Pricing your products goes far beyond covering costs and adding a markup, and it’s a major part of learning how to start an online store. It shapes how customers perceive your brand and often determines whether they choose you or a competitor. With global B2C ecommerce revenue set to reach $5.5 trillion by 2027, even small pricing decisions can have a major impact on your bottom line.
That jump in ecommerce traffic means there's now stiff competition for new and established ecommerce businesses alike.
This guide breaks down seven competitive pricing strategies designed to help you find the right balance between profitability and growth, so you can set your online business up for success.
Establishing a competitive pricing strategy for your ecommerce business
As an entrepreneur, you need to determine an appropriate price that your target customer is willing to pay, matches the competition, and still yields a healthy profit. Below are seven strategies you can use to do just that.
1. Know your local competition
Every pricing strategy starts with understanding the landscape. Competitor research gives you a clear view of what customers expect to pay and where your products fit.
It may seem counterintuitive, but understanding your local competition is also important.
Your store may reach a global audience, but nearby shoppers often compare your prices with businesses in their own community. Some customers prefer to support local shops or already have relationships with them, which can influence how they evaluate your pricing.
It’s also crucial to consider how online and in-store pricing interact. Many shoppers assume ecommerce comes with fewer overhead costs, so they expect lower prices online. Keep that mindset in mind as you evaluate local brick-and-mortar competitors and position your pricing in a way that feels fair and competitive.
2. Understand the online market
Don’t forget to evaluate your online competitors as well! You can do this by conducting quick, informal competitor research of similar products. Start a list or spreadsheet with your competitors’ price points. Make sure to note product differentiators in relation to their pricing.
What makes your competition stand out? What explanations do they give regarding their quality or unique characteristics that account for their prices?
Alternatively, if you find a bargain or discounted pricing amongst the competition, why might that be? Look at consumer reviews for real feedback to see if any mention the product's price-to-value ratio.
Once you’ve accumulated a range of price points and competitor data, think about your product and your unique selling points (USP), and apply that to your pricing strategy.
Do you want to be a value player or a low-cost leader? Can you command a higher price than your competition because of brand quality or features?
Keep in mind that it’s challenging to convert shoppers into buyers. As of March 2026, the average global ecommerce conversion rate is 2.76%.
Remember, your goal should be to get inspiration from your competitors, not to copy them. Use their pricing strategies as inspiration and then develop your own unique, product- and customer-based pricing models.
3. Assess all of your costs
Before you set your prices, take a step back and look at what it actually costs to run your business. Skipping this step can lead to pricing that looks competitive on the surface but cuts into your profit.
When evaluating your costs, make sure to take your time. It’s easy to miss expenses, such as services you pay for annually or quarterly. Once you understand your fixed and variable costs, you can perform a break-even analysis using a break-even analysis spreadsheet.
Related: How to write a business sales plan
Fixed costs
Fixed costs are your hard costs that do not change; for example, the cost of hosting your ecommerce site, meeting payroll for any employees, leasing space for on-premise storage or offices, and marketing. These are costs that do not fluctuate based on an increase in sales or production.
Variable costs
Variable costs change based on production or sales volume. For example, your production costs might increase if you need more products, or perhaps the cost of materials lowers as you order more. This will help you determine the number of units you need to sell to cover all your costs.
Use a product pricing calculator
A product pricing calculator can help you connect the dots. It lets you test different price points, see how they affect your margins, and understand what kind of profit you can expect.
These tools are also useful as your business grows. You can keep an eye on changing costs, adjust your pricing, and stay competitive without guessing.
Bottom line: You need to understand what it’s costing you to produce products and run your business, so you can accurately price products to sustain and maximize profits.
4. Determine your profit margin
Profit margin is the percentage of revenue you make on each unit after you deduct your fixed and variable costs per product. For example, if you set the retail price of your product at $80 and it costs you $60 to make, then your profit is $20, which represents a 25% profit margin.
Average healthy profit margins tend to vary by industry. For example, the average profit margin for ecommerce apparel and fashion brands is between 15% and 25%, while the average for home goods is between 10% and 20%.
To determine a realistic profit margin, you need to do a break-even analysis. This is where you determine the minimum number of sales needed just to cover your costs. It should include both fixed and variable costs.
From there, you can adjust your pricing strategy to determine a competitive yet optimized profit margin.
Your pricing directly determines your profit margin, and this is where you’ll have to factor in all of your research and knowledge. There’s no sense in undercutting your competitors’ pricing if you can’t make a return on your investment or, even worse, turn any profit.
5. A/B test your pricing strategy
If you want to try out a few different pricing strategies, test them against one another in real time.
A/B testing, also known as split testing, is commonly used in web design and digital marketing. However, you can also use this tactic to help determine competitive pricing strategies for ecommerce. Simply use different pricing structures at the same time on your website and see which yields the best results or most sales.
You can A/B test your pricing strategies in two ways:
- Digital marketing campaigns: If you have any type of digital marketing campaigns that funnel traffic to your product landing pages, like PPC, social media ads, or email marketing, create two landing pages with different pricing and direct traffic to each of them equally. After a set amount of time, see which product has the best conversion rate.
- Different products: If you have similar products at a similar price point, you can test pricing strategies on each, then track sales to see which outperforms the others.
Customer feedback is crucial during this testing phase. Launch your products and gather authentic feedback from your customers to inform your pricing decisions effectively.
This real-world data is invaluable in understanding what your customers truly value and are willing to pay for your products.
