Setting a price tag on your product is one of the important, yet complex decisions you need to make. How do you set price, what factors should you consider? How important is pricing in Lazada? We are going to explore these and many more questions in this article.
Components of the total product price
There are different pricing models that Lazada businesses use when determining their price. There is the value-based pricing where you set price based on the value the customers place on your product (frequently determined through surveys or other statistical measurements).
There is the profit-based pricing where you determine the profit you want to gain, a reasonable price and then control your production cost to give you that profit margin off that price.
But the most common (and the most relevant) for e-commerce stores is the cost-based model.
Under the cost based model,
Total Price = Cost of product + Commission + Payment processing fees + Shipping + Import duties + other relevant fees + targeted profit
What are these various components?
1. Cost of the product: The cost of the product is the total per unit cost of manufacturing the product. In the case of wholesalers or retailers, it is the amount you paid to acquire the product from the manufacturer.
2. Commission: The commission is what Lazada charges you for using their platform. The rates can range from 1% to 4% or up to 8% in a country like Vietnam. The commission must also be factored into the pricing
3. Payment processing fees: Payment processing fees are paid to the platforms that partner with Lazada to process every payment your customer makes. They also charge per order, and the rate is 2% (Payoneer and World Fast)
4. Shipping: For cross border sellers, shipping cost is in three parts: First, the cost of shipping to the place of manufacture to Hong Kong; Second, the cost of shipping to Lazada Center in Hong Kong; third, the cost of shipping from Lazada center to your customer.
5. Import Duties: Import duties is the taxation you pay to the country you are exporting your product.
6. Other Fees: Other fees can include VAT charged in the country taking delivery.
7. Targeted Profit: This is the per unit profit you want to make on each product.
How to Set A Sales Maximizing Price
When setting your price, it is important to consider many factors. It is not just a function of how much you want to make; it is also a function of the number of sales you can make with that price.
The idea is to have a good profit margin but also a good stock turnover.
To set a sales maximizing price, you will need to take some important steps:
1. Check out your competition
There are three types of competitors:
- Your competitors on Lazada: To make this easier, use the Split Dragon Lazada Competitor Tracking Feature. The platform allows you to track your competitors’ pricing and other factors relevant to your decisions.
- Your competitors in similar marketplace sites (shopee, tiki.vn, tokopedia, etc): Check out other stores that work like Lazada. Look for your competitors and the trend in their pricing.
- Local (brick-and-mortar, physical) stores: If possible, check out local stores in the places you are targeting (or ask someone to do it for you, if it is abroad). You will get a good grasp of what your competitors are charging.
2. Determine your pricing strategy
Selling your products at a lower price is not always right, and it is not always wrong. The key is to understand when it is profitable and when it is not.
When selling your product at a very low price will hurt your margin and your business (because of the high cost of acquisition), use other strategies. You can offer a unique product, add a unique feature, offer free shipping on orders above a certain amount, offer some low-cost gift items, and present a unique selling proposition that justifies your higher price.
But in certain cases, you will need to sell at the competitive price to be able to make enough sales and make a profit.
3. Participate in promotional activities
Lazada opens up for promotional activities many times during the year including the New Year, their anniversary in March, Ramadan (May –June), the 11th of November and the 12th of December.
During those periods, they offer reduced prices on products. You can participate as one of the sellers during those promotions.
4. Offer Discounts
Offering regular discounts can improve your CTR and conversion rates. Discount also helps to foster a better relationship with your customer base.
5. Other Pricing tips
Here are some other relevant pricing tips:
- Test, test, and test: Experiment with different pricing strategies to see the one that performs better.
- Assortment: Assortment is another way to try different pricing strategies and add a price premium on some unique features of your product. Instead of one product with a single price, try different models of that product, priced differently. Some of the unique features will attract others who will be willing to pay the extra charge.
Pricing can make or mar the performance of your products pay careful attention to your pricing models and strategies.
That’s it. What do you think? Are there other critical tips that we’ve missed? If so, please let us know in the comments section.
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