Price positioning: should you be cheapest, middle or premium?

Price positioning is the decision about where your prices sit relative to the alternatives your customers consider: cheapest, in the middle, or at a premium. Every online store has a position, whether it chose one or not. Choosing deliberately — and varying the choice across your range — makes every individual price decision easier.

The three positions

Cheapest

You aim to be at or near the lowest credible price for the products you sell. Customers choose you mainly on price.

• Works when your costs are genuinely lower than competitors' — better buying terms, lower overheads, efficient fulfilment — and your volume is high enough for thin margins to add up.
• Fails when a competitor with deeper pockets decides to undercut you, or when your costs rise and you cannot pass them on.

Middle

You sit around the market median. Customers choose you for a mix of price, range, convenience and trust.

• Works when you compete on several things at once and price simply needs to be "not a reason to leave".
• Fails when nothing else distinguishes you, so the customer has no reason to prefer you over a slightly cheaper alternative.

Premium

You sit above the median. Customers pay more because they get more: expertise, service, speed, curation, a stronger guarantee.

• Works when the extra is visible and valued on the product page itself, not only in your brand story.
• Fails when the premium is not backed by anything the customer can see, or when the same product is a few clicks away for much less.

Measure your position with a price index

You cannot manage a position you have not measured. The simplest measure is a price index: your price divided by the median price of credible competitors, multiplied by 100.

• Index 100: you are at the market median.
• Index 93: you are 7% below it.
• Index 110: you are 10% above it.

Calculate it per product, then summarise by category. Your actual position may differ from the one you assumed — cheaper than necessary on some lines, quietly expensive on others. For a broader treatment, see our competitive pricing strategy guide.

Positioning by product role

A practical approach is to set a target index band per product role:

• Products that shape your price image — the best-known brands and models, the products in your ads. Customers use them to judge whether your store is expensive. Keep them close to the median or just below.
• Core range — sells steadily, compared less closely. Around the median or modestly above.
• Add-ons and accessories — usually bought alongside something else, rarely price-checked on their own. Further above the median is often sustainable.
• Own brand and unique products — no direct comparison; position against the closest substitutes and your own range.

Choosing your overall position

Four questions usually settle it:

1. Are your costs lower than your competitors'? If not, "cheapest" is a position you cannot hold for long.
2. What do you offer that others do not? List it honestly. If the list is short, a premium position will be hard to justify.
3. How do your customers shop? Customers who arrive from comparison sites see your price next to everyone else's. Customers who come back directly or from your newsletter are comparing less.
4. What margin does the business need? Work backwards from overheads and target profit. The position has to pay for the business.

A worked example

Illustrative figures for an invented store.

A specialist cycling store sells 1,200 products. It assumes it is "mid-market". After calculating a price index for the 400 products with credible competitors, it finds:

• Popular branded bikes and helmets average an index of 104 — above the market on exactly the products customers compare most.
• Spare parts and accessories average 97 — below the market on products that few customers check.

The store's position is the wrong way round. It moves its best-known bikes and helmets towards 99–100, and brings parts and accessories up towards 103–106 in small steps, watching sales on both. The store-wide average barely changes, but the price image improves where it matters and margin improves where customers are less sensitive.

Position is more than the price tag

Customers judge your position on everything around the price, not just the number. A premium position with a cluttered product page and slow delivery reads as overpriced; a cheapest position with constant "sale" banners can read as low quality. Make the rest of the offer consistent with the price:

• Cheapest: clear, uncluttered prices; delivery costs shown early; no reliance on discount codes the customer has to hunt for.
• Middle: a visible reason to choose you at a similar price — stock availability, delivery time, returns terms, reviews.
• Premium: the extra shown next to the price — expert advice, setup service, a longer guarantee, bundled accessories — and product pages that match the price.

Discounting deserves particular care. Frequent sitewide discounts pull your effective position down, whatever your list prices say, and train customers to wait. In the EU, an announced price reduction must also be shown against the lowest price of at least the previous 30 days (Article 6a of the Price Indication Directive), so a cycle of raising and cutting prices does little for your position.

Keeping the position over time

Positions drift. Competitors change prices, suppliers change costs, and an index of 100 last month may be 106 today without you touching anything. A daily or weekly check of the index per product role, with attention only on products outside their band, keeps the drift in check without constant repricing. Our repricing strategy guide covers the rules for bringing products back into line.

Luska calculates this index for you: 100 is the median of the competitor prices read in the last 48 hours. Alongside it you see the gap to the cheapest competitor and your margin, and you can set the price position you want its recommendations to aim for.

Common mistakes

• Positioning against the cheapest seller rather than the market median, so one error or one-day deal moves your entire position.
• Claiming premium without the extras that justify it on the product page.
• One position for everything, which usually means overpricing the products customers compare and underpricing the ones they do not.
• Never measuring, and discovering the real position only when sales fall.

FAQ

What is a price positioning strategy?

A deliberate choice of where your prices sit relative to the alternatives your customers consider, usually expressed per product group and measured with a price index.

Can a small store compete on price?

On a few products, yes. Across the whole range, only if its costs are lower than larger competitors', which is unusual. Most small stores do better in the middle or at a premium, with competitive prices on the products customers compare most.

How do I justify premium prices online?

Make the extra visible where the decision is made: delivery speed, returns terms, advice, reviews and bundles on the product page itself.

For setting individual prices from scratch, see how to price products for an online store.