A Definitive 2021 Guide to Amazon Pricing Strategies
As a seller, there’s no surprise that your goal is to maximize the number of sales you make in a day. Selling on Amazon gives individuals and businesses the opportunity to sell their products and inventory via the online retail shopping service. Amazon was able to generate an estimated revenue of 108.5 billion US dollars in the first quarter of 2021, surging 44% annually. The coronavirus pandemic has helped create Amazon, the third-largest company in the nation.
A customer’s decision to purchase a product is influenced greatly by where the product ranks in the keyword search results, the quality of the images and information given on the listing feature, the shipping speed, and most importantly, the price of the product. For this reason, it’s crucial that a pricing strategy must be followed on Amazon. The idea is to be competitive amongst the products within the search category.
When overpriced, the product is likely to turn off a few customers because who would want to save the extra buck in the name of affordability. However, if you quoted a price too little for your product, you’d be a downer to your profit margin as your potential audience may doubt your product quality. Additionally, you might just have to face the music from competitors. So, the question of the hour is: how do you hit it off right with a reasonable price tag for your product each time?
There are a number of factors you must consider when designing your pricing strategy — from the quality of the product, investment for manufacturing, cost of production to consumer demand, and prices quoted by the competitors selling more or less of the same product. Here’s a guide to help you understand how you must go about product pricing on Amazon in 2021:
Table of Contents
- 1 The Need for a Pricing Strategy
- 2 The Cost of Product Acquisition on Amazon
- 3 Understanding the Profit Margin
- 4 Practice Competitive Pricing
- 5 Differentiate the Product
- 6 Run the A/B Test
- 7 Aim to Go above Amazon’s Free Shipping Minimum
- 8 Charm or Psychological Pricing
- 9 A Business Price Set Up
- 10 Discounts over Coupons
- 11 Why Not Use Amazon’s pricing Tools?
- 12 The Right Pricing Tool
The Need for a Pricing Strategy
Understanding the Amazon marketplace is crucial when advertising your product. You must be keen on customer demands and how sellers are meeting those demands. COVID-19 has changed the look and feel of shopping as more people have accelerated toward online purchases. Companies are rapidly transforming to meet the digital needs of consumers because they’re selling around the clock.
2020’s Black Friday was able to generate $9 billion in online sales, and it only continues to get better for e-commerce hereon. Global e-commerce sales may hit the $4.2 trillion benchmark in 2021, with almost one-quarter of the consumers residing in the United States.
The Cost of Product Acquisition on Amazon
There are a number of things that fall into determining the total cost of operations on Amazon, ranging from shipping, customs, payment wiring, Amazon’s commission, Amazon’s FBA fees, customer return fees (Amazon charges 20 percent of the original commission in case of a return), variable overhead allocation costs, and your returns fees (disposal, product write off-price or even return shipping). Hereon, your goal is to deal in volumes, not dollars.
Therefore, in order to thrive in this jungle, you must be equipped with these tips for pricing your product on Amazon:
Understanding the Profit Margin
It’s always a happy feeling to watch the revenue roll in, especially when there’s a healthy gap between the total revenue and the amount invested for manufacturing, advertising, and shipping the product to the customer. For this reason, you must be well aware of your profit margin. To avoid losing precious time and money on the volume of sales, calculate the profit margin during the early research phase, using this formula:
Profit Margin = [(Sales – Total Coverage Expense) / Revenue] *100
A rough estimate of the profit margin can be made using the “Rule of Three” – 1/3rd for fees, 1/3rd in landing costs (including shipping charges), and 1/3rd as the profit. So the total profit, divided by the sale price of the product, multiplied by 100, will also give you the profit margin.
An ideal profit margin for private label products on Amazon ranges between 25 to 30 percent. Not only does this offer great profitability, but you could also invest in advertising to further optimize your product campaigns via Search Engine Optimization. On the other hand, if you’re a third-party seller (i.e., sourcing a product from another seller), you’ll need to weigh in the landed cost, inbound shipping fees, the Amazon FBA fees, and advertising costs. For this reason, you must always judge the product based on detailed analyses of competition, demand, and profitability.
Practice Competitive Pricing
If you’re running a private label brand on Amazon, you must consistently value the customer with the highest quality of product at the most affordable rates. Instead of selling generic items, your goal should be to establish a legitimate brand that people may track back to.
An excellent short-term strategy for beginners on Amazon is to price a product with no reviews lower than the lowest-priced competitor. You want these reviews to be authentic because Amazon can now identify fake and misleading reviews on their platform and remove them. So, consider a handful of techniques to drive traffic toward your product page — be it via emailing everyone on your contact list or by investing in ads on other social media platforms. Consider introducing 15% off as a launching discount.
