May 13, 2022

Selling on Amazon: What Sellers Should Know About Amazon Pricing Strategies 

In this guide, we will go through different Amazon pricing strategies that you can choose to increase your conversion rates and sales on Amazon. 
Selling on Amazon: What Sellers Should Know About Amazon Pricing Strategies 
Selling on Amazon: What Sellers Should Know About Amazon Pricing Strategies 

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. 

Why is pricing on Amazon important?

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. 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. 

Your pricing is also one of the major factors Amazon considers in choosing the winner of the Buy Box. 

To set the right prices, it is important to choose the right pricing strategy. 

4 effective Amazon pricing strategies 

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. 

  1. Pricing Strategy 1: Amazon dynamic pricing/repricing
  2. Pricing Strategy 2: Cost-plus pricing 
  3. Pricing Strategy 3: Stable pricing 
  4. Pricing Strategy 4: Value-based pricing 

Pricing Strategy 1: Amazon dynamic pricing/repricing 

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 the 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: 

  • Manual repricing: You can adjust prices using your Amazon Seller Central or other ecommerce marketing platforms. This method will require that you constantly monitor competitor prices and adjust yours accordingly. It is a grueling and time-consuming method and will only be effective for small product catalogs. However, this approach is more hands-on and gives you complete control of the process. 
  • Automated rule-based pricing: This method is faster and more streamlined. It also eliminates the manual process of repricing. With this method, you can use repricing tools to set rules like the minimum and maximum prices. You can select the products and competition you want to track. The repricing tool will then automatically update your prices. You can use repricing tools like Xsellco and RepricerExpress
  • Algorithmic repricing: This is a more sophisticated form of automated repricing. It uses self-learning algorithms to reprice your product. Not only does it lower prices, but it also considers several factors including everything you need to win the Buy Box. With this tool, you can save time and maximize ROI. Algorithmic repricing tools are expensive and are best suited for professional sellers with a large inventory. 

Pricing Strategy 2: Cost-plus pricing 

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 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. 

Pricing Strategy 3: Stable pricing 

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 direct 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 holiday seasons when every retailer is expected to offer a discount. 

Pricing Strategy 4: Value-based pricing 

Value-based pricing strategy looks away from internal factors like costs and competitors and focuses on the customer. 

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: 

  • Storytelling: Creatively tell stories around your product value. Stories have a way of shaping perception. 
  • Conduct thorough market research to determine the best product price. 
  • Share user opinions about your product instead of constantly talking about the features of your product. This will increase customer trust and value for your product. 
  • Provide good customer service. For example, add “Thank You” notes to your packaging, attend to customer complaints and provide as much information on your product page. 

Winning the Amazon Buy Box

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: 

  • Provide enough product information, high-quality images, and relevant keywords in your product listing. 
  • Do a quality check to reduce product returns
  • Ensure your shipping time is as low as possible (at least within 14 days). 
  • Get positive product reviews from your customers
  • Fulfillment by Amazon is a fulfillment method where sellers ship products to Amazon fulfillment centers and Amazon ships them to customers. Using Amazon FBA boosts your probability of winning the Buy Box. 

Other types of Amazon pricing strategies 

Economy pricing strategy 

The Economy 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, little shipping costs, and small profit margins. 

Premium pricing strategy 

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. This strategy may work for reputable brands, however, sellers may end up offering discounts because Amazon consumers may still opt for products with low prices. 

Penetration pricing strategy 

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. 

Conclusion 

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. 

Enjoying our articles?

Subscribe to our newsletter to receive ePlaybooks insights directly in your inbox. Don't worry we will respect your inbox.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.