Pricing is often an important factor in the success or failure of a transaction . The objective of pricing is to promote sales and make a profit , which requires companies to consider both costs and consumer acceptance of prices, as well as the prices of similar competing products in the market . Pricing is therefore a two-way decision between buyers and sellers; at the same time , as the market is ever-changing, companies should be sensitive to the market and flexible in adjusting prices in response to changes.
This article starts with the factors that influence pricing to help you sort out the prerequisites for product pricing.
In the second part, product pricing is divided into three steps, which are explained in detail .
Step 1: Costing
Step 2: Market research
Step 3: Flexible price adjustment
Main factors affecting pricing
The main factors affecting pricing are divided into two main categories : internal and external factors . Internal factors revolve around product positioning, marketing mix and product costs; external factors include : market demand , competitor pricing, national policies and other factors .
These are shown in the diagram below.
1.1 Internal factors
1.1.1 Product positioning
Product positioning, as opposed to market positioning and brand positioning. The so-called brand positioning refers to the enterprise ’s product and its brand , based on the physical and psychological needs of customers, looking for its unique personality and good image , so as to solidify in the minds of consumers and occupy a valuable position. The core of brand positioning is to create brand value, the carrier of its performance is the product, and the promise is ultimately fulfilled through the product. Therefore , we can say : brand positioning includes product positioning.
In layman ’s terms , product positioning refers to the position of the products we sell in the industry. What is the income of our customer base, what is their age group and under what circumstances will they use these products? For example, ZARA’s entire product positioning and pricing strategy is summed up in one sentence, “selling mid-to-high quality fashionable clothing at a price that is acceptable to the masses ”.
If you are positioning your product as a light luxury , don’t price it against the equivalent in the affordable mass category and vice versa. Of course you can also look for a compromise niche between the two.
In summary , the concept of product positioning can be summarised in three ways.
Where does the product stand in the target market ?
How profitable is the product in terms of marketing ?
What is the product’s strength in the competitive strategy ?
1.1.2 The marketing mix
When running a shop, it is impossible to make all the products profitable in order to improve the shop weighting and rating faster, and it is often necessary to have a combination of products to match. A shop usually has three types: a pop-up section , a diversion section and a profit section , each of which can be operated using different strategies .
As the name implies , it is a product that the public will buy. High traffic, high exposure , high order volume is its specific performance , but these products are not a source of profit . The strategy for making pop-ups is to gain customers quickly by giving more profit . The target net profit margin for pop-ups is usually set between 0% and 5%. If the competition in the category is fierce , some qualified merchants will even sell at a loss of 1% to 5% in order to make a long-term profit . It is recommended that one to two items are set per shop, with a maximum of no more than five items .
Explosive products need to have the following characteristics : high market demand , high cost performance , high repurchase rate , and products that are just in demand by the target customers. For example: tissues , masks , affordable hand creams, etc., which have been on the top of the best-seller list on TikTok for a long time .
(2) Traffic generators
Leads are products that bring traffic to the shop and its merchandise . They use lower prices to attract buyers into the shop, which in turn increases the exposure of other profitable models.
In order to get mass traffic quickly, the price of a lead product should also not be set too high, similar to the logic of a pop-up in pricing. The net profit margin is usually below 5%, and profitability is achieved by selling more at lower margins . This will work very well with pop-up products. It is recommended to set up 3–10 pieces per shop, which is about 10% of the overall shop.
It is worth noting that the keywords required for the lead generation products are high, as most buyers will probably retrieve the item and complete the order through active search. Therefore , merchants need to stay on top of trends in their target market , including popular films and TV shows, celebrities , festivals , etc.
As an example: recently , the hit film and TV series “Rampage” can be seen on various platforms , such as ShakeOut in China, which has brought about the book “The Art of War” as well as the same accessories , clothes , tea sets, etc. When a phenomenal drama explodes on overseas platforms , it also triggers a large number of hot sales of the same goods from the drama .
In terms of product selection ideas, it is best to cut into the current trend of diversion goods , and the operation can be combined with a large number of goods carrying experts to quickly seize the popular market through affiliate marketing .
On EchoTik (https://echotik. live ), a third-party data selection platform , you can view the trendsetters in your target market , evaluate their performance , and see more similar trendsetters to help you quickly build connections .
(3) Profit section
The profit section is the main profitable products. Generally speaking, apart from the pop-ups and lead-ins, all other products in the shop are profit models. The profit margin is determined by the merchant ’s valuation of the expected profit margin of the product.
