Amazon Pricing Strategy – Analysis and Improvement
Remember the time when you bought that overpriced item you found on page 17 of the Amazon search results? Correct, me neither. That’s because no one likes overpaying and even fewer people ever get past page one. If you want to sell successfully on Amazon, you will need your products to stand out from the rest. The best way to manage this is by winning the Buy Box as much as possible. This is why your Amazon pricing strategy needs to be on point.
When making a purchasing decision, the price is one of the main factors your customers – quite literally – take into account. It is also a known fact that the final price, so the product price plus the shipping cost, is the most important metric when it comes to winning the Buy Box. What is the perfect price though? What factors do you have to take into account? How important is repricing on Amazon? Let’s have a look.
Amazon Pricing Strategy – The Essentials
Like with any pricing strategy, there are certain elements that you have to consider. Moreover, you will also have to take the conditions of your Amazon marketplace into account when you’re constructing your strategy.
Profitability and Profit Maximization
First off, you will have to determine the lowest price at which you can sell without losing money (profitability), and the highest price at which you can sell (profit maximization).
When it comes to profitability, take into consideration all Amazon specific product acquisition costs. These include Amazon’s commission, shipping costs, return fees, possibly customs, and Amazon product-specific fees. If you sell over Amazon FBA, you will naturally also have to pay FBA fees to Amazon on top of all the aforementioned cost items. To make things easier for sellers, Amazon has a pricing calculator that shows you how much it costs to sell on the online giant’s platform.
But also keep in mind that being a business owner will bring other costs as well. Think about taxes, employees, and many more. Try to keep all your costs as low as possible without losing on quality.
Click here if you want to find out more about Amazon FBA.
Profit maximization, so selling at the highest possible price, is a topic for itself on Amazon. Your pricing strategy should of course aim for profit maximization at all times. However, overpricing your products will not only scare off customers but also lead to a decline of your final price metric, which – in a worst case scenario – will make you lose the Buy Box. So how do we aim for profit maximization while still remaining visible to potential customers?
Check Your Competitor’s Prices
Whether you do it manually or with an Amazon pricing software, keeping an eye on the competition is paramount when it comes to your strategy. Once you have determined the median price at which your competitors are selling, you can start maximizing your profit.
As a general rule of thumb, you can be 15% – 20% more expensive than your competitors and still remain in the Buy Box. That is of course if your other metrics like delivery time or return rate are strong enough to carry the decline of your final price metric.
It also makes sense to have a look at the Amazon pricing history of the competition’s products that are similar to the ones you sell. This way, you can analyze at what times the product prices rise and fall due to trends or general buyer behaviour and how seasonal sales affect the product.
If you are looking for an Amazon pricing tool to support you with your strategy, check out this article we wrote on how to find the best Amazon price tracker.
Amazon Price Matching
“Does Amazon price match?” is a question we often see in forums and social media groups. Price matching is when a company offers to match the price of a cheaper selling competitor, should the customer find one. For customers, this is an important question because they know that they will always be getting a good deal, possibly the best. For sellers, this means that they will be selling in a very competitive environment.
To answer the question: No, Amazon doesn’t offer price matching. However, this is not necessarily bad news for buyers. Why is that? The prices on Amazon are competitive from the outset and the services you receive in terms of delivery and return policy are unmatched and more than make up for a few euros you may be able to save at a different site.
Maximizing Your Profits – A Seller Scenario
Let’s play out a little scenario. You are selling a cool product on Amazon, your pricing strategy and your metrics have been great so far. As a result, you have a high Buy Box share and a corresponding sales increase. Life is good.
Now it’s time to start maximizing your profits. Rather than increasing your price by 20% directly – and thereby endangering your Buy Box position – you manually reprice your products by several cents every few hours, keeping a close eye on your Buy Box status, your competitor’s prices and other marketplace conditions. A couple of days later, you arrive at your targeted 20% price increase. Life is better.
Selling on Amazon with a Repricer
Software is the solution to many tedious tasks. We’re not saying that manual repricing does not have its advantages, especially when you like to keep a tight ship and prefer to not have your pricing strategy diluted by AI. However, as the example above shows, manual repricing can consume a lot of time. This is because many products on Amazon undergo a price change every few minutes. The time you spend manually on your Amazon pricing tactics could be more wisely invested elsewhere.
This is where tool-based repricing comes in. There are two ways to go here: static and dynamic.
Static or rule-based repricing means that you use software for your Amazon pricing strategy which identifies the price needed to win the Buy Box and then automatically adjusts your product prices to that amount.
The advantage of static repricing on Amazon is that you will win the Buy Box more often than before and therefore be able to sell more items. In addition, you no longer have to spend many hours a day manually adjusting your prices to keep up with the competition, but let the repricer do the work instead. This now leaves you with much more time to do other things.
Regarding the costs: Amazon offers a repricer tool for sellers and they do so at no charge. But where’s the catch? Even though the Amazon repricer is free, the rule-based algorithm holds a few disadvantages.
Due to the enhanced Amazon pricing strategy and your increased Buy Box share, you may now be selling more products than ever before – but at what price? The Amazon repricer reviews the prices of your competition and then applies a single formula: Underbid the competition at all costs. The results are fierce price wars between the sellers. While this is good news for the customers, there is no winner in these price wars from a merchant’s perspective.
When you sell professionally on Amazon, a dynamic pricing strategy might be just the right thing to help your business gain momentum. Much like the Amazon repricing tool we mentioned above, a dynamic repricer for Amazon determines the price you need for the Buy Box. It sets your prices to this amount, but then gradually increases your prices to the highest possible amount you can charge without losing the Buy Box.
The advantage with this form of pricing is that you are in the Buy Box more often while selling at the highest possible price.
Selling on Amazon with a repricer tool does not necessarily mean that the merchant has to give up control over the pricing strategy. You are always free to continue with your Amazon pricing strategy analysis and adjust the dynamic repricer according to your findings. This may even lead to better results than just letting the repricer do its thing. However, most merchants simply tend to do just that (let the repricer handle things) because it is the most convenient solution.
In a Nutshell
Your Amazon pricing strategy is your driver to more sales and a more successful business in general. If you take a couple of factors into account when filing out your strategy, you will be maximizing your profits in no time.
Check on your competitors regularly, keep your overhead as low as possible by constantly optimizing the product acquisition cost specific to Amazon and stay on the lookout for seasonal trends and business methods that will allow you to retain that edge you have over your fellow sellers.
Consider using a repricer that is custom-tailored to your needs. This way, you will be able to save time and money, whilst making profit at the same time.
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