9 Tips to Identify Your Optimal Pricing Strategy in 2024

Pricing is a tricky balancing act for any eCommerce brand, and getting it right means making some carefully choreographed tradeoffs. Do you raise prices to increase margins and risk a dropoff in conversions? Or do you lower prices to drive conversions despite the potential hit to your bottom line?

With pricing being one of your brand's most important profit optimization levers, striking that perfect balance between margins and CVR should be at the top of your 2024 to-do list. Of course, we know this is easier said than done, and most brands will need a robust price testing process and a sturdy FP&A foundation to uncover their optimal strategy.

Fortunately, we've assembled three eCommerce experts who are more than happy to share their insights on this very topic:

• Brett Bone, VP of Strategic Planning at Simple Modern
• Andrew Case, Co-founder at Moonbrew
• Drew Marconi, Co-founder and CEO at Intelligems

These experts share their top tips on structuring your tests, determining what mixture of price points to present to customers, and leveraging brand equity to defend price adjustments. 

💰 How pricing trickles down every line of the P&L

Pricing is the sole determiner of how much revenue you’ll collect from selling goods and services. As such, it’s no surprise that changing pricing at the top line of the P&L has huge downstream impacts. It affects not only revenue but also gross profit, contribution rate, CVR, and EBITDA — in ways that may not immediately meet the eye. 

For example, let's look at customer reactions to price adjustments. You may raise prices to keep up with inflation, but loyal customers may perceive that as a snub and that you've failed to reward their constancy. If you lose those customers as a result, you may not notice that impact on your bottom line until it's too late. 

Making a pricing change without appropriate consideration is bound to have consequences. So, to ensure you’re not making a major misstep when adjusting your prices, we recommend utilizing robust testing methods while continuously modeling the effects of price changes on profitability.

Drew frames it like this: “Pricing isn’t a goal in and of itself, but, rather, a tool to achieve your goals.” In other words, conduct consistent price testing and then use FP&A to model pricing scenarios and predict their long-term business impact. 

Here’s how you can leverage these functions to establish a pricing strategy that maximizes profits and drives repeat business:

📍 Tip #1: Always have a clearly defined motive behind price testing 

Never forget that price testing and adjustment are goal-oriented exercises. Before you start, clearly establish your desired end results and the steps needed to achieve them. You’ll likely find the goal itself completely changes your approach to the testing process. 

Let's look at how Simple Modern and Moonbrew approached price-testing. Simple Modern, a leading drinkware and consumer goods company, wanted to get more water bottles into the hands of more customers, so its testing was centered around finding the right price to convert as many people as possible. 

But Moonbrew, a purveyor of magnesium sleep tea, wanted to gain more subscribers, so its team had to test pricing and incentives that convinced customers to commit to a long-term relationship. While both brands hoped to boost revenue, their paths to achieving this end goal required radically different testing and price optimization methods. 

🧱 Tip #2: Ensure your tests have a strong foundation

A successful test has a bulletproof basis of truth. So, be sure to gather the requisite info before testing to ensure the process is productive and leads to actionable insights. Drew advises Intelligems customers not to run tests without: 

• Aligning on everything that impacts pricing: This includes shipping, fulfillment, warehousing, and more. You need to know precisely what your costs will be as you scale and how the price tags on those services may change. 
• Settling on other profit optimization levers: Price testing goes far beyond altering list prices. It’s also essential to test promotions, free shipping thresholds, free gifts, and bundle offers. Learning how these pricing-adjacent variables influence your bottom line is a crucial step in the testing process. 

🚧 Tip #3: Set financial guardrails to avoid impacting top-of-funnel efforts

Before conducting your first test, establish the lower bound of the profit bracket you’re willing to accept. If a test causes you to dip below that threshold, abandon it. While the testing process helps you collect valuable insights, it cannot come at the expense of revenue. Testing past that threshold doesn’t just potentially harm the bottom of your funnel; that monetary impact may leach all the way up to top-of-funnel efforts. These guardrails will ensure your brand stays on the beaten path. 

To determine where this guardrail is, try running tests to determine your average revenue per visitor and AOV. Utilizing this strategy, Moonbrew’s team ruled that they’d abandon any test that caused subscriptions to dip below 40%. That threshold allows for exciting, unexpected solutions and results without impacting its bottom line. 

🛣️ Tip #4: Construct a roadmap of all the tests you want to run

Once you’ve determined your goals, established a solid testing foundation, and set up financial guardrails, you can build a roadmap that includes how many tests you plan to run and how to sequence them. The value of testing is the likelihood of a test’s success times how many tests you run. In other words, your testing frequency decisions will directly impact your learnings. 

To get started with testing, sort your products by margin and velocity using what Drew calls the Jenna Matrix. By nature, some products are lower-margin and lower-velocity. Don’t waste time testing and trying to drive conversions for those products. 

Instead, identify hero products with the potential to skyrocket your margins and expend energy on those. You already know these products sell, so try conversion rate tests to sharpen the language you’re using with the customer. Or, experiment with special offers and small price adjustments to get people over the line. 

These tests have many permutations depending on margin and velocity. For low-margin, high-velocity products, try increasing prices because it may boost AOV. Or consider the angle that once you've captured conversion, you can upsell with clever shipping thresholds.

