How To Set a Price for Your Online Sale Items

The advance of the internet has made possible many things that were originally complex and cost intensive. One of the great revolutions in the forms of human interaction is the diminishing gap between people, even if they are physically miles apart.

This virtual proximity has gained commercial form with auctions sites and online stores. Nowadays, a small entrepreneur can start an internet business through different channels (whether using eBay or their own online store) and set a solid structure of negotiation. At these times, the need appears for guidance along the diverse concepts of sales and its applications.

In this article we will discuss, specifically, how to set an appropriate price to your products regardless of the channel you might intend to use. I have divided this process in five main themes/steps, in a way to provide the structural framework needed for a deeper reflection about price strategies in your activity.

In the attempt to reach a bigger range of topics we will consider that the negotiated products can fall under one of two main genders: (A) those produced by an industrial process or individual action; and (B) those that suffered no transformation and are being renegotiated only (which is very common in channels like eBay).

To start, we must first learn that the price of an item for sale is a characteristic dependant to five main aspects: (1) the relation profit/cost; (2) the assessment of the items time of use; (3) the defined life expectancy; (4) the packaging and advertising; and (5) the perception of an opportunity for the buyer.

1. The relation profit/cost is an analysis from the vendor's point of view. It states that the final price of a saleable item must be enough to cover its acquisition/transformation cost plus a margin for profit. This last one represents your cost of opportunity for investing your time on the task of distributing and advertising your product online.

Some products may have higher profit/cost coefficient whether others may have even a negative coefficient (when you actually have a loss after the sale process). It is important to balance the return of your sales so that when you look at an average profit/cost relation (achieved by the average of the sum of every profit in relation to its cost for a determined product, pondered by the number of units sold for each product), you'll have a positive relation that implies you are generating a positive revenue.

Nonetheless, we should not turn against the products with a negative profit/cost relation. In many cases, these products are maintained to keep a stable number of clients who will purchase other items that generate more revenue for your business. As long as your average profit/cost relation is positive, you can choose to use those less attractive sales items to boost your selling volume for other products.

2. The assessment of the item's time of use is an analysis from the product's quality point of view. A brand new product's price must be naturally higher than an identical already-used product, except when we are referring to collectable items and such.

These last ones do not fall on this criterion, because its lack of availability has made this point secondary to the negotiation.

When dealing with collectibles, the main characteristics to be observed in order are: (A) general availability; (B) integrity of its original qualities; (C) remaining life expectancy; and (D) perception of an opportunity for the buyer.

Therefore we need to take into consideration the state of our products before we can assess their final price.

3. The life expectancy is also an analysis from the product's quality point of view. This criterion is defined by the product's value in time. Each passing day a product loses some of its value over time. The higher the life expectancy, the greater value it possesses and vice-versa.

Although some commercial items may be an exception to this analysis (products such as fine wines) most generally negotiated products fall in this rank.

To truly understand the definition of value in time we must think of a product's life over a time line.

• Guarantee period. As soon as it comes out into the market there is a greater probability of malfunction due to fabrication mistakes. Companies usually offer a time guarantee against these problems, so that the value in time of these items doesn`t get compromised.
• Apex period. Following the guarantee period we can assure with more confidence that a great part of the remaining utility and value defined in our time line is stable. Here we have reached the apex of the product's value in time, but there's a great problem when selling items at this point: How can you assure customers that you are not too far away in the time line and haven't already entered the segment where value is rapidly lost?

  The answer to the previously stated question is simple: You probably can't!

  As long as you don't have a solid relationship of trust with your client, it will always be tough to sell items that already passed their guarantee times for the same price as the ones that didn't.

  Even if the value in time of brand new products is often low (as we have seen), the presence of a guarantee will raise customer confidence to a level where it will be a secondary issue in negotiation.

• Final segment. At last, the final segment represents the decline of the product's original characteristics and will result in sensible lost of quality. At this point, a product may not be worth selling since its use is heavily compromised.
4. The packaging and advertising are features to be analyzed through the customer's point of view. The cost of these two features must be embedded within your final price as they represent a heavy onus over your incoming revenue.

It must be also clear that a product sold out of its packaging (OEM, for instance) must be cheaper than a product sold in packaging. The same goes for its advertising. Products that need more ad power are expected to cost more than products that can be sold on their own.

A clarification must be made here regarding OEM packaging. OEM or (Original Equipment Manufacturer) is a product which differs to any normal packaged product for not having manuals, labels and, as expected, a formal package. None of the product's essential characteristics are lost with OEM. It represents only a cheaper way to produce items in large scale and send them directly to other intermediaries or even the final consumer.

5. The perception of an opportunity is another analysis from the customer's point of view. It evaluates whether there is or isn't an opportunity of gain when acquiring the item from a source that isn't a specialized store. For that, besides offering a guarantee against fabrication damage, we must consider the availability of the item in the general market.

   Items extremely available (like the ones found on department stores and convenience stores) must have their prices lowered, because (A) cheaper items attract buyers; and (B) shipping cost, which is often a buyer responsibility, might surpass the store price of the same product and therefore make your offer much less attractive.

   Remember to always balance your prices with the availability of your products considering the availability in general stores, the cost to ship it to its destination and its delivery time.

I hope that this contribution can allow us to reach new levels of reflection regarding price definitions, especially for those who have problems setting the price for items to be sold on the web. Understanding the main points of a price strategy is a key first step to managing your success in commerce, especially setting a good price reference for those products not easily found on eBay.