Tips and guidelines on online product pricing. What you should know and things to look out for.
Pricing
It is good to ensure your customer understands that the price you are advertising is all-inclusive and has no surprises as they progress through the checkout. There may be times when this is difficult to achieve, and we will address some reasons why below, but it is generally essential to be upfront with your customer. Disingenuous add ons and claims will eventually lead to distrust and a bad reputation. In addition to this, there are penalties by relevant authorities for misleading and deceptive conduct. Be mindful of ethical issues when implementing psychological pricing.
Strike through price | was/now price
Ensure that this is a genuine claim and not just a marketing tactic. You should not mislead your customer about the savings they could achieve. I have seen online retailers advertise permanent (“WAS” prices) and permanent discounts (“NOW” prices) on their sites when it is quite apparent these are misleading claims. Having something permanently there suggests that you are always on sale. For example, if you are always on sale for the last five years, the consumer is not gaining a discount because the price was never really at the “Was” price.
You should prove that you have sold a good amount of your goods or service at the “was” price in a comparative market and for a reasonable amount of time. Common sense should be used here, and you should avoid looking for loopholes.
The same thing applies when you are using a percentage method of discounting. If you are making claims about “70% off”, for example, you need to be able to prove this claim and show evidence that this is the case.
RRP (Recommended Retail Price) & MSRP (Manufacturers Suggested Retail Price)
A RRP is a price generally recommended by the retailer. A MSRP is a price that a manufacturer recommends its retailers sell its product.
When claiming that you are selling lower than the RRP or MSRP, you are pretty much telling the customer that they are getting a bargain because elsewhere, they would pay higher. Ensure these claims are substantiated and authentic. Remember the rule at hand; you must always be able to back up your claim and provide proof if prompted by authorities.
These can generally be used in the following ways:
If you run a physical store and sell coffee beans for $30 a pack and you have an online store that does not have the same overheads as your physical store, you may want to sell your product cheaper. A good way to then do this would be to let the customer know that the RRP is $30 and the reduced online price is $25. This would then entice the customer to make a purchase as it is a believable discount and the reasoning just makes sense.
If however you are only running an online store and you have an RRP of $150 and a reduce online price of $25, this sort of discount is simply not believable. This advertising and marketing can be deceptive and misleading.
In Australia it is illegal for a supplier to apply pressure on a retailer to sell at fixed prices. It is also illegal for a retailer to pressure suppliers to enforce a recommended retail price on other competing retailers. A recommended retail price is just that – recommended.
MAP Pricing (Minimum Advertised Price) / Minimum Resale Prices
Manufacturers set minimum advertised prices on their products in order to maintain a certain perception about their brand which gives them greater value and image. MAP pricing is the minimum price which a brand permits resellers to advertise their price. Because retailers generally work to gain market share they can become very competitive with pricing. MAP ensures that price wars do not occur and that good and healthy profit margins are maintained across all boards. The difference between a minimum advertised price (MAP) and a Manufacturers suggested retail price (MSRP) is that the MSRP is generally at the top end – so a reseller generally won’t sell above that price (although they can). A MAP is the lower end and brands can forbid resellers from dropping their prices below the agreed price.
It’s important to note that whilst MAP is perfectly legal in the USA, it is not legal in the United Kingdom and Europe. Minimum resale prices are not legal in Australia.
Include VAT/GST in your prices
In many countries there is a tax added to every sale. In the USA and the UK for example there is VAT (value added tax). In Australia there is GST (Goods services tax).
In most countries you must add the tax to the product price.
In Australia, Australian consumer law requires that if GST is likely to apply to your goods or service, your website should display a GST inclusive price.
There may be instances where you may not be able to include GST/VAT in the listed price of a product displayed on your online store until you can confirm the delivery address, because GST / VAT are not added on international sales.
If you are unsure if GST/VAT will apply, you should advise your customers that additional taxes may apply to the sale. As soon as you know that GST/VAT applies, you should confirm the GST/VAT inclusive price at checkout before the customer proceeds to the payment process.
If you are unsure of your model, you should consult with the Taxation Office or the ACCC (in Australia) to seek clarification. For instance, if you are selling a product in Australia but most of your sales are internationally based, they are GST free. It may be possible that you can advertise a GST exclusive price in the first instance and make it known to your Australian customers that this will be added to their purchase once they have selected Australia as their country of delivery. As long as they know the full amount BEFORE proceeding to pay, you should be ok. Be clear and upfront about these sorts of charges and ensure that you are operating within the law and that the consumer is not misled or disadvantaged.
Postage Price
There is generally a rise in consumers expectation to avail from free postage. If your business can absorb the cost, I highly recommend this practice. If you cannot, then that is also fine. Ensure you have a couple of types of shipping methods available. These would be Standard or Regular Shipping and Express. Ensure your pricing reflects the difference between these two. Remember this is a transit method, NOT the time it takes you to send your goods. Even if it’s free, a website that only offers one method of shipment is not as powerful as a website that provides both, even at a cost. You could also offer your standard shipping method for free and charge for the express option. Ensure you have both – an affordable or free choice and an expedited and paid option. Free express postage is the advantage that could set you apart from your competitors – if financially viable, do it. Finally, don’t just select any delivery company. Ensure you partner up with some of the best delivery companies out there that align with your values and customer expectations.
Payment Surcharges
It has always been my practice not to add a payment surcharge unless it was absolutely necessary. You will agree that there is nothng more annoying when you purchase an item just to then be charged and additional small amount on top of the original price. I spoke about payment surcharge previously. If you must add the surcharge to a specific payment method make sure to make it very clear ot the customer, preferably before they choose their payment method. It would help if you gave them an option of a payment method that does not attract a surcharge and allow them to decide.
Drip Pricing
Drip pricing is something you would want to avoid unless necessary and when it is needed, be sure to be clear and upfront with your customer. Drip processing is the process whereby a customer comes to your online store expecting to purchase something at the advertised price and as they slowly move towards checkout, different charges have started to add on without this being clear to them.
For example, you offer an airport transfer service with your vehicle from A to B for $120. There are two pre-selected options that you have not asked your customer to check off. They are just checked off by default. These are $5 for a bottle of water and $10 for you to lift their luggage into your car manually. The result is that the customer will pay $135 rather than $120. Even if they are preselections, these costs must be advertised upfront.
Be transparent with your pricing. If there are add ons, allow the customer to select them independently. State the price clearly so that they can make their own informed decisions and avoid them abandoning their purchase or feeling that they are being ripped off. These sorts of behaviours are generally intended to mislead customers. Don’t be that sort of business. Remember that without your customers you have nothing.
Business is all about managing people and managing money. In fact, my 5 basic step guide to running a successful business focuses on these key elements because no matter how you look at it – you are always trying to manage money and people and if you get it right and do it well you will enjoy running a business and you will succeed.
That’s not to say you won’t have cranky moments! You will, and lots, but the benefits (like travelling for free) will outweigh them and you will enjoy the journey together with the end goal.