🚀 Tip #5: Test in phases, but take big swings

Successful testing balances caution and ambition. For larger brands with plenty of traffic, Drew recommends using a canary-style approach of running tests sequentially and gradually rolling traffic into new versions to ensure you gain actionable results without compromising your existing operations (should a test go badly). 

This approach isn’t just cautious; it’s necessary. Even if there wasn’t revenue on the line, you can’t get accurate results if you execute every test at once or don’t give them enough time to yield usable findings. (Tests must run for about a week before it’s safe for brands to action on the results.) 

Conversely, smaller brands can be more comfortable taking big swings to uncover actionable findings much quicker. Testing larger price movements ensures they can compete with larger competitors from an optimization perspective, without having to wait countless weeks for insights to hit their desk.

Regardless of your brand’s size or testing method, have faith in your processes. You’ve established a strong foundation of truth for your test and the guardrails to keep revenue up, so don’t be afraid to make a few bold plays to discover what pricing strategy is best for your brand. 

⚡ Tip #6: Test a range of prices and offers to uncover what makes your customers tick

To maximize your learning potential, Drew suggests testing prices that are far higher and lower than you'd expect. He's found that people's guesses about the perfect price are usually wrong, and to know what truly works, it's essential to test the extremes and use FP&A to interpret the results. 

Moonbrew switches tests every week. One week, it may offer a subscription discount; the next week, its team will increase the one-time purchase price with the same subscription discount; the week after, they’ll offer six-pack bundles. This incredible variability and dynamic discount-swapping led to 200% more subscriptions from new customers in 3 months. The perfect brew that led them there? Smart testing and healthy risk-taking.

🏷️ Tip #7: Leverage pricing to give customers multiple entry points

Testing SKUs that vary in price gives you a better overall sense of AOV and the chance to appeal to more customer segments. In other words, different products at your company may attract completely different customers, so assume that every SKU represents a unique opportunity. 

Drew adds that brands are often too quick to write off expensive SKUs because they haven’t zoomed out to total order behavior. Sometimes brands raise the price of a SKU and fewer people order it, but that may have caused a major substitution effect where people bought other, cheaper products en-masse instead.

So don’t judge too quickly – let the testing be your source of truth, and use FP&A to manage predictions for different pricing models, like competitor or value-based pricing, and help you understand overall AOV. 

Moonbrew’s experiment with pricier, SKUs exemplifies this situation perfectly. It invested time in SKU testing with Intelligems’ profit optimization platform, which revealed that customers would pay a premium for its extra-strength Moonbrew variant. The brand hadn’t previously sold that product in bundles or offered significant discounts on it. But, in accordance with the test results, it began bundling the extra-strength variant with its Mood Boost product, offering discounts for bulk orders, and giving 20% discounts for single orders. This led to stronger margins and a 15% increase in AOV– as Drew said, an unexpected product can have a massive draw. 

According to Brett, Simple Modern also benefits from mixing up prices. While inexpensive products enabled early Amazon sales and rapid omnichannel expansion, higher-priced products helped the brand acquire high-AOV customers, creating a lucrative revenue cycle. Its “premium” Getaway Bag and Simple Modern Signature line appeal to higher-AOV customers and offset lower wholesale margins, but it was the inexpensive products that helped Simple Modern scale to where it is today. 

🤝 Tip #8: Collaborate with internal and external stakeholders

When it comes to pricing strategy, it takes a village to produce the best results, and many teams at your company should be involved in the testing process. Consider involving reps from the leadership, sales, marketing, and product teams. 

Brett notes that Simple Modern’s retail partners also have a say in pricing since they provide the venue where the brand sells a major amount of SKUs. Giving your retail partners a voice from day one establishes long-term trust and relationships, which can help with negotiations if necessary. For example, since Simple Modern has proven that Walmart is a valued omnichannel retailer, Brett can leverage that strong relationship (and the treasure trove of financial data they’ve collected) to advocate for higher prices. 

As a counterbalance, the brand employs a chief merchant to ensure it doesn't contend with an unproductive volume of opinions and keeps its system centralized. 

Democratizing your product pricing also allows for smoother resource allocation and gives every team a realistic sense of what’s possible. Without cross-team collaboration, you may not realize how pricing changes affect other important variables. 

At Moonbrew, Andrew keeps his marketing team in the loop to avoid imploding CAC. Price optimization doesn’t improve profit margins if it forces them to pour more money into customer acquisition. 

💎 Tip #9: Think about the qualitative factors that set you apart

No matter if you’re raising or lowering prices, how you showcase your product is one of the ultimate differentiators. People value a product based on what you prove it’s worth. Athletic Greens is an example of an expensive brand with a strong, non-price differentiator. The brand’s testimonials from trusted wellness experts like Dr. Andrew Huberman and famous athletes like Allyson Felix sell its worth better than anything else. 

Powerful non–price differentiators like that help justify price adjustments. If Athletic Greens raises prices, it has already established that it’s a top-of-the-line, premium product filled with quality ingredients. 

Simple Modern used a different but equally intelligent shift to justify raising prices. It switched from a cost-plus approach when water bottles became a “must-have accessory.” Since they were necessary to people’s days, Simple Modern could use that margin to compensate for higher freight costs, lower EBITDA, and more. This also helped its team negotiate with Walmart to sell its products at higher prices. 

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