Ecommerce Pricing Power: When Cost Increases Cannot Be Passed Through

Ecommerce brands facing rising input costs have two options: raise prices and protect margin, or absorb costs and protect volume. The brands that cannot raise prices are revealing a structural weakness in their market position, one that the current cost environment has made impossible to defer.

Input costs for ecommerce brands have risen across multiple vectors simultaneously. Tariff-driven increases on imported goods pushed landed COGS upward across physical product categories throughout 2025 and into 2026. The Federal Reserve Bank of New York's May 2025 survey found that manufacturers reported an average 20 percent increase in the cost of tariffed goods over the prior six months, with service firms reporting roughly 15 percent. Freight volatility added a second layer of cost pressure. Packaging, raw materials, and manufacturing labour costs contributed a third.

The brands with pricing power passed these costs through. The New York Fed survey found that approximately 75 percent of businesses passed along at least some tariff-related cost increases, with nearly a third of manufacturers and 45 percent of service firms passing through the full amount. The brands that could not pass costs through, the remaining quarter that absorbed all increases, are disproportionately concentrated in ecommerce categories where price comparison is instantaneous and where the brand has not established a value proposition that justifies a premium above the market floor.

The financial consequence of cost absorption extends beyond the margin on individual transactions. When COGS rises and the selling price stays flat, gross margin compresses. When gross margin compresses, the contribution margin available to cover fulfillment, advertising, and fixed costs shrinks. The business must either reduce spend in those areas, accepting lower growth, or maintain spend levels and accept negative contribution margin at the unit level. Neither outcome is sustainable.

The pricing power problem is compounded by the promotional behaviour many ecommerce brands adopted during the growth phase of the market. When customer acquisition costs were lower and competition was less intense, heavy discounting was a viable strategy for driving volume and building a customer base. The margin cost was manageable, even as advertising costs consumed an increasing share of revenue. The volume gains justified the investment.

In the current environment, that calculus has inverted. Brands that trained their customers to buy on promotion have created a structural floor below the list price. The customer evaluates the product against the last promotional price they paid, bypassing the list price entirely. When the brand attempts to raise prices to recover rising input costs, the customer perceives the increase as a deviation from the expected price rather than a fair reflection of market conditions. Conversion falls. The brand retreats to the promotional price. The margin compression continues.

The discount dependency trap closes around the brand gradually. Customers conditioned to expect a lower price resist any move toward full-price selling. Reducing promotional frequency produces a volume decline the brand cannot afford. Absorbing rising costs indefinitely exhausts the margin structure and eventually strains the working capital cycle. The three forces converge on the same outcome: a business growing in revenue terms while deteriorating in financial terms.

Pricing power is the accumulated result of brand positioning, product differentiation, and customer relationship quality. Brands that can raise prices without proportionate demand loss have built something that makes the product feel worth more than the market floor: perceived quality, identity alignment, community, and trust that make the purchase feel distinct from a commodity transaction.

The ecommerce brands that have demonstrated this capacity share a common financial characteristic: their gross margins are structurally higher than the category average, and that premium comes from a higher selling price that the market accepts, rather than from lower COGS. A brand with a 60 percent gross margin in a category where the average is 40 percent has built the conviction to charge more, and the customer accepts it. That 20-point margin premium represents the financial expression of pricing power, and it is the buffer that absorbs cost increases without destroying contribution margin.

Building that buffer requires treating brand investment as a financial discipline, not a marketing expense. The brands that have it did not arrive there through better creative or more sophisticated targeting. They arrived there by consistently delivering a product and experience that made the customer feel the price was fair, even when a cheaper alternative existed. That conviction, built over time, is what allows the price to move when costs require it to.

The brands that cannot raise prices are facing the financial consequence of a positioning problem that was deferred until the cost environment made it impossible to ignore. Structural forces compressing ecommerce margins do not wait for the brand to be ready. Brands that have built pricing power are positioned to survive rising costs without surrendering the margin structure that makes the business viable, and that buffer is what allows them to absorb the structural cost of returns without tipping into unprofitability. Operators who have navigated both pressures simultaneously, as the Bime Beauty revenue management case study documents, demonstrate what that financial discipline produces in practice.