your target audience enables you to focus on marketing specifically to this group, which saves money and increases sales.
Let’s take a look at each type of pricing strategy.
Demand-oriented pricing is used for hot products that have a high demand. These types of products fly off the shelves, and are difficult to keep in stock. Since the demand is so great, retailers are able charge as much as consumers are willing to pay. For example, a retailer may buy a product for $129 and sell it for $349. The demand for hot products changes quickly, so price points fluctuate frequently to match the market.
Cost-oriented pricing is used for everyday products that have a low to moderate demand. With cost-oriented pricing, a fixed percentage of the cost is added to each product. For example, a retailer may choose to mark up their products 40%. In this instance, the retailer would charge $28 for a drop ship product that has a wholesale price of $20.
Competition-oriented pricing is used for hot products that can be found in a wide variety of stores. Retailers price these products competitively to lure customers to their store. For example, one store may sell a specific product for $199.99. To compete with that store, another retailer may charge $179.99 for the same product. Price wars are pretty common. Browse the Sunday ads in any major newspaper for an example of competitive pricing.
Drop Ship Pricing Strategy
Drop shipping enables you the seller to sell as many products as you can. Before you say that anyone can sell as many products as they want, consider what traditional retailers have to go through to do so. Traditional retailers have to pre-buy stock. They have to handle, store, and manage their inventory. They also have to pick and ship orders.
The most amazing benefits of drop shipping are that you never have to pre-buy stock or spend time managing your inventory. You don’t even have to box, label, or ship orders. Drop shipping saves a tremendous amount of time and reduces stress, so that you can focus on selling. Since you don’t have to buy a product until you sell it, your financial risk is minimized to zero. What does this have to do with pricing strategies? I’ll let you in on a little secret…
One of the easiest ways to sell more products is to lower your price. Your profit margin does decrease, but the increase in sales more than makes up for it. For example, let’s say you sell a common beauty product for $19.99. This same beauty product can be found everywhere for $19.99. You sell several bottles of this product per week, so you don’t want to lower your price. After all you’ll just lose money, right? Wrong!
You could charge a little less, and boost your sales dramatically. A slight reduction to $16.99 may more than double your sales in the same time period. A traditional retailer doesn’t want to discount their products too much, because they invest a lot of time handling the product. They want to maximize their profit for each item; however, with drop shipping, selling 100 products is not any more difficult than selling 50. Sure it takes more clicks of the mouse and tapping of the keys, but not physical work.
The secret to successful drop shipping is to focus on volume rather than profit margins. Of course, profits are important. That is why you’re in business – to make a profit. Consider this other amazing advantage of drop shipping: you get to choose what type of products to sell. If you want higher dollar profits, sell high-end products. Why not sell high definition TVs? Since you don’t have to buy the product before you sell it, you aren’t required to have a large bankroll. A traditional retailer would have to store and ship the high-def TV, but drop shippers do not. Drop shipping wholesale products gives you the power to build the retail business of your dreams.
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