Amazon is a competitive space for sellers. To have a competitive edge over others, your products must follow an effective Amazon pricing strategy.
This is because, on the surface level, it might look like just setting the right price for the best profit percentage is enough. However, getting the pricing right can also influence product visibility and overall account health.
In this article, we’re about to focus on Amazon’s pricing strategy and what all you need to know to get your pricing on point.
How Do Sellers Set Product Prices on Amazon?
Setting the correct price for your Amazon products must be an informed decision. Here are some points to consider while setting prices for your Amazon products.
STEP 1: Market Research
Market research provides detailed insights into the pricing landscape of all the products in a category. Only through market research can you develop effective pricing strategies that will help you acquire the right customers and eventually a massive portion of the market. Wherever you can identify pricing gaps you can introduce competitive prices.
STEP 2: Cost Calculation
Pricing should be calculated based on the cumulative expense. The cost of goods sold or COGS is a great place to start. However, we recommend you look at all expenses. Essentially, you will need to consider sourcing or manufacturing, packing, fulfillment, taxes, overhead, etc. Typically, this is known as the total cost per unit, upon which the profit margin is calculated.
STEP 3: Set Profit Margins
Understand your value proposition, target market, competitive edge, industry trends, marketing cost, USP, and market saturation. Then consider the units sold in a particular timeframe and maintaining a steady ROI, set profit percentages on each unit.
Net profit= Total revenue – Cumulative expenses
STEP 4: Choose a Pricing Strategy
There are many pricing strategies (which we will discuss in our following segments); you should choose one that aligns with your product philosophy and business goals.
Maybe if your product lacks reviews and ratings, you can sell it at a competitive price to encourage more people to try it. This will potentially gain you genuine repeat customers and also increase the chances of garnering more reviews to boost sales on Amazon.
STEP 5: Implement, Monitor, Adjust, and Repeat
Amazon pricing strategy is not a one-time process. It requires constant monitoring, adapting to new prices with changing scenarios, and thus maintains a profitable status.
Amazon’s Pricing Policies to Follow for Succesful Amazon Pricing Strategy
Revising Amazon’s Marketplace Fair Pricing Policy is important before developing an Amazon product pricing strategy.
Compliance with the Amazon guidelines will ensure the quality of Account health is maintained. Amazon keeps a close vigil over the prices on the platform. Unjustified price hikes, excess shipping, or prices that go higher than the rest in the category can lead to penalties and temporary or permanent suspension.
To check the performance of your Seller account, go to the Seller Center Dashboard and check under Account health status.
Principles of an Effective Amazon Pricing Strategy
In this segment, we are going to cover the most widely used Amazon pricing strategies for you to learn and implement.
1. Cost-Based Pricing
When you add production cost with a markup rate to quickly determine a selling price, you have applied a strategy widely known as Cost-based pricing.
It only involves careful calculation of all the production charges including levying a profit percentage over all the expenses. It works best for commodities where production cost is predictable and sales are driven by affordability and functionality.
2. Value-based pricing
Completely opposite of cost-based pricing, value-based pricing involves price setting completely based on perceived value. The focus here remains on how the target customers view a brand or a product and understand what they are ready to pay for it. So instead of focusing on production cost, what needs to be studied here is the segmentation of the target audience and the product’s value proposition. This Amazon pricing strategy is based on customer loyalty and is excellent for setting higher profit margins.
If your product comes with a impactful USP, you can try a value-based pricing strategy. You’ll not only justify the product price but also establish a dominant presence in the market based on the status created by the elevated pricing.
3. Dynamic Pricing
Fluctuating prices on Amazon are common. In fact, customers tend to keep an eye on products so that they can get the best price/deal.
So an Amazon pricing strategy that is adjusted and readjusted according to seasonal demands, competition, sporadic sales, and several other factors is called dynamic pricing. It is a common practice in beauty and skin care brands.
4. Competitive Pricing
Amazon competitive pricing is highly reactive pricing to your competitor’s pricing. Although staying profitable remains the focus, Amazon competitive pricing strategy primarily aims to capture the market offering the lowest prices yet maintaining the standards of quality.
This has an added benefit. Amazon competitive price rule, once implemented, also pushes your products to qualify for the Buy Box.
5. Penetration Pricing
To rapidly gain popularity in an established market, Amazon brands may offer a significantly lower price compared to the other products under the same category. This strategy to gain a foothold in the market by attracting people is known as penetration pricing in Amazon pricing strategy.
This strategy further helps a product rank higher among Amazon search results and gain the Buy Box.
