An effective pricing strategy is essential for sellers wanting to maximize profit margin, grow an Amazon business, and outlast the competition. By understanding how changes on the platform affect buying decisions, customer value judgments, and price trends among similar products in relevant categories, Amazon sellers can establish a winning position that drives sales without sacrificing margins.
In addition to the positive impacts a successful Amazon pricing strategy can have on a company’s retailers and customers, there are also substantial benefits for the brand. A plan to prioritize margins and protect retailers from price wars gives Amazon sellers a solid foundation for growth. But it starts by understanding the fundamentals common to any successful Amazon pricing strategy.
Finding the optimal price for Amazon
Amazon’s pricing model is constantly evolving and requires constant attention and understanding. Prices on Amazon can change frequently for various reasons, such as competition, different pricing strategies, customer behavior, demand, and supply chain issues. Understanding these factors and adapting accordingly is crucial for businesses looking to succeed in the world’s largest e-commerce marketplace.
Start by identifying and implementing a pricing policy that matches your goals. Every brand looking to succeed on Amazon should take a deliberate approach to price. As e-commerce continues its rapid growth, pricing policies will become more critical for retailers and manufacturers. Online sales will likely continue their growth trend while consolidating among the largest online retailers, including Amazon. As this happens, the desire of smaller resellers to compete with industry leaders is more likely to lead to destructive price wars for products that aren’t backed by effective Amazon pricing strategies.
A transparent pricing policy can help companies create mutually-beneficial relationships with retailers and shoppers. Resellers will appreciate the support from the brand that protects their margins. At the same time, consumers will enjoy more confidence in the value of a product and a less frustrating shopping experience due to the consistency across both e-commerce and brick-and-mortar stores.
While Minimum Advertised Price (MAP) may not be top of mind for brands, particularly new ones, it’s a strategy worth exploring. True to the name, MAP is the minimum price a retailer can advertise for a product they sell. The MAP is set by the brand and should include a margin allowing retailers to profit reasonably. It applies to any retailer who carries the item and is intended to level the competition among sellers and avoid price wars. It differs from the more familiar Manufacturer’s Suggested Retail Price or MSRP, which refers to the product price a manufacturer considers appropriate but does not create any restrictions on the advertised price.
Consider Amazon’s automated pricing tools
The next step after creating a MAP or setting the MSRP is one that many merchants may overlook. But, utilized correctly, Amazon’s automated pricing service can free up time for other responsibilities and give sellers an all-important edge against the competition.
Amazon’s dynamic pricing system relies on rules customized by an Amazon seller to automate pricing adjustments on designated SKUs in response to specific events. For example, this could include creating a repricing rule to lower the price of a product when the Buy Box win percentage for that item drops below a certain threshold or when another seller implements a price change for the same item.
While the automated pricing tool may sound like it takes control out of the hands of a seller, it is entirely dependent on the parameters you set. The dynamic pricing strategy is designed to save you the time and hassle of manually monitoring every aspect of a product’s status or competition and avoid delays in responding to changing circumstances. Automated pricing only applies to selected SKUs rather than a seller’s entire catalog, and the system can be started or stopped at any time. Sellers using the system can set minimum and maximum prices and other optional boundaries to keep any adjustments within their pricing strategy rather than simply aiming for a low price.
Clearly, winning the Amazon Buy Box is the goal for competing retailers, but automated repricing can also play a role in growing sales for brands that are the exclusive seller of their products on the platform. In addition to creating rules designed to win the Featured Offer, it’s also possible to create an automated pricing structure that helps retailers manage inventory or find the right price for a new product. You can accomplish this by designating how many units you hope to sell during a set time frame and letting the system reprice accordingly.
Monitor competitor prices across multiple markets
As a business owner, keeping a watchful eye on your competitors’ prices is crucial to ensure that you stay competitive within your market. However, monitoring competitor prices across multiple markets can be a daunting task. An e-commerce site such as Amazon is certainly no exception. However, using the most relevant search terms can help you identify competing brands and products, evaluate pricing strategies, compare reviews, and spot ways to differentiate your product listings.
One of the most significant benefits of monitoring your competitor’s pricing is keeping track of the price changes of a similar product. When sellers gain insights into why prices fluctuate, they can determine if a trend is occurring or if an item’s demand is indeed increasing or decreasing. This helps businesses adjust their pricing accordingly to remain competitive in the market.
