How to price products competitively in the Philippine E-commerce market

Selling online in the Philippines can be thrilling and rewarding, but getting your product pricing just right is essential. You don’t want to scare potential customers away with prices that are too high, nor do you want to undervalue the effort you put into your work. The journey of finding that perfect price is about understanding your costs, paying attention to what your competitors charge, and listening to your customers.

Getting to Know Your Costs

Before diving into competitor prices, you need a firm grasp of your own costs. This might seem obvious, but many sellers overlook it. Let’s explore the key cost areas you should focus on:

• Cost of Goods Sold (COGS): This represents your basic expenses—how much you pay to produce or acquire each product. If you’re selling personalized t-shirts, for example, your COGS will include the price of the blank shirt, the printing costs, and any materials used. If a blank Gildan shirt costs ₱150 and you spend ₱30 on printing, your COGS totals ₱180.
• Shipping Costs: In the Philippines, shipping costs can differ greatly based on location. You need to factor in shipping methods, like J&T or LBC. Sending a small package in Metro Manila might cost ₱60, but sending it all the way to Davao could run you ₱150-₱200. Don’t forget to include the costs of packaging materials like boxes and bubble wrap. Make a good estimate of your average shipping expense and add it into your product price.
• Platform Fees: Are you using Shopee, Lazada, or your own website for sales? Each platform has its own fees, usually a commission taken from each sale. For instance, Shopee charges about 3% – 6% based on seller type. If you sell an item for ₱1000, you might lose around ₱30-₱60 to fees. Be sure to add this to your overall pricing strategy.
• Marketing Costs: Most entrepreneurs must invest in marketing from time to time. Whether it’s social media ads or collaborating with influencers, these costs need to be considered. Suppose you run a monthly ad campaign costing ₱5000; depending on how many products you sell, you could allocate ₱5-₱10 per item toward marketing.
• Operational Costs: These are daily expenses such as rent for a warehouse or office, internet charges, packaging supplies, electricity, and salaries. While these costs may seem small, they all add up and must be accounted for in your pricing.

Once you’ve calculated these costs, you’ll have a clear picture of the minimum price needed to sell each product. Don’t forget to add your desired profit margin on top to ensure your business continues to flourish.

Looking at Your Competitors

Now that you understand your costs, it’s crucial to check out what your competitors are up to. Don’t just copy their prices blindly; take the time to understand their methods. Here’s what to examine:

• Their product prices: Are they selling items similar to yours? What are they charging? If you’re offering custom-printed phone cases, find out the price range for those products. Are they priced at ₱350 on Shopee or perhaps ₱450? Also, look for any special discounts they might be offering.
• Their product quality: How does their product quality compare to yours? Review their product descriptions and customer feedback to gauge quality. For a handcrafted jewelry seller, does the competition use finer materials or better craftsmanship that adds to their value?
• Their ratings and customer reviews: What are customers saying about their products? Are most buyers satisfied with the prices? Comments like “too expensive” or “great value for the money” will provide better insights into consumer feelings.
• Their promotions and sales tactics: Are they utilizing free shipping, discounts, or bundle deals? Look at the average discount rates they employ. If they frequently run Buy 1 Get 1 promotions, make sure you consider this when planning your pricing strategies.

Use online marketplaces such as Shopee, Lazada, and Facebook Marketplace to explore competitor pricing. Look beyond the first few listings and browse several pages to get a feel for what typical buyers might be willing to pay. This information is invaluable in helping you find the pricing range that works for you.

