Chapter 5: Grow by Selling Low
Pricing Strategies
In the initial stages of growth, you will need to break into the market and grab the attention of your target market. To do this most businesses aim for low, cut throat prices which drive the initial traffic to start generating traction. This is where the advantage of a dropshipping model becomes even more apparent with clearly defined profit margins and an easily scalable ordering system.
This strategy is not just used within ecommerce, everyday retailers around the world operate on the penetration pricing strategy. The advantages of this strategy is not increase both sales and market share. It is an effective strategy for breaking into a new market, particularly those which are highly competitive and have lower barriers to entry - the very essence of e commerce.
By selling low and focusing on building a consumer base it can provide you with the necessary skills to manage your orders effectively as you progress through each milestone. While the profits at this stage won’t make you rich anytime soon the fundamentals will be extremely valuable as you start to see your business take on a life of its own. As mentioned in the previous chapter the more repeat customers you start adding to your books the more you will start to see the dynamics of your business change which is where you can enter into the next stage.
It is important to determine when to change pricing strategies and at what stage. As growth builds you will start to notice time constraints, again the advantage of drop shipping is that you aren’t physically packing the orders yourself. However you will notice when you start to reach capacity of how many orders can be filled this is when it is time to either raise prices or even more highly recommended, start building a brand.
Creating Your Own Brand or Label
While you can continue to focus on low priced goods selling at large volumes, many entrepreneurs find greater value in creating their own brand or label. This takes advantage of perceived value as your customers will start to recognise your label and, if marketed effectively, they will see that it takes care of their particular needs.
The value of brand creation leaves the floor open to scale your business to virtually unlimited heights and if successful you will start to see a lower volume of orders at a premium price meaning you are essentially processing the same or more levels of revenue while processing less orders, a very enviable position to be in. Of course if growth is your main strategy, which in the beginning is most likely, processing large numbers of orders will open up further opportunities in both marketing, public relations and for scaling your business.
Another advantage of creating your own brand and label is the ability to change from a penetration pricing method to a premium pricing strategy. That is one which is set higher for the perceived notion of exclusivity. Given an effective marketing and consumer target strategy, customers will be attracted to the brand as it satisfies their needs and are willing to pay the premium price demonstrated by the brand.
The creation of your own brand or label should be the ultimate goal to drive your business towards. Many ecommerce entrepreneurs can get caught up in the scaling of their dropshipping business and may find that it plateaus. This is generally when you want to expand on the other elements of the business aside from sales by continuing to add value.