Monitoring your competitor’s pricing also helps businesses acquire more brand visibility and improve organic reach. In addition, keeping your pricing competitive with alternatives increases the chances of your product appearing at the top of the search results increase. Consistently monitoring and adjusting pricing can, therefore, set your business apart from the rest of the competition.
In this era of data, it’s hard to overstate the value of insights from customer-based market research. By tracking your competitor’s pricing and using the Amazon Seller Central data tools, you can acquire almost real-time information on your target audience’s preferences and the state of the market demand so you can adjust your pricing strategy accordingly.
Of course, timing is also critical. You must maintain the resources and discipline to monitor Amazon pricing nearly daily. This will ensure you remain ahead of your competition and can determine market trends and preferences in a timely fashion.
Create discounts or unique bundles to appeal to customers
With thousands of sellers vying for the same customer base, success is all about standing out from the crowd. That’s why savvy Amazon sellers often turn to discounts or product bundling to appeal to their target audiences. Offering unique bundles or a temporary sale price can be a great way to set yourself apart from the competition. These special offers grab a customer’s attention and show that you are offering something different from other sellers.
That’s because Amazon shoppers care about value. One of the reasons the site has become so popular with customers is the simplicity it brings to comparison shopping. A lower price can immediately intrigue shoppers who might not consider purchasing a full-price product. Similarly, bundling multiple products at a discounted price can entice potential customers to buy more products from your company.
In addition, offering unique product bundles can help increase your product’s visibility on Amazon. With the right SEO strategy, your bundled products can appear in broader search results and with less competition than the individual products might face. Additionally, bundles are an excellent way to introduce customers to complementary products that they might not otherwise have found. It’s a smart strategy that can give you an edge over competitors offering only individual products.
These value-added strategies can also go a long way toward developing customer loyalty. If customers are happy with the price perception and resulting value from your special offer, they will likely return to your store and make future purchases. Loyal customers are also more likely to leave positive reviews that are vitally important for e-commerce businesses, particularly on Amazon.
Prepare for fluctuations in demand
As an Amazon seller, one of the most significant challenges you face is fluctuating customer demand. Unprepared companies can face sales that plummet without warning, leaving them puzzled and scratching their heads in confusion. However, the most successful Amazon businesses understand the factors driving demand and can monitor them closely to prepare for shifts in either direction.
For example, if the economy is doing well, people tend to have higher disposable income, resulting in increased demand for non-essential products. Conversely, during a downturn in the economy, people tend to cut down on their discretionary spending, resulting in lower demand for products. Therefore, as an e-commerce seller, keeping a close eye on economic indicators and adjusting supply and demand accordingly is essential.
Seasonality is another significant factor that affects customer demand. For example, clothing retailers experience peak demand during the holiday season and other major events like Black Friday and Cyber Monday. Virtually all e-commerce sellers account for these types of seasonal changes, as well as any specific to their industry or category, and can tailor their marketing strategy, inventory, and pricing strategies accordingly.
As mentioned, competition in the Amazon marketplace can be fierce and greatly influences customer demand. If a competitor launches a new product or sells the same product at a lower price, customers will likely switch to a cheaper alternative, resulting in a sudden decrease in demand for your product. Therefore, it is essential to stay competitive in terms of pricing and prioritize the importance of monitoring competition to avoid losing market share unexpectedly.
Of course, product quality and reputation are critical factors that affect customer demand. If customers feel that a product is of poor quality or has a negative reputation, they are less likely to buy it, resulting in a significant decrease in demand. Conversely, if a product has a good reputation for quality and customer service, customer demand will likely remain steady or increase.
Finally, marketing and advertising play a prominent role in driving customer demand. Effective marketing campaigns increase brand awareness and can lead to increased demand for products, while ineffective or non-existent marketing campaigns can result in low customer awareness and demand. Investments in marketing and advertising campaigns should be accompanied by inventory and pricing strategies that support those efforts. A promotional push that pushes shoppers to out-of-stock inventory or overpriced products is a huge but all-too-common mistake in e-commerce.
Win with Amify
Amazon pricing strategy analysis is a big job. And balancing those demands with your other responsibilities can quickly become overwhelming. Fortunately, there are ways to lighten the load without risking your brand’s value.
Amify has an experienced team ready to guide you through any aspect of growing your Amazon business. We can be a full-service partner that gets results. Contact us to schedule a consultation that puts the proven capabilities of our team to work for your company.