Are there any Amazon pricing strategies for sellers to achieve the best outcome on Amazon Marketplace?
We all know about Amazon – one of the most lucrative eCommerce platforms on Earth that every merchant craves to master. This article would love to show you some fantastic pricing strategies that you can quickly adapt to your business on Amazon Marketplace. Check it out now!
1. What is the Amazon Pricing Model?
Changing the price of the products frequently and constantly keeping it as low as possible – is what we can conclude about the Amazon Pricing Model. This algorithm will help Amazon not only retain potential customers but also encourage sellers to keep enhancing their products and boosting sales.
2. Way to calculate the price on Amazon
It is not a difficult task to price items on Amazon; however, before continuing reading, put in mind that price reductions will not always bring profits. The profit margin of your business can be easily calculated by the formula below:
((Sale – Total Expenses)/Revenue) x 100 = Profit Margin
This also means that you shouldn’t only take the cost of a product into consideration, but also consider your total expenses of other factors: Shipping fees, promotions or special sales, fulfilment method, low-price guarantees, reduction of shipping charges, and order-related expenses, to name a few.
As you can see, cutting your margins by lowering your prices does not continually improve your performance, which also leads to the reasons to understand and apply various pricing strategies on the Amazon marketplace.
3. Pricing tools that every seller should know
3.1 Amazon Pricing Calculator
The good news for merchants is that Amazon has a cost calculator for businesses to estimate their listing product prices. The only drawback of this tool is that it lacks the total prices we mentioned earlier.
3.2 Amazon Automate Pricing
If your prime strategy is to lower prices and eliminate some rivals, you can use Amazon Automate Pricing. Go to Seller Central, and you can set pricing rules that are the most suitable for your business objectives. Remember that this tool will attract more customers to visit your shop but hardly gain many profits.
3.3 Other Options
Maybe the two mentioned above tools will not give a general look or a business overview that you need. In this case, you can browse for third-party software to decide what products you need to restock, make changes to your prices and plan for other crucial decisions. Many sellers rely on this type of software to maximize profit margins because the functionality of these tools and algorithms goes beyond pricing.
Finally, don’t forget our last option: manual pricing. Yet, our recommendation is only to choose manual pricing when you are a highly experienced data researcher. Or else, you will waste your time checking your competitor’s price several times a day with tremendous efforts but poor results.
4. Amazon pricing strategies for sellers
4.1 Start with high price to attract buyers
It sounds illogical, but this pricing approach is also known as “skimming”. Vendors can introduce their products to the targets who are able to afford the high price they set; then time goes by, they can lower the cost to entice the following layers of the market.
Who can apply this strategy? – Every seller. However, this tactic can easily boost sales if you know how to prepare for competition in advance. Your merchandise is more unique than your rivals.
Apple is an obvious example of the skimming strategy. With a stable number of loyal customers – who believe the predictable expensive Apple products will match the higher quality they will bring. Apple can effortlessly launch their merch with high charging and then moderately reduce the price to suit their primary target.
4.2 Focus on customer demand
The common way to put this strategy in use is to collect feedback from previous customers and ask them price-related questions: Are you satisfied with the current price? Do you want us to lower or raise the charge? etc.
This is also a chance for you to upgrade your customer service and make your audience feel that you care and value their experience. The more you empathize with your customers’ opinions through pricing strategies, the more opportunities to approach the Buy Box.
4.3 Remain a stable price
This strategy is also called stability in pricing strategies when there is no inflation or deflation in your business. Suppose you only have one platform to launch your products like Amazon. In that case, you can apply this sustainable strategy and still gain customer trust. Customers will be comfortable visiting your shop without worrying that the price is going to be higher.
However, it doesn’t mean that you always have to keep your price stable. You can offer special deals when releasing new products or apply a product bundling strategy to sell more products at an affordable price for customers.
4.4 Create value-based pricing
When the prices of products are determined by what the customer is willing to pay is called value-based pricing strategies and will best suit private labels on Amazon. You can get started by connecting with customers through social media and share product-related stories so that customers can understand the value you bring.
This tactic also includes the Customer demand pricing strategies we mentioned above. Generating feedback; sending a “thank you” letter through emails or attaching it with the purchased products; sincerely apologizing and correcting mistakes after receiving a negative review. Those actions will be what you need to do to price products based on value.
4.5 Use brand name and offer high price
We can call this approach the prestige or premium pricing strategies. Just like the name is stated, your business will offer high prices and use the brand name in order to enhance your business status and make people believe your service is worth paying.
However, those sellers applying this tactic on Amazon often use discounts on high-end products to generate revenues. Technology and Fashion are the two categories that can easily boost sales through premium strategy: Louis Vuitton, Chanel, Hermès, L’Oréal Paris, for example.
4.6 Competitor-based pricing
Competitor-based pricing will use the competitor’s prices as a benchmark to compare and adjust the price of your products. You can charge your merchandise below or above, or even similar to your rivals’.
Once the shoppers see the resemblance between the two businesses, this means your chance to retain customers and provide something that your competitors don’t have has come.
Our advice is to approach your customers in a variety of ways rather than only matching prices. Competitor-based pricing strategies will work more effectively if you know how to differentiate yourself from other people and gain customer loyalty.
4.7 Lower price to gain market share
Cost reduction strategy, usually known as penetration pricing strategies, is wholly contrasted to the skimming tactic we have already discussed. Lowering your price for the same products as your competitors can attract attention from shoppers and give you closer to the Amazon Buy Box.
After your business objectives are reached, or after you achieve the Amazon Buy Box, you can be back to increase your price. That’s why this strategy is not lucrative in the long run and more suitable for pristine companies that hunt for new target audiences or companies that break into a competitive and existing market. Pay attention to the value you sell and rank price as second will be a tip for this pricing approach.
4.8 Psychological Pricing Strategy
Have you ever heard about the “9-digit effect” – when the price of $99 is nearly $100, but you still think it’s cheaper than $100? Or have you ever purchased two products to get another free one and felt like it’s a good bargain?
We’ve mentioned the examples of using psychological pricing strategies – tactics that focus on human psychology – to retain customers. What’s more, highlighting the font, size and colour of the price descriptions to be more attractive is also included in this strategy.
4.9 Apply dynamic pricing
Dynamic pricing is a strategy in which a readjustment is necessary for the price of one’s products when the change fluctuates in the market. Surge pricing, demand pricing or time-based pricing are also included in dynamic pricing strategies.
Basically, dynamic pricing is what we already discussed earlier: price lower and price higher than your competitors, keep boosting by stability, competitor-based pricing and demand pricing. Our advice is to be flexible and adaptable depending on the current situation.
4.10 Master The Buy Box
Last but not least, investing your time and effort on achieving the Amazon Buy Box is also one of the pricing strategies to be considered. However, in order to be the Buy Box winner consisting of many factors, not only the price of your products.
By mastering the Buy Box, you can acknowledge the strengths and weaknesses of your business, thus finding a better way to be successful on pricing items on Amazon.
In a nutshell, each Amazon pricing strategies has their own pros and cons to be taken into consideration. There are more tips to share, but we think those pocket tips below would be enough for you to have a basic insight into pricing strategies.
Choose the best ones that fit your business model and launch products in healthy competition with other merchants.