Selling on Amazon is a good deal, but you may stay at the bottom if you set your prices wrongly, don’t follow your account reviews, or simply provide your customers with a poor experience. Let’s discuss all Amazon pricing strategies!
The Amazon platform is evolving at lightning speed, hence the competition is growing.
Amazon itself is famous for regularly cutting prices, especially during the holidays.
Today we will take a look at how Amazon pricing works and the top strategies for managing your sales.
Amazon pricing strategies
Amazon pricing is very competitive. The price not only affects the chances of winning a Buy Box (find more about Buy Box here), but it is also one of the main factors influencing the final decision of the buyer, whether he should buy from you or choose another seller.
Amazon’s pricing model is based on keeping prices as low as possible. This means that the prices of goods can change many times, even within a single day. Keeping prices low stimulates their customer loyalty and ultimately leads Amazon to benefit from merchants competing for the Buy Box.
How do I estimate my product’s cost on Amazon?
Determining competitive pricing for Amazon products is not as easy as it may seem. Many marketplaces have the following logic: if sales are high, prices go up, and if sales are low, prices go down. However, Amazon’s algorithm is very complex, and cutting your bottom line by lowering prices doesn’t always improve your position on the platform. This is why it is imperative to understand the differences in pricing and pricing strategies.
There are two types of prices on Amazon: the item price and the total price.
The price of a product is only the value of the product. This is the price that buyers will see, minus shipping charges and any other factors that may affect the total price.
The total price or final price is the price with including the following:
– Transport and storage costs
– Discounts or sales/promotions
– Delivery
– Cancellation of shipping charges for an order or any other fees and charges associated with an order.
– Low price guarantees
Competitive product prices on Amazon is no an easy task. You should keep in mind all of the above factors when posting or re-evaluating your product on the platform.
A small change in anything from shipping costs to discounts can dramatically change your product’s rating on Amazon.
Your Amazon pricing strategy should be as simple as possible and customer-centric.
Your goal is to generate as many sales as possible, get positive feedback and reviews, and provide the best service to your customers.
Pricing tactics
According to the Business Dictionary, pricing tactics are defined as a short-term attempt to manipulate the price of a product or service to achieve a specific business goal.
Amazon’s pricing tactics aren’t much different from this precise definition. With Amazon, the goal is to get the most reputable and effective position to increase sales, that is, to get the Buy Box.
Amazon sellers must use a variety of tactics to rank first and increase sales. Many choose to adjust the price with discounts, while others change the shipping cost or type.
How to find the minimum price for your product on Amazon:
To be profitable, you need to know all your costs, take them all into account and then determine the minimum price you can set on your product.
The details are as follows:
– The cost of purchasing a product
– Transportation
– Customs
– Payment transaction
– Amazon fees (including FBA fees)
– Fee for possible returns
For any return, Amazon will deduct 20% of the original commission as a return fee.
– Variable overhead allocation costs
It is also necessary to consider the costs related to a specific category. For example, if you sell clothes, Amazon will charge you an FBA fee related to the cost of returning to the customer.
Re-pricing on Amazon
Many sellers are choosing to cut back on the competition, usually by $ 00.01 or £ 00.01, in order to get a better place in the market. Retention of competitors is called repricing.
Here are the main types of repricing:
Manual repricing
As a seller, you can manually change the price through Amazon Seller Central. This strategy will only work for sellers with a small number of products, as it takes a long time. However, it gives you a clearer picture of your own products and those of your competitors.
Amazon revaluation tools
To help with the competitive nature of pricing, revaluation tools such as Xsellco, RepricerExpress, and RepriceIt can be used to automatically downgrade competitors in a single listing. You can even set a minimum price to keep the system from dropping below a profitable level.
Revaluation tools work as follows:
Revaluation based on rules set by the seller himself
An example of a rule would be a £ 0.01 cut. Again, it can take a little time to set up a seller.
Algorithmic reassessment
This type of tool is by far the most advanced. It is an algorithm-driven tool that weighs a series of metrics to determine the best possible price for your item with the best ROI. It takes into account everything necessary for the seller to win the Buy Box.
How does Amazon track price drops?
There are many tools out there to help you track Amazon re-pricing, but how does Amazon keep track of prices on its own?
Amazon has a built-in algorithm that recognizes any price change. It is this algorithm that allows Amazon to dynamically and quickly adjust product ratings so that their own competitors cannot keep up.
Now let’s move on to the most important thing!
4 types of Amazon pricing strategy
When it comes to pricing on Amazon, there are 4 main types of strategy. Since Amazon doesn’t always hand over the box to buy to the cheapest seller, there is a lot to play for.
4 strategies you can use when selling on Amazon:
Economy
The economy is a strategy that is widely used by small margins with low advertising costs. Its goal is to make the product available in a large market. As a rule, the price for delivery will be minimal or free. This is a useful strategy for products that meet people’s daily needs, such as detergents.
Premium
The premium strategy takes an opposite approach to the economy strategy. Usually, in this case, we have a high price, and often sellers use the brand name as an additional interest in the product.
This strategy tends to be most beneficial for reputable brands in their sector like Gillette or Lynx / Ax.
Skimming
Skimming strategy takes an adaptable approach to pricing strategy. Using this strategy, an Amazon seller will often start with a higher price before competitors can match it. At this point, the price will be reduced to stay competitive. This type of strategy is ideal for merchants who have a unique product. This is because the strategy aims to maximize profits in the short term before they face the competition.
Examples of brands using this strategy are Sony and Microsoft, which often charge higher prices for their game consoles (PlayStation and Xbox) at launch. They then lower the price with the sale before lowering it to the top-selling price.
Penetration
Penetration is a strategy when you set prices lower than your competitors to gain share in the market. This strategy is usually used by new brands or existing brands launching new products. This strategy is not profitable in the long run. However, it can help you get a Buy Box in the short term and then generate interest in your specific product through brand loyalty.
Remember that Amazon’s algorithms work in such a way that the Buy Box does not hold to be provided the cheapest product. Therefore, this strategy tends to work better for the more unique products on the platform.
An example of this is vegan products, which tend to be more expensive and have no global competition yet.
Don’t be afraid to go wrong!
It will take a lot of trial and error to determine the price of your item and your Amazon pricing strategy.
Be sure to consider the various strategies mentioned above and find one that works for your products, brand, and business in general.
By choosing the right strategy, success will always be by your side!
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