Pricing Dictionary: 61 Terms You Need to Know About E-commerce Pricing

Basket-based pricing

A data-driven strategy where customers are offered personalized recommendations in the shopping cart to increase basket size.

Learn how to apply basket-based pricing.

Captive product

Accessory items that are used and sold alongside core products.

Channel-specific pricing

A strategy where omnichannel businesses price their products differently across different channels.

Compare different pricing strategies for omnichannel retail.

Commoditization

The process in which a product becomes identical to competitor products, so customers make purchasing decisions based solely on price.

Comparison shopping engines

Search engines that list product prices from multiple websites easing price comparison for shoppers.

Learn why do they matter to e-commerce businesses.

Competitive intelligence

Gathering and analyzing information about competitors to draw a picture of the current business environment, and anticipate future trends and challenges.

Check out the list of some useful competitive intelligence tools.

Competitive market

A product/service market in which numerous players exist and none is a market leader.

Competitive pricing / market-oriented pricing

A commonly pursued strategy where businesses price products in line with competitor prices.

Learn why and how to apply competitive pricing.

Cost-plus pricing / cost-based pricing / cost-oriented pricing

A strategy in which the price of a product is determined by adding a markup on its cost.

Learn if it works for e-commerce businesses.

Decoy effect

A cognitive bias causing shoppers to change preferences between two options when presented with a third, inferior option.

Dropshipping

An order fulfillment method that allows merchants to ship products directly from suppliers/manufacturers to customers without keeping them in stock.

Find out the right pricing strategy for your dropshipping business.

Dumping

Refers to manufacturers export a product to a foreign market at a price below its domestic market price to drive out competitors.

Dynamic pricing

A strategy in which prices are flexible and they change based on market conditions such as demand, supply, competitor prices, etc.

Dynamic pricing strategy is a perfect fit for e-commerce businesses. Learn why.

Economy pricing

A pile it high, sell it cheap strategy where the price of a product is set at the bare minimum.

Works well on products of which production cost is low, and for companies where overhead costs are also low.

Everyday low price

A strategy where a business continuously offers lower prices without offering discounts /promotions.

Flat rate pricing

Charging a fixed price for a product or service, regardless of the volume at which it is purchased.

Freemium pricing

A two-layered customer acquisition strategy where a business offers two plans: a basic plan for free and an advanced plan with additional features at a fee.

Hybrid pricing

An omnichannel pricing strategy where businesses synchronize prices across different channels, but with some exceptions.

Landed cost

The total price consumer pays for a product including shipment, duties and taxes, insurance, and all the extra fees that may result from tariffs, currency exchange, etc.

List price / manufacturer’s suggested retail price (MSRP)

The price that the manufacturer suggests the seller asks for the product.

In some cases, list price refers to the full price before any discounts or offers are applied.

Loss leader pricing

A strategy where retailers sell specific products at a loss to lure customers into the store.

Of course, selling products below cost carries risks. Learn about them.

MAP monitoring

Monitoring reseller prices to make sure the Minimum Advertised Price is not violated.

Marginal cost

The increase in cost from the production of a single unit.

Marginal revenue

The increase in gross revenue from the sale of a single product.

Market forces

Factors that impact the demand for a product, its availability, and its price.

Minimum advertised price (MAP)

The minimum price a retailer can advertise a product.

Odd-even pricing

A psychological pricing strategy suggesting that price endings with certain numbers have a greater impact on buyer behavior.

See if that actually works.

Omnichannel pricing

A strategy where businesses synchronize prices across different sales channels.

Penetration pricing

A strategy where a company enters a product market with a below-average price.

Learn how to lure customers into your store with a penetration price.

Perceived value

Consumers’ evaluation of a product’s functional benefits, emotional benefits, social benefits, and the cost of purchasing it, usually in comparison with competitor products.

Predatory pricing / undercutting

Pricing a product significantly lower than the industry norm, often below-cost to drive the competitors out of the market- an illegal practice in many states.

Prestige pricing / premium pricing

A strategy where businesses price a product considerably higher than the market average to increase perceived quality.

Learn how to apply premium pricing.

Price

The amount of money given in return for a product or service.

To learn more about price.

Price benchmarking

Comparing prices with competitors in order to see and impact one’s own price positioning in a market.

Price discrimination / price differentiation

A pricing scheme where different prices are charged for a single product.

Three degrees of price discrimination:

• First: Based on individuals’ willingness to pay
• Second: Based on the quantity
• Third: Based on consumer demographics and socio-economic characteristics

Learn how price discrimination differs from dynamic pricing.

Price elasticity of demand

The responsiveness of demand for a product against changes in its price.

Price fairness

Consumers’ evaluation of a seller’s price(s) by comparison with competitor prices, in an assessment of whether it is reasonable and justifiable.

Price fixing

An agreement between competitors to fix, raise, or maintain prices, illegal under many countries’ jurisdiction.

Price follower

A company that matches its prices to the price leader’s in the market.

Price gouging

The illegal act of selling a product/service for an excessive price following a natural disaster that resulted in demand/supply shock.

Price image

A consumer’s impression of a retailer’s average price level.

Learn how retail giants reinforce their ‘cheap’ image.

Price Index

For online retailers, price index is a metric that shows how your product prices are positioned in the market.

Price leader

A company that holds the power of setting market prices, usually having a distinct competitive advantage that results in market dominance.

Price monitoring

Extracting competitor price data with the help of data mining technology, to be utilized for competitive advantage as well as long-term strategic planning.

Price perception

How consumers perceive a price, which might be significantly different than the actual price.

Price point

A single point on a scale of possible prices for a product.

Learn more about price point.

Price positioning

One aspect of a company’s competitive positioning in a market, a representation of where its prices stand against competitors’.

Price sensitivity meter

A simple (though not precise) method for measuring price sensitivity introduced by Dutch economist Peter van Westendorp.

Price signal

A message conveyed to consumers via the price charged for a product.

Price skimming

A multiphase pricing strategy of setting a high market-entrance price and lowering gradually to skim off all the segments in the market.

Learn how it works.

Product bundling

A marketing strategy where two or more products are sold in a package at a discounted price often used for slow-moving stock.

Learn more about winning bundles.

Profit maximization

The stage of equilibrium where the inputs and the outputs of a good’s production and sales yield the maximum profit.

Sale above advertised price

The act of selling a product/service above its advertised price, illegal in many countries.

Snob effect

The situation where demand for a product increases as the price increases, among high-income customers with a desire to possess expensive/luxury goods.

Sticky prices (price stickiness)

Prices resistant to change despite the shifts in supply or demand.

Learn why sticky prices hinder your competitive strength.

Subscription business model

A business model where customers regularly pay a fee to access a product or service.

Target rate of return pricing

A strategy in which the price of a product is determined by the expected rate of return of the capital invested in a company.

Learn how to apply.

Tiered pricing

A strategy where purchasing quantities are tiered and prices gradually decrease as customers fill one tier and move on to the other. The structure looks like:

• 1-15 units: $20
• 16-30 units: $17
• 30-45 units: $14

Value-based pricing / customer-oriented pricing

A customer-oriented pricing strategy in which the price of a product is based on its perceived value to customers.

Learn its advantages and disadvantages.

Velocity pricing

A strategy of pricing products based on their inventory turnover.

Willingness to pay (WTP)

The maximum price a consumer is willing to pay in exchange for a product.

Learn more about WTP.

What else you think should be in our pricing dictionary? Let us know in the comments!