1.1.3 Product cost
Product cost is a determining factor in pricing. Typically, costs include : cost of goods , cost of packaging , shipping costs ( domestic & international), as well as various handling fees , daft commissions , etc., to calculate sales revenue and gross margin .
I will give you detailed instructions on how to do this in the 'Pricing Steps'.
1.2 External factors
The main external factors affecting prices are: market demand , competitor conditions , national policies and other uncontrollable factors . We will focus this time on the first two predictable variables .
1.2.1 Market demand
Market demand refers to the quantity of a good or service that consumers are willing and able to buy at a given time and at a given price. There are two components of market demand : firstly , consumers are willing to buy, i.e. they have the desire to buy; secondly , consumers are able to buy, i.e. they have the ability to pay.
How can market demand be assessed ? In the market research stage, you can use the keywords of the product to initially look at the order situation and the growth trend of the target market to determine whether the market demand is sufficient .
For unsourced sellers, we recommend choosing a large category with high demand when selecting products to ensure that your products have a sufficient amount of customers to reach.
Many merchants have many questions about how to find and evaluate benchmarking competitors. Firstly , we need to be clear about who our competitors are.
I define "competitor" as all products under the same keyword across the market and platform that are used by the same demographic to be considered as benchmark products.
According to the above definition , there are many products that appear to be competitive , but are not. For example.
Commercial and domestic are considered to be different groups of people, i.e. different ranges . e.g. commercial ice machines vs. domestic ice machines
Different scenarios and different professions are considered different groups of people, i.e. different ranges . e.g. Kitchen trolleys vs. Medical trolleys
Different age groups are considered different, i.e. different series . e.g. Adult bikes vs.
Different consumer classes are considered different groups of people, i.e. different ranges . e.g. Affordable clothing vs. Luxury clothing
Depending on the situation, items need to be priced in line with your target customer’s expectations and not create too high a price differential with the benchmark competition .
Generally speaking, there are three main stages in pricing a new product: market research, costing and dynamic price adjustment . In this article, we will first talk about 'market research' and 'costing'.
2.1 Market research
After the seller has got the product and its purchase price/ substitute price, he/she should not rush to calculate the cost first, but should first do market research to check the demand of the category in the market , the situation of competing products and pricing, etc. through the order situation, so as to assess the competition difficulty of cutting into the track.
To assess the market , we first need to research the market by finding the keywords around the item . Unlike the active search and purchase scenario of traditional e-commerce platforms , TikTok e-commerce operations focus more on content creation rather than keyword ranking . However, identifying keywords for a product is still crucial for sellers. The keywords for a product include : the product itself, the people it is intended for, the main benefits , etc.
For TikTok sellers, keywords are not only about the search results of buyers, but also about what buyers swipe to (the more accurate the keyword, the more likely it is to be actively swiped by a specific group of people), and the use of related hashtags.
For cross-border sellers who need to operate across cultures and languages, it is also important to note that the same item may have multiple close synonyms that may be searched for. Operations need to collect as many terms as possible for each possible search and put them on the platform one by one to ensure that they don’t miss every competing product. Check if the product image is the product’s counterpart ; the closer it is the more accurate the keyword. Place the collected keywords on TikTok onsite, offsite (other shopping platforms ) and Google Trends (https:// trends .google.com/) to see how they are being searched in your target market , ranking them from highest to lowest based on search frequency , in preparation for writing titles and tags .
During this process , record the links to the lowest-priced competitor products you retrieved on site and off site respectively , and the links to the best-selling competitor products in the last month to three months (without benchmarking against big brands ), recording separately:
The lowest price in the last month to three months.
The highest monthly sales in the last month to three months.
If your product is shipped locally, prioritise the best-selling/low-priced competitor that is also shipped locally.
Once we know the lowest price and highest monthly sales of recent products, we can do two things:
firstly , based on the monthly sales of competing products, we can estimate the order situation if we achieve the first market share, and according to the actual situation of the company, we can negotiate with the supply chain or manufacturers on the quantity of stock to control the price from the cost side as much as possible;
secondly , based on the lowest price, we can calculate our target pricing, and if we want to have a price war, whether the lowest price of the competing products at the moment can cover the company’s operating costs.
Enter the lowest prices collected from competing products into the pricing ( priority is given to filling in the TikTok onsite pricing, if the onsite prices and sales differ too much from the offsite, for example, if the onsite prices are high and the billing is low , then the offsite billing prices and situation should also be taken into account ).