6. Price Skimming
To maximize sales volume, although sellers start with a higher pricepoint it gradually decreases over time. This is typically to aim for different customer segments— the ones who are willing to pay an exclusive price point and also, the ones who are price sensitive.
If your products have a strong USP or are ideal for seasonal selling, price skimming can be the ideal strategy to start selling on Amazon.
7. Loss Leader Pricing
This Amazon pricing strategy aims to offer products at a minimal profit just to gain initial traction on the Amazon platform or to encourage people to check out the storefront where buyers are more likely to purchase multiple products.
So maybe you bait the customers with discounts on certain products, the rest remains undiscounted and can lead to good profit. Once you hit the perfect balance of risk and reward, consider your pricing strategy as a successful one.
8. Economy Pricing
The economy pricing strategy is quite straightforward. It keeps a minimal profit to gain the attention of price-sensitive customers. While it is difficult to stand out purely on the basis of price-point, it can potentially create price-wars in established markets.
Amazon businesses adapting to economy pricing strive to keep the operational cost lower to offer a lower price. Amazon low cost strategy aims for a high volume of sales to stay profitable.
9. Peak or “Surge” Pricing
As the name suggests, peak or “surge” pricing is the increase in selling price on Amazon as a result of demand. It can be due to sporadic high demands such as an increase in demand for umbrellas due to unexpected depression in weather.
Or the surge in candle prices during Christmas. It is an excellent chance to maximize profit potential and balance out the revenue for the rest of the year.
10. Bundle Pricing
Bundle pricing or bundling is a strategy where multiple related products are sold in a set that offers a price that is cumulatively lower than the price of all the products added. While product owners like you get a chance to push more products for sale, customers get to buy them together at a discounted price. This strategy is ideal for clearing excess last season stocks.
Essential Tips for an Amazon Pricing Strategy
To make sure your selling strategies are working out for your business strategies, make sure to go through the checklist. It is designed in a way to ensure your approach to selling is competitive as well as profitable.
Let’s take a look.
1. Different products, Different Strategies
Not all pricing strategies will suit every category or variation of product you’re offering. Strategies must be separated to make the best use of the market, competition, and demand.
2. Deeper Dive into Product Expenses
Developing a product and delivering it to customers’ doorstep requires several levels of expense like developing, storing, packaging, marketing, etc. Accurately keeping track of all of it is essential. Profit percentage must be calculated only after gathering the nitty gritty of all associated costs.
3. Setting Limits
Once you determine your profit percentage, set hard limits on fluctuating pricing strategies; this will make sure you don’t run into losses.
4. Look Around for Competition
Keep a regular track of prices to adjust them according to your pricing strategies. Leverage the Amazon price optimization tools to automatically track competitors and get a clearer view of the market trends.
5. Repricer Tools for the Win
Repricing services or Repricers are the ultimate marketing tools you need to automatically adjust prices according to real-time market fluctuations. Reputable PPC ad agencies such as SellerApp offer repricing services that go over the competitors’ prices and understand market demands addition to several other factors before developing an effective pricing strategies
6. Monitor Key Performance Metrics
Track performance metrics to evaluate your strategies. Amazon pricing strategies can directly impact ROI, conversion rates, and much more. There are key indicators from the data that give clear insights into the success of your pricing strategies and what all require updating.
7. Test and Experiment with Pricing Models
You may find yourself in a dilemma of pricing strategies. There may be multiple options that may be compatible with your products. So the best way to determine what must be implemented is to check its effectiveness via repeated A/B testing.
8. Focus on Winning the Buy Box
When you prioritize developing good Amazon pricing strategies, you also drastically increase your chances of winning the Buy Box, where the most competitive pricing wins. Once you win the Buy Box you are sure to gain the most attention from your target customers.
Final thoughts
Amazon pricing strategies enable you to help you to create listings on Amazon with competitive prices. But we understand finding the correct prices in a dynamic environment like Amazon’s can be hard to keep up with. When there are numerous sellers for one particular product category, needless to say, you will have to walk the extra mile to refine the pricing strategies, scrutinizing and updating them often.
To make sure your products and their prices resonate with the target audience, you can also collaborate with an Amazon Marketing Agency to improve pricing strategies. Credible Amazon Marketing Agencies in the market such as SellerApp have the resources to combine data-backed insights to understand which strategy results in the best sales. So, turn pricing modulation into a tool to capture more attention from buyers.
Author: Prateek S. is an experienced SEO Analyst and writer specializing in eCommerce with over two years of expertise. Currently at SellerApp, he excels in crafting clear and insightful content that breaks down complex eCommerce concepts, helping businesses optimize their online presence. His work reflects a deep understanding of the digital marketplace, providing practical guidance to those navigating this ever changing industry.
