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You’ve probably already considered selling on Amazon but its way easier than you think.
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The Amazon marketplace has become a household name in several countries. Many consumers think of Amazon as synonymous with online shopping.
Thanks to its large customer base, sophisticated features, and well-structured pricing models, many sellers can increase Amazon sales and grow revenue rapidly.
One important factor you need to consider when selling on Amazon is the pricing of your product. Your pricing can impact your sales and profit margin.
But how can you find the best Amazon pricing strategy for your business?
In this guide, we will go through different Amazon pricing strategies that you can choose to increase your conversion rates and sales on Amazon.
When you first launch your product and you are trying to figure out how to sell on Amazon effectively, you may consider factors like the size of your product, features, benefits, and packaging.
But one important factor you need to spend time considering is the price of your product. Pricing affects your credibility on the Amazon marketplace. When customers search for a product, they look out for the pricing among other factors. Customers want to get high-quality products at the most affordable prices.
With this in mind, how much you charge for your product is crucial to your success. Pricing plays a significant role in how customers perceive the value of your products. If you price too high, you may have a bunch of stock collecting dust. Price your product too low and run the risk of getting an unfavorable profit margin. The secret is to find a spot between these two extremes. You want to make sure you price competitively so you don't end up losing money on each product or losing your customers to your competitors. A competitive and fair pricing strategy can enhance customer perception, leading to increased sales.
Also, Amazon's algorithm for winning the Buy Box, which is the quickest and easiest way for a customer to purchase, considers pricing as one of the primary factors. Even if your price is slightly higher than competitors, if your seller performance is better and you offer good customer care, you may still win the Buy Box.
However, to set the right prices, it is important to choose the right pricing strategy.
Now that we understand the importance of pricing products effectively on the Amazon marketplace, let's look at some effective Amazon pricing strategies to help you increase Amazon sales.
Online shoppers compare product prices before purchasing a product on Amazon. In fact, various tools are available to help consumers compare and choose. This development makes the pricing game on Amazon all the more complex and dynamic.
To help sellers stay competitive, Amazon uses a dynamic pricing or repricing strategy.
With this strategy, product prices on Amazon don't remain constant. They keep changing depending on several factors including competitor prices, market trends, factors affecting demand and supply, and so on.
Prices can change multiple times in one day depending on any of the factors. Every two minutes, Amazon reviews the prices of millions of products.
Consumers have a large number of sellers to compare and choose from. The chances of a consumer buying an item priced higher than others are next to zero. Dynamic pricing or repricing is a strategy that helps sellers be in the best position to offer the best prices that win new customers over.
In simpler terms, dynamic pricing is a strategy that adjusts prices to undercut your competition.
There are three ways you can employ this strategy to reprice your product on Amazon FBA:
Cost-plus pricing is a basic pricing strategy that involves selling something more than it costs. This strategy is effective if you are just starting out. The key is to know your Break-even ACoS (Advertising Cost of Sale). This will help you know what your Cost-plus basis will be. This strategy ensures a consistent rate of return by accurately summing up the production and operational overhead costs and adding a markup. This guarantees that every unit sold provides the same revenue to cover costs, plus a profit margin. It is simple to use and works well if you are just launching a new product and trying to gain some market insights. However, in the long run, this strategy may get difficult to use as you may not know all your cost variables e.g. advertising costs.
The Stable pricing strategy is best for brands that sell on multiple platforms. If you sell on channels like Amazon, your website, and other eCommerce platforms, price stability is important to maintain consistency and credibility.
Customers value products with prices that are not too unstable. Also, keeping your prices stable and close to the market value will help you sell directly to consumers at a higher price.
When it comes to selling on Amazon using the Stable pricing strategy, it may be relatively difficult to keep up due to constant fluctuations in prices. You will need monitoring and analytical tools to identify viable stable prices.
You will also need to pay attention to your prices during the holiday season when every retailer is expected to offer a discount.
Value-based pricing strategy looks away from internal factors like costs and competitors and focuses on the customer. The strategy is particularly effective for products that possess a high level of perceived value, such as luxury goods, unique items, or services that offer significant value to customers
This type of pricing strategy is best suited for private label sellers and works well if you aren't competing with resellers. You can differentiate yourself and get customers to purchase your product based on the value they are willing to pay and not on the lowest shopping price.
Here's how you can get customers to pay for your product based on perceived value:
Here are a few best practices for pricing that can help you attract customers, stay competitive, and maximize your profits:
The end goal for most Amazon sellers is to win the Buy Box. The Buy Box will be shown on individual product pages for a particular product category. Customers can find the winner of the Buy Box within the product page which then leads them to buy the product.
Sellers can compete for the Buy Box and winning it is based on several factors.
Apart from low prices, Amazon considers factors like fulfillment method, refund rate, stock availability, order defect rate, seller response time, shipping time, and reviews.
To improve your chances of winning, you can employ the following tactics:
The Economy pricing strategy is useful for products that meet everyday needs. This strategy aims to make products available to a huge market. It makes use of low advertising costs, low shipping costs, and small profit margins. Economy pricing can be particularly effective for new businesses looking to establish a competitive market presence with low production and marketing costs. Also, in markets where customers are highly price-sensitive, economy pricing can help attract a larger customer base and increase sales volume.
The Premium pricing strategy goes the exact opposite of the Economy strategy. If you are selling a premium product or you are attached to an established brand, you can use the premium pricing strategy where you charge higher. Premium pricing is suitable for products or services that offer significant value, either in terms of functionality, quality or the experience they provide. The product must justify the premium price. This strategy may work for reputable brands on the Amazon marketplace, however, sellers may end up offering discounts because Amazon consumers may still opt for products with low prices.
Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price initially. If you are just starting with new products and want to penetrate the market, you can use this pricing strategy.
With the penetration strategy, sellers first sell at lower prices that go below their profit margins to climb up search results. Once sellers get a good customer base, they increase their prices.
Keep in mind that penetration pricing is most effective when the product is perceived as a new idea or when there is high competition. It may not be as effective in markets where the product is well-established or where there is less competition.
With the right pricing strategy, you can attract the right customers to your product page, win the Buy Box, and increase Amazon sales.
Consider the various pricing strategies mentioned above and choose which is best for your product and overall business.
You’ve probably already considered selling on Amazon but its way easier than you think.
Call Us Now