Implementation of Tier Prices in the Online Shop

Preparation & Determination of Tier Prices

How do I plan tier prices?

Before you introduce tier prices, a comprehensive analysis of your current product range and pricing strategies is necessary. Ask yourself:

• Which products are suitable for tier prices?
• What price levels are attractive to your customers?

Determination of Tier Prices

Setting Up Tier Prices

How do I set up tiered pricing?

Step-by-Step Guide to Setup

1. Navigating the backend of the online store

• Login: Log in to the backend of your online shop.
• Product Management: Navigate to the product management or catalog section.
• Select product: Choose the product for which you want to set up tier prices.

2. Identification and use of the relevant fields and settings

• Pricing options: Search for options for pricing and tier prices.
• Set tiers: Enter the quantities and the corresponding prices for each tier.

Exemplary Setup of a Tiered Pricing Structure: When Does It Make Sense?

Scenario 1: No additional revenue for providers

Max offers tiered pricing in his online shop to increase sales. However, upon closer inspection, he realizes that while the discounts benefit the customers, they bring little to no additional profit for him as a retailer. Especially with larger orders, sales increase, but the gross margin remains low. For 1 item, Max achieves a gross margin of €5.99, for 3 items €12.99, for 5 items €15.99, and for 10 items only €16.00. Although sales are growing, the relative profit is decreasing, while the customer saves €60.00 on 10 items, which means little profit for Max. 

Conclusion: Tiered pricing is only worthwhile if it increases both revenue and profit. In this case, only the customer benefits, while Max does not achieve any significant additional profit.

Scenario 2: No additional profit for providers beyond a certain quantity

For 1 piece, Max achieves a gross profit of €5.99. For 3 pieces, the gross profit is €14.49, and for 5 pieces, it is €20.99, which represents an optimal quantity tier for both the retailer and the customer. However, Max notices that for 10 pieces, the gross profit is only €26.00, even though the customer saves €70.00. Despite the increasing sales, this tier level does not bring Max any additional profit. 

Conclusion: Tier prices only makes sense if it increases both revenue and profit. While the 5-piece tier is optimal, in the 10-piece tier only the customer benefits, while Max does not achieve any significant additional profit.

Scenario 3: Additional effort due to shipping

For 1 piece, Max achieves a gross profit of €18.99, which is reasonable but not outstanding. For 5 pieces, the gross profit increases to €67.00 with a savings of €105.00 for the customer. Here too, the tier prices makes sense, but it is not exceptionally profitable. For 10 pieces, the gross profit reaches €114.00, and the savings for the customer amount to €220.00, which is considered the optimal tier quantity for both parties. However, for 20 pieces, the gross profit drops to €150.00, even though the customer saves €430.00. The large quantity may require delivery on a pallet or in many packages, making the discount for the retailer uneconomical. 

Conclusion: The 10-piece tier is optimal, while the 20-piece tier makes the discount for the retailer disadvantageous due to additional shipping requirements and the associated effort.

Scenario 4: Include shipping costs in the sale price

For 1 piece, Max achieves a gross profit of €5.00, but shipping costs of €4.00 must be factored in, which significantly reduces the profit. Therefore, shipping costs should be integrated into the selling price. For 2 pieces, the gross profit is €10.00, and the savings for the customer amount to €11.00. This makes sense, as this quantity can still be efficiently shipped in one box. For 5 pieces, the gross profit rises to €26.00, with a savings of €45.00 for the customer, which is acceptable but not outstanding. For 10 pieces, the gross profit is €46.00, while the customer saves €95.00, which is also reasonable but not exceptionally profitable. 

Conclusion: From 2 pieces onward, the bulk prices are advantageous, as the items can be shipped efficiently. However, shipping costs should always be included in the sales price calculation to ensure that profits are not significantly affected.