Price segmentation of dropshipping products. How to «squeeze» the maximum

Competition in the online shopping world is growing rapidly. Retailers with a price advantage can be aggressive and drive you out of the market. It's not enough for a small business, for those just starting out, to differentiate on product range alone. Price transparency and working with the awareness of loyal customers will help to stay afloat. Price segmentation of goods plays a key role in a successful dropshipping business strategy.

It takes a lot of effort to sell your online store's products, get customers interested and keep them coming back, and not just once. Advertising in the media, marketing activities, studying the market and competitors, working on marketplaces - this is just the tip of the iceberg.
Whether you're using a loan or small business website to promote your business or implementing an online shop idea, price segmentation makes it easier for customers to find the right products according to their budget and preferences. This approach improves the user experience and increases conversion rates. Therefore, it is worth thinking in advance about the structure of the resource, its navigation with filters for quick product search.

Let's look at a fairly common structure of price segmentation of goods of the dropshipping business model:
  • Economy class goods
  • Low price goods
  • Medium price goods
  • Premium goods
  • Luxury goods
  • Cross-segment products

Economy class products
These are mass consumption goods that can be marketed with minimal marketing and advertising costs. Everyday products, marketplace and discount goods. They are functional and have wide distribution.

The main characteristic of this segment is low cost. Buyers pay almost no attention to other characteristics of the goods. Examples
  • Goods: basic clothing, mass-market household chemicals, cheap accessories.
  • Brands/trademarks: E-Mart no brand, Daiso, Homeplus no brand.
Low price goods
The cost of goods in this segment is higher than in the Economy segment, but they are available to most shoppers. Cosmetics, clothing, appliances and electronics are inexpensive goods of little known brands, trademarks, market replicas and fakes. In most cases, shoppers judge a product by its appearance, without looking at the details. For example, they care about how many functions a smartphone has, but not about the quality of those functions.

Key characteristic: problem customers with inflated expectations of a product priced just above the minimum price. They expect a product priced just above the minimum price to meet their high expectations. Examples:
  • Goods: average quality clothing, home appliances, cheap beauty products.
  • Brands/trademarks: Uniqlo, Aritaum, 3CE (3 Concept Eyes), The Face Shop.

Mid-price goods
These are quality products from well-known brands - a balance between quality and affordable price, making them attractive to a wide range of consumers.

Key characteristic: shoppers compare prices with premium products. They are willing to pay, but don't want to overpay for a name or brand. They are interested in quality, warranty and post-warranty service. Examples:
  • Goods: Mid-range products that are popular with a wide range of consumers, mid-range clothing, electronics with limited functionality.
  • Brands/trademarks: Apple, Samsung, Xiaomi, LG, HP, Bosch, Mi, Haier, Lenovo.
  • HLTS supplies goods for the electronics industry, from innovative computer technology and home appliances to electronics for hospitals.

Premium products
High quality products of equal value. The price of a product is made up of the cost of raw materials, advanced manufacturing technology, brand mark-up and advertising costs.

Key characteristic: Buyers are not interested in status, the name of the brand, seller or supplier is perceived as an insurance against consumption risks. They do not pay attention to the price, but to the product's conformity with the claimed benefits. Examples
  • Goods: high quality clothing, electronics with advanced features, high-end cosmetics.
  • Brands: Hyundai, Hera, Sulwhasoo, SK-II.
Luxury goods
Goods in this category are inaccessible to the majority of consumers due to their high cost, limited availability or specific difficulties in purchasing them.

Key characteristic: Buyers focus not only on quality but also on the status of the goods. High status because of the desire to own something unique.
  • Goods: high-end clothing and footwear from famous brands, luxury cars, luxury jewellery, airline services.
  • Brands/trademarks: Chanel, Hermes, Louis Vuitton, Gucci, Rolls-Royce, Rolex, Lamborgini.

Cross-segment products
Products of interest to consumers across segments. Such brands either offer unique products or are able to attract everyone's attention with a clever promotional strategy.

Examples include
  • Products: mid-range apparel and accessories with extra features or design, mid-range electronics with premium features, consumer electronics (iPhone, Xbox), games, software.
  • Brands/trademarks: Zara, Adidas, Nike, Apple, Xiaomi.

What happens if you don't do price segmentation?
Price segmentation determines the choice of suppliers and affects the assortment of the online shop.
  • An overabundance of cheap goods. Sales will increase, but overall profits will decrease. The percentage of untargeted customers will increase.
  • Excess of expensive products. Sales and revenue will decrease, customers will go to competitors.
  • The maximum cost of the product is too high. This is likely to lead to customer frustration with the product and increase marketing costs.
  • The minimum product value is too low. Customers may lose confidence in the store due to low prices.

For a drop-shipping site, it is necessary to regularly update the product catalogue, add new items and keep prices and availability up to date with suppliers. Product price segmentation plays a key role in a successful business strategy. By joining the HLTS Co. Ltd, you will be able to effectively optimise the range of goods you need and increase the profit of your online shop. The company's specialists will provide you with price segmentation recommendations.
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