Amazon Pricing Strategy

What Are You Going to Read About in Our Article on Amazon Pricing Strategy?

  1. What Is an Amazon Pricing Strategy and When We Should Start Thinking About It? 2. Pricing tactics definition 3. How to Calculate Prices for Products? 4. How to Win Buy Box on Amazon? 5. Price Settings vs Product Demand 6. Amazon Automated Pricing 7. Conclusions

What Is an Amazon Pricing Strategy, and When Should We Start Thinking About It?

  A well-considered Amazon pricing strategy should be consistent with our company’s business objectives.  It should begin the moment you purchase the products. Pricing has a significant impact on the company’s position in the market, so pricing strategies will directly contribute to the market objectives of our business. To develop an effective pricing policy, we must ask ourselves several basic questions:

• What financial targets do I need to achieve to fulfil my plans?
• Do I maintain the correct margin level?
• Is increasing the number of orders my priority?
• Do I plan to expand my product portfolio?
• Do I need to sell off older stock to avoid long-term storage charges?

If you have answered the questions above, the next step is to determine your margins and acknowledge all the costs associated with each product you sell, from production to delivery.  If a product has a limited shelf life due to its seasonality or category (e.g., food or beauty products), be sure to take this into account. And do not forget to have a plan for transferring surplus stock and being able to estimate any losses. Those are a must-have. There are several reasons why price setting is so important:

1. It helps you stay competitive because Amazon’s pricing model favours the most competitive prices (and aligning with your competitors’ prices is crucial to stay one step ahead of them).
2. It attracts potential buyers because they usually search for the best deal possible.
3. It helps to generate revenue because a well-thought-out strategy will help to increase profits, and these will enable you to develop your business.

Learn more about selling on Amazon.

Pricing Tactics Definition

  Pricing tactics are a strategy used to manipulate the price of products to achieve a specific business goal. There are several Amazon pricing tactics available. The goals and tasks set up earlier will help you to select the best tactic for your business. To the most common tactics belong:

•  Competitor-based pricing: determining prices based on the analysis of competitor prices.
•  Product valuation based on the cost of goods plus margins.
•  Valuation based on the perceived value of the product.  It is a common tactic used by luxury brands, as it allows them to charge   premium prices for their products.

How to Calculate Prices for Products?

  Pricing considers various factors, such as the cost of goods, shipping costs, and active competition.  The price of a product should be both cost-effective and competitive. For this, you can look at the profit margin, which can be calculated using the following formula: It is important to remember that every sale is supposed to make us a profit. As such, make sure that you have included all the costs in the calculation. Another important consideration is to set a dedicated product price for the particular market in which you want to be an active seller. The strategy of Amazon pricing model is to keep the prices as low as possible for the buyers. This means that product prices can change multiple times in a single day. Amazon chose this model because low pricing positively affects customer loyalty. But most importantly, it is beneficial for Amazon because sellers compete for the Buy Box. For shoppers, it is a kind of “Holy Grail”, where they can quickly add an item to their basket and finalise their purchase.   The same product can be offered on sale by several sellers, who can compete for the Buy Box.   Also, bear in mind that the offer with the Buy Box is displayed first on mobile devices. We can see the notification on other sellers only later.

How to win Amazon Buy Box?

  With the use of an algorithm, Amazon determines which seller is best suited to win the BB. The outcome of the game depends on many factors. To them belong:

• fulfilment method,
• price,
• return rate,
• ODR Account Health rate,
• response time to messages,
• stock availability,
• shipping lead time,
• feedback.

Having a professional seller account also gives us access to additional features and benefits that will help us win the Buy Box. For instance, Amazon allows you to offer vouchers and discounts (percentage or amount) on the products you offer. This is often the best solution to use (together with an advertising campaign) to drive traffic to your listings. An offer that includes a voucher or discount can stand out from the competition in a general search. Of course, you should always be careful not to use below-cost pricing when discounting.

Pricing Strategy vs Product Demand

  In the case of pricing strategies, the law of supply and demand is the basic economic principle affecting price changes. When demand for a product exceeds the supply, prices will rise. Conversely, prices will fall when the supply is higher. If you see that there is a demand for the product you are selling, but there isn’t much of it, you can raise the price.  But if you see that there is more supply than demand, lowering prices may attract more buyers.

The Dangers of Too Low or Too High Pricing

  However, bear in mind that you cannot set too high or too low prices.  If you price the product too low, you will not only reduce your profits or even sell your product below cost. The practice may even make your customers think that your product is of poor quality. However, price reduction may be helpful if you want to sell out the stock quickly to free up space for a new one. Plus, you will also avoid additional storage charges in this way. Moreover, increased sales provide more opportunities for product reviews. The same applies to raising prices.  You can use price increases to improve the perceived value of a product.  If the item is a luxury item, a price increase can help convey the message. Amazon monitors the prices of its own and other marketplaces, same with shipping costs.  If Amazon deems the pricing practices to have a negative impact on consumer trust, there can be consequences. As a result, you can experience the loss of BB, suspension of shipping options, or removal of the listing. The ultimate consequence can be even suspension/termination of your selling rights.

Why Is It Important to Establish a Minimum Price?

  We all know that there may be times when we are so keen to beat the competition that the minimum price might save us from losses and selling below cost. Furthermore, a minimum price protects us from selling our goods at a lower price than initially predicted.  All things considered, it is vital to figure out and calculate the minimum prices for each product to implement an effective pricing strategy.

Amazon Automated Pricing

  If our product portfolio is very broad, and yet we want to have full control over product prices in relation to the competition, we can use repricers. Repricers are supporting tools that enable a dynamic data-driven strategy.  We can use the amazon repricer, or an external tool into which you enter Amazon Seller ID during configuration.  Subsequently, the tool can import information from Amazon. It will sync with our products via Amazon integration and make adjustments automatically. As such, it will be ‘working’ 24/7 according to the rules we set in advance.

Conclusions

  To sum up—if you want to achieve success on Amazon, you must find a pricing strategy that will work best for your company.  In addition, you should always take alternative solutions into account before you make the final decision. Do not stick to one chosen tactic. Remember—what works today may not be effective tomorrow. Amazon is a highly dynamic environment that you must keep under control if you want to achieve your pre-determined objectives. Do you need support? Contact us, and we will analyse your current strategy and help you to optimise it!