Net price – is it the best price for an eCommerce business?

Once again, we discuss pricing strategies for eCommerce. How to choose the best one? What we know for sure is that you need to investigate your clients, competitors, and the market itself to be able to set up a favorable pricing strategy for your business. 

In this article, we will thoroughly examine what are net prices, so you can take them into account when forming or adjusting your pricing. Very often the list price is discussed along with the net price. Let’s compare these two.

What are net prices?

Net prices typically refer to the final prices of goods or services after any discounts, deductions, or additional charges have been applied. It’s the amount customers see on the receipt and actually pay at the end of the transaction.

How to calculate the net price?

Factors to consider:

• production costs, overhead, and other expenses to ensure that the net price covers all costs while providing a reasonable profit margin
• competitive landscape and market demand – pricing should be competitive while reflecting the value of your product or service
• how customers perceive your product in terms of quality and value – pricing should align with customer expectations and the perceived value of the offering
• whether you want to offer discounts, promotions, or loyalty programs to attract customers and influence their purchasing decisions
• legal or regulatory requirements related to pricing, taxes, and disclosures
• target profit margin that aligns with your business goals and industry standards
• if applicable, consider different pricing strategies for different market segments based on factors such as demographics, geography, or customer behavior
• if selling in different currencies or international markets, account for currency fluctuations that may impact pricing
• customer feedback and be willing to adjust pricing based on market response and customer satisfaction
• long-term sustainability of your pricing strategy as it should support your overall business strategy and goals

The formula for calculating net price is:

Net Price = List Price − Discounts + Additional  Charges

1. List Price:
   • The original or standard price of the product or service
2. Discounts:
   • Subtract any discounts from the list price. Discounts can be expressed as a percentage of the list price or a fixed dollar amount
3. Additional Charges:
   • Add any extra charges, such as shipping fees or taxes, to the adjusted price after applying discounts

List price vs net price

When discussing the list price, we have to start from the MSRP which is the manufacturer’s suggested retail price that doesn’t have to be respected by sellers. Anyhow, MSRP is the highest possible price that buyers could pay for a product or service because this price already includes all the selling costs (production costs, distribution costs, retailers markups, etc.), which supposedly guarantees that each of the parties will earn profit.

The difference between the list price and the net price could be sales and other discounts, rebates, and any amounts negotiated between the seller and the buyer. When all these amounts are subtracted from the list price, we get the net price.

In summary, the net price provides a more realistic and accurate representation of the cost to the consumer. In contrast, the list price serves as a reference point for negotiations and comparisons.

Benefits and drawbacks of offering net prices

As we all are buyers, we can analyze these two types of prices from a buyer’s perspective. Firstly, let’s agree that the price matters as most buyers’ decisions come down to price.

While we make analyses and price comparisons before any purchase, especially a major one, we look for better terms and deals. This simple general fact indicates that sellers should compete based on the discounts they can offer especially when it comes to acquiring new clients. The net price generates revenue because the possibility to offer discounts and lower prices increases sales volume. Another benefit is the ability to gather loyal customers by offering loyalty programs and special discounts for long-term clients. Those kinds of gestures engage them with your brand and reinforce trust. 

On the other hand, we are all aware that price and value somewhat influence each other, especially in the eyes of customers. Therefore, we consider luxury products, whether cars or make-up and women’s shoes as better quality because of the extremely high prices. Certainly, if your ultimate goal is higher profits, you should stick to the list price. This concept succeeds in very few situations. In case you are the absolute leader in the market, let’s say, that you almost have no competition or when the demand for your product or service is extremely high. As mentioned already, luxury brands can sell at list prices. As is generally known, it is impossible to find original Louis Vuitton pieces at a discounted price. The same thing applies to Chanel, Tesla, MAC Cosmetics, and several more high-end companies from specific niches.

What allows sellers to gain a competitive advantage is the ability to offer discounts and give special promotions to their customers. If you decide, as a seller, to form your business’ pricing strategy based on the net price, you will have better chances to lead the market. It is a business’ choice to decide to what extent to step away from the list price. Whether to sell at the list price, so it can secure higher profit margins, or to risk it and offer numerous discounts to existing clients and even better deals to acquire new clientele. 

How to fight competition if they utilize net price?

Having all the mentioned pros and cons in mind, it is crucial to conduct the competitors’ analysis and gain insight into both historical and current product prices. Once the initial analysis is performed, you set up your pricing strategy, and position yourself on the market, you have to keep monitoring the competition. No matter what industry you belong to, eCommerce is a fast-paced place and it is difficult to acknowledge all the innovations and changes that happen daily.

No matter what prices your competitors utilize, it is significant to stay aware of price changes they make (some adjust prices several times a day) so you can match yours or simply adjust them according to your chosen pricing strategy. Aggravating circumstance, if competitors favor net prices, is the frequency of price changes and a variety of discount offers in terms of duration or percentage offered. It is hard to predict or expect your competitors’ discounts and special deals unless seasonal.

The variations between the net and list prices of competitors’ products can be accurately monitored and captured with a price monitoring software solution. Even if you are the market leader who sets prices and makes initial adjustments, you need to monitor your competitors to capture their response to your actions. More importantly, if you are a seller in a highly competitive industry who strives to find a way to the top, you have to always be aware of the price changes so you can be sure not to fall behind.

Remember

Theoretically, the list price guarantees higher profit and this might seem an ideal choice for your business. On the other hand, keep in mind that you risk being undercut by competitors that have lower prices. The net price is a competitive tool since the discounts are the only variable among competitors that can guarantee an advantage.

Remember that pricing is a dynamic aspect of business, and reviews and adjustments may be necessary based on changing market conditions and business goals. All of the work regarding price monitoring and repricing can be done by software that can provide you with an overview of the market anytime and work for the success of your business nonstop.