If you work in the eCommerce or dropshipping business, it can be tempting to compete on price, especially in the beginning. But competing with other brands based on price alone is risky and can cause a lot of problems in the long run.
In the past few years, the eCommerce industry has grown a lot, which has made the competition tougher than ever. A recent study says that by 2040, more than 95% of all purchases will be made online. This shows that the world of eCommerce has a bright and busy future.
If you want your eCommerce business to last, you’ll need all the information and help you can get to keep getting customers and beat the millions of other businesses out there. In this article, we’ll talk about five strong reasons why you shouldn’t drop the prices of your eCommerce products and why doing so can be a bad idea.
Low Prices Advertise Low Quality
Price is often tied to how much we think something is worth. Even though this theory doesn’t always work, a lot of your customers will use price as a measure of quality, so you should too. For example, prices that are unusually low can make people wonder:
Why does this thing cost so little? Is there something wrong I don’t see?
What happens if this doesn’t work? Will I have to replace it anyway with the more expensive option?
Has this been made with thin materials? Will it continue?
Will people think less of me if they know I buy from a cheap brand?
The last thing you want to do is give people a reason to doubt that your product is good and true. If your prices are too low, potential customers might be afraid that it won’t last or won’t give them the value they want.
Price increases present long-term difficulties
Your plan is probably to start with low prices and raise them as time goes on. But putting this plan into action in real life can have very bad results.
Price shoppers are only interested in finding deals. They are loyal to one thing: low prices.
If you have spent all of your company’s time and energy on “price shoppers,” don’t expect them to stick with you when you raise your prices.
Even customers who keep coming back to your business because of the products or service are not likely to like a price hike. Some people might even feel like they’ve been hit in the face. If your customers get used to a certain price range, a sudden increase will only make them want to do business with someone else.
Larger competitors will crush you
In the busy eCommerce world of today, it’s not impossible that a bigger competitor could kill your business. Even if you manage to take the lead in the market at first by offering low rates, the good luck will not last.
Big retail companies like Amazon and AliExpress have a long history, loyal customers, and billions of dollars in sales, which means they can sell at a loss for years before sucking the life out of their competitors (you). It may seem negative, but this is how the big eCommerce brands really work.
If you run a small or even medium-sized online business or manufacturer, trying to compete on price will only buy you a little more time before your profits run out and a bigger company decides to take over your customers.
Price Competition, aka Low prices, attract difficult customers
Price shoppers can do more than just be disloyal. Customers who want to buy online goods as cheaply as possible are also likely to complain to get more discounts, send back items that don’t belong to them, or put off payment as long as possible.
Even though this is a general rule that your eCommerce store’s sales manager should keep an eye on, low prices tend to bring in troublesome customers who make your life much harder than it needs to be. Some other possible problems are:
Not caring about what they buy
Demands for free goods or money back
Micromanagement that goes too far
Problems like the ones above can be caused by almost any customer, but price shoppers have a long history of being hard to deal with. When a customer doesn’t get what they want, they are more likely to fight back if they don’t have many choices. These are not The kind of people you want to buy your product.
Bigger Margins = Bigger Opportunities
The smaller your margins, the less likely it is that your business will grow over time. If you want your business to keep growing and getting bigger over time, your profits need to be at a certain level. If they aren’t, you might have to leave the business too soon.
Larger margins make sure that your business gets what it needs to grow, making the loop of sales and profits more stable.
It means being able to sell better products, pay employees more, and put money into tools that will help the business grow. Even though there will be price competition in 2022, it is not impossible for a SME eCommerce business to do well. But it’s much harder and more complicated than if you set your prices higher.
When you have a good markup and a healthy profit margin, you give yourself and your business the chance to try new things, learn new skills, grow, and make mistakes.
The Bottom Line
Price competition, or lowering your prices, is a short-term strategy that might work. But in the long run, it’s just not worth it. Rate cuts that are too big can hurt your relationship with loyal customers and put your business in a bad spot that is hard to get out of in today’s highly competitive market.
When you buy things, you should also think about how important your supplier is, especially in China.
Even though China has become the “World’s Factory” over the years, the quality of the goods made there can vary a lot, even in the same factory.
You need someone who has dealt with Chinese manufacturers before and knows how to get you the best products at the best price.