6. Recognize the perils of underpricing
Pricing a product might seem straightforward, but it plays a big role in your business’s long-term health. Going too low—especially with strategies like penetration or economy pricing—can create problems you don’t see right away.
Lower prices can drive early sales, but they can also shrink your margins and make it harder to stay profitable. Pricing at the lowest possible point leaves little room to adjust later, and running promotions, offering discounts, or responding to rising costs becomes a challenge when there’s no margin to work with.
Price also shapes perception. If your product looks like the cheapest option, it may not appeal to customers who are focused on value and quality. That balance matters.
In a 2023 survey from Edelman, 91% of consumers worldwide said good value for the money is the most important factor when making a purchase, followed closely by quality at 89%.
Online shoppers understand value. Because of this, a price that feels too low can raise questions rather than build confidence.
Entrepreneurship is challenging enough without feeling like you’re underpaid and overworked. Charging too little can not only put a damper on your revenue potential, but it can also douse your enthusiasm for your business."
7. Consistently review pricing strategies
You can’t have a set-it-and-forget-it attitude when it comes to pricing products, especially in the constantly evolving world of ecommerce. Business owners and entrepreneurs must consistently assess their data, metrics, and pricing strategies to ensure optimal sales and profit.
Moving forward, you need to consider cash flow, sales history, and changes in the customer market.
Aim to review and update pricing strategies at scheduled times, like once per quarter. You won’t always need to adjust prices each quarter; rather, you'll adjust them when necessary.
You may need to check prices more often if situations like the following arise:
- Cost changes: Rising wages, supplier price increases, or new tariffs impact your margins.
- Economic shifts: Inflation, recession, or global events can change how customers spend.
- Competitor pricing: Competitors adjust prices, sometimes temporarily, so it’s important to keep an eye on trends.
- New product launches: Introducing new versions may call for adjusting prices or clearing out older inventory.
- Market expansion: Increasing your market share brings added costs like shipping, taxes, and different pricing expectations.
- High-performing products: Consistent sellouts or strong demand may signal room to adjust pricing.
If any of these happen, take it as a cue to revisit your pricing and make sure it still works for your business.
Common pricing methods
It’s easy to confuse all the product pricing methods out there and how they can impact your profits. Below, we’ve broken down some of the most common methods used in ecommerce today. The best pricing method will depend on your industry and products. You can start by testing a few of them, then make a data-driven sales decision.
Pricing at a Premium
When you price at a premium, you price products higher than your competition, then market the value perception and unique features that justify the premium price.
Penetration pricing
Penetration pricing is generally used for new businesses or products that can afford to offer a lower price tag to steal attention from competitors. You can label this as a low introductory deal that will increase as time goes on.
Economy pricing
Economy pricing is often difficult for smaller ecommerce businesses. This is because you set prices low to attract budget-conscious shoppers, which minimizes your profits.
Price skimming
Price skimming works well for new or unique products. You start with a higher price to capture early demand, then lower it over time as competition increases or interest levels out. It’s essentially the opposite of penetration pricing.
Psychology pricing
Psychology pricing appeals to a shopper’s emotions by creating the illusion of lower prices and better deals. For example, pricing at $99 instead of $100 because customers might have a hard time spending past a certain threshold.
Bundle pricing
Bundle pricing is a type of bulk discount in which businesses offer lower prices or a special deal when a customer purchases multiple products. Bundling works well if you have complementary products, want to move a specific low-selling product, or your variable costs decrease if you produce more items.
Cost-plus pricing
Cost-plus pricing involves adding a fixed percentage or amount to the cost of producing your product to ensure a consistent profit margin. Calculating all variable and fixed costs enables you to set a price that covers your expenses and achieves your desired profits.
Value-based pricing
With value-based pricing, you price your products based on the perceived value to the customer rather than solely on cost. This approach considers how much your customers believe your product is worth and adjusts pricing accordingly.
Dynamic pricing
Dynamic pricing involves adjusting prices in real time based on market demand, competition, and other external factors. This method allows businesses to optimize prices for maximum profitability by responding quickly to changes in the market.
Implementing price-matching policies and the loss leader strategy
Your pricing strategy should consider how you respond to competitors and attract customers in a crowded market. Strategies like price matching and loss leaders can help you stay competitive, attract new buyers, and drive more sales when used intentionally.
Price-matching policies
Price-matching policies are a way to stay competitive without constantly lowering your prices across the board. With this approach, you agree to match a competitor’s lower price on the same product if a customer finds a better deal elsewhere. It gives shoppers confidence that they’re getting a fair price while helping you avoid losing sales to competitors.
For business owners, price matching works best with clear guidelines. You can set rules around which competitors qualify, whether the item must be identical, and how customers request a match. This keeps the process manageable while still showing customers that you stand behind your pricing.
Loss leader strategy
The loss leader strategy involves selling select products at a loss to attract customers to your store. These attractively priced items draw in shoppers who may then purchase higher-margin products.
This approach helps increase overall sales volume and customer traffic without adjusting the prices of your entire product range.
Carefully selecting which products you offer as loss leaders can help you balance customer acquisition without losing profitability.
How to price products to maximize sales and profits
Pricing products is not an exact science, and it’s not an art form; it’s a dynamic, business-dependent strategy that can be challenging for even seasoned entrepreneurs. However, it’s an absolutely essential strategy for any profitable business idea.
Know that you’ll need to put in the time to research your market and competition.
Once you’ve determined your product pricing strategy, use GoDaddy’s Online Store Builder to launch your storefront and start selling.