Fill in the fixed costs in the corresponding table boxes, including : the minimum cost price given by the manufacturer according to your expected stocking , the volume of goods , etc. EchoTik will automatically calculate the weight of the product, as well as the corresponding domestic shipping costs (headway logistics, for cross-border sales scenarios , ignored for this scenario ), cross-border logistics shipping costs (logistics costs for this scenario , or cross-border logistics costs for cross-border scenarios ).
If there are miscellaneous fees such as package materials , commissions to the daimler, and various handling rates , they are filled in to the corresponding places on the table, and the corresponding gross profit income and gross margin can be viewed in the drop-down box.
Gross margin is the percentage of gross profit to sales revenue and is calculated by the formula : Gross margin = ( sales revenue — cost of sales) / sales revenue x 100%. It reflects how much value is added to the goods after the internal system of production conversion , i.e. the greater the gross margin , the greater the value added.
Typically, for best sellers on TikTok, the gross margin is recommended to be maintained between 20%-40% for the business to remain in a sustainable state ; if it is 50% and above, the business is more risk-resistant and can spend relatively sufficient profits on subsequent product upgrades and advertising expenditure . If calculated through the lowest price of competing products, the gross profit margin is already below 10% or even negative , and if there is no sufficient budget for branding , it is not recommended to go on that new product.
To calculate the net profit , you also have to deduct all the miscellaneous expenses , including advertising investment flow costs, labour costs, storage costs, office space costs, return costs taxes , etc., which are evenly spread to the amount of each SKU. If the merchant is unable to calculate accurately in the early stages, a proportion can be estimated and superimposed on the table [ various handling rates ] to give a preliminary estimate of the net profit margin .
Operators can also download an Excel spreadsheet and fill in the miscellaneous items into the table themselves to calculate the net profit of the product according to the company’s own situation.
Note: In the process of calculating the net rate , the tax rebate rate can be included in the range if it is involved in the tax rebate. The tax rebate rates vary from goods to goods , with five main rebate rates of 17%, 14%, 13%, 11%, 9% and 5%. Proper use of export tax rebates can effectively reduce costs and increase gross profit . Generally , the tax rebate rates for hot products of cross-border e-commerce are between 11% and 17%.
Tax rebate payable by foreign trade enterprises = Input amount listed on VAT invoice x rebate rate
( Lower the tax rate on the purchase invoice and the refund rate stipulated by the State )
Production enterprises : VAT on exported goods is “ exempted , credited or refunded ” and the calculation method is more complicated than that for foreign trade enterprises , as follows .
Exemption: the export of self-produced goods by a production enterprise is exempt from VAT on the production and sale of the enterprise .
Offset: The refundable input tax on raw materials , parts, fuel and power consumed by the self-produced goods exported by the production enterprise is offset against the tax payable on the goods sold domestically.
Refund : When the amount of input tax to be offset against the exported self-produced goods of a production enterprise is greater than the taxable amount in the same month, the part of the tax not yet offset shall be refunded .
The year-end work summary is a general review, evaluation and conclusion of the past year, a certain period or a certain work ( including achievements , experiences and problems), which provides an understanding of the past work.
After a careful assessment of the gross and net profit margins of the products, and the marketing classification of the products.
If it follow is intended to be a pop-up or lead generation model, follow the model of concessions , adjust to the lowest market price if conditions allow , and launch advertising pitches and affiliate marketing to quickly capture the market .
If you want to position the product as a profit model, you need to do differentiated marketing , focus on the quality of the content and choose the right audience. When pricing a new product, if the product faces low competitive pressure in the market , I recommend using ‘ skimming pricing’, i.e. setting the price of the product as high as possible to recover the investment early in the product’s life, before competitors develop similar products, and to allow room for price reductions and discounts . Over time , gradually lower the price to enter a more elastic market and make it easier for profit models to catch up with the peak traffic on the platform .
2.3 Flexible price adjustments
We talked about the impact of market demand and competitors on price in the section on external factors affecting product pricing. The market changes a lot and prices have to be flexible to adjust to it. Therefore , operations staff need to keep an eye on the competition and form the process of researching the market using keywords into an SOP to track and research the competition and the market segment in which it is located on a natural weekly basis .
Once the product has been put on the market , the feedback from the market on the product is just as important, and the costs and ratings incurred by returns will also affect the price.