Different Pricing Strategies

With this information gathered, it’s time to consider some effective pricing strategies:

• Cost-plus pricing: This straightforward method involves calculating all your costs for a product and then adding a specific percentage on top as your profit. If it costs you ₱200 to make a cake, and you desire a 50% profit margin, you would sell it for ₱300 (₱200 + ₱100 profit).
• Competitive pricing: Position your prices in relation to your competitors. For example, if their mugs are priced at ₱250, you might choose to price yours slightly lower, at ₱230, or match the price. If T-shirts in the market average out at ₱400, that can serve as your reference price too.
• Value-based pricing: This strategy is about highlighting your product’s perceived value, such as quality or uniqueness. If you sell a premium locally-made leather wallet, for instance, you might charge much more than a generic wallet even if both have similar production costs. If other leather wallets are around ₱800, you could price yours at ₱1200 if it presents unique qualities that differentiate it from competitors.
• Psychological pricing: This method uses strategies that make prices seem lower, like pricing an item at ₱99 instead of ₱100. You can also explore offering bundles or creating “discount” tags that capture attention and make products enticing to customers.
• Penetration pricing: Here, a lower initial price attracts new customers, with plans to increase the price once you build a customer base. This approach works well if you can afford to tolerate lower profit margins at first. For example, if competitors are selling handmade soaps for ₱120 to ₱150, you might begin selling yours at ₱100 to grab initial attraction and market share.

Whichever strategy you adopt, always test and keep on monitoring. You can start with one pricing model and evaluate its effectiveness, or gradually adjust prices to see what resonates best with your customers.

Using Promotions and Discounts Wisely

Knowing how to price products is vital, but you also need to understand how and when to use promotions and discounts successfully. These tactics should be integrated into your larger pricing strategy. Here are some suggestions:

• Start with modest discounts: Initially, avoid aggressive discounts especially when you’re just starting off. Instead, opt for smaller starting discounts around 5-10%. For instance, if you’re selling customized planners, it’s better to offer modest markdowns to attract customers.
• Take advantage of holidays and special sales: Around holidays like Christmas or Mother’s Day, people are on the lookout for deals. This is an excellent time to run promotions. For example, during Shopee’s 12-12 sale, offering discounts of 15-20% can yield good results.
• Create bundled deals: Combining several items for a better price than purchasing them separately tends to be attractive. If face masks are ₱100 each, consider offering 3 for ₱250 or 5 for ₱400. You can also experiment with different themed combinations, such as a “summer package” or a “birthday kit”.
• Offer free shipping: Providing free shipping is a great motivator for shoppers, especially in the Philippines. You can either offer it on all purchases or set a minimum amount, like free shipping for orders over ₱1000 in Metro Manila.

Always be strategic about your promotions and ensure you don’t devalue your products. Think of promotions as a way to attract new customers while also fostering loyalty among your existing clientele.

Frequently Asked Questions (FAQ)

What if my product is different and lacks direct competition?

If your product is one-of-a-kind, focus primarily on value-based pricing. Highlight its unique features and benefits. Understand customer behavior and conduct thorough market research to assess whether your target audience would be willing to pay premium prices.

How often should I revisit my prices?

Looking over prices every 1-3 months is a good practice, although you may need to adjust more frequently based on changing costs or market trends. This includes factors like increased operational costs or a rise in similar products in your niche market.

Should I always opt for the lowest price?

No, not always. Having the lowest price can sometimes backfire. Instead, aim to compete based on value, quality, or outstanding customer service. Remember, the lowest price can often lead to losses if you’re not careful.

What’s the key factor to consider when pricing a product?

It’s essential to balance your understanding of costs, keeping an eye on competitors, and recognizing the perceived value to customers. Getting this blend right will help you settle on the right price.

How do I manage returns and refunds within my pricing?

Include potential return costs in your pricing from the outset, or establish a clear policy ensuring you don’t suffer financial losses due to returns. Develop straightforward procedures for returns that will help safeguard your business.

References

• Kotler, P., & Armstrong, G. (2018). Principles of Marketing (17th ed.). Pearson Education.
• McCarthy, E. J., & Perreault, W. D. (2015). Basic Marketing: A Managerial Approach (19th ed.). McGraw-Hill Education.
• Turban, E., King, D., Lee, J. K., & Liang, T. P. (2018). Electronic Commerce 2018: A Managerial and Social Networks Perspective (9th ed.). Springer.