However, you must avoid ending up in a price war by continuing this strategy in the long run, as the race almost always results in 0 percent profits and won’t always fetch you the best of reviews.
Differentiate the Product
If your product carries a hefty price, you’ve got some explaining to do. You must justify to your customers why your product is worth more than what your competitors are offering. You must address the ‘pain points’ of the products the opposing party has to offer; it’s highlighting how your product overcomes these drawbacks for greater outcomes. If you’re expecting greater sales, you must work to make your product fancier.
Run the A/B Test
In case you’ve never heard of this test before, A/B testing is also referred to as split testing that utilizes two or more variables in a randomized experimentation process. These variables (A for original and B for variation) are presented to website visitors to determine which variable is interacted with the most by counting the maximum impact (based on the click-through rate) and driving business metrics.
The A/B Test can be performed for Conversion Rate Optimization (CRO). Running the test for a product with price variation can give a detailed statistical outlook on which is likely to perform better on the platform. These tests can be run via an application or be conducted manually to determine market fluctuations. Supply and demand is also a critical factor in this domain, miscalculating the demand of the product you wish to sell will have you slashing prices sooner than later in an attempt to empty the warehouse.
Aim to Go above Amazon’s Free Shipping Minimum
Those of you who’re members of Amazon Prime are eligible to receive free shipping on a pre-declared category of products.
However, the buyers who aren’t members of Amazon Prime are taxed with a shipping fee even within the United States on any orders below 25 USD. Now, we don’t know about you, but our heartaches while paying that extra buck in the name of shipping costs. In fact, this is a prominent reason for deterring purchases. But, if your product makes it above the 25 USD benchmark, even non-Prime subscribers will contribute to increasing your overall sales volume.
Charm or Psychological Pricing
Yes, you may influence your potential customer’s purchase by pricing your products intelligently. Sometimes, just one cent cheaper makes for a better deal! But, contrary to popular belief, this strategy may not work for high-end, luxury items, so keep your .00 intact. Remember, it’s about repricing strategically, without hurting your profits.
A Business Price Set Up
As per the Amazon Business Buyers Program, any organization, business, or government can sign up via Amazon Business for a business buyers account, which includes a purchasing system for buyers that can be utilized by companies to achieve visibility, control the number of users, and have purchase approval workflows. Under this agreement, commercial or third-party customers can purchase products free from tax while reaping bulk discounts. It’s a good idea to set a separate business price for all your products, which will be visible to Amazon Business Buyers only. Adding on discounts on bulk prices can dramatically increase sales volumes.
Discounts over Coupons
Last but not least, how about throwing in some coupons to a new listing to get the sales rolling? An eye-catching, vibrant coupon is sure to entice customers, which in turn shall increase the click-through and conversion rates of your listing. A trick to using coupons is to raise your prices by the slightest bit and adding in a promo code (i.e., Create a New Coupon) to your listing. This way, you wouldn’t have to discount your product.
Why Not Use Amazon’s pricing Tools?
This may have been a lot of information to take in, and it’s well-understood that implementing strategies manually leaves a lot of room for trial and error. Not only does it require monetary investment, but you will have to set a whole lot of time understanding Amazon’s A9 algorithm to get your products ranking highly.
Fortunately, the Amazon pricing calculator is a tool that makes use of an equally complex procedure to determine the optimal price you could charge for your ASINs. The good news is that these cost calculators estimate the listing price on several relevant factors, but it fails to include cost for selling, taxing, storing, and shipping.
The Amazon automate pricing tool, on the other hand, has just about everything a seller needs. You can predefine the pricing rules to best fit your business objectives by selecting the ASINs the rules are applicable. However, it has been reported that the tool itself suggests the lowest price after comparing it with all the competitors in the niche. Now, we appreciate Amazon’s loyalty to its buyers, but don’t you think that’s a little unfair for the equally hardworking sellers?
Not optimizing your price strategy is going to have you missing out on profits, and a huge loss may even drive you out of business. The Amazon marketplace is extremely challenging in terms of competitiveness amongst competitors, so how about letting Eva Guru get to work? Eva Guru is the fastest Amazon FBA reprising software tool for private labels. We offer private label dynamic pricing, repricer for resellers, replenishments, Amazon FBA reimbursements, sales and profit analytics, and other managed services. Start your 15-day free trial today simply by logging in.
We’ve managed to serve clients across 19 leading Amazon marketplaces and have been able to flourish day after day. We’ve helped various businesses experience a 68-percent increase in sales, a 51-percent increase in profits generated, and a reduction of 40 percent in operational costs because this Amazon automated pricing tool can manage the whole of the Amazon dashboard singlehandedly.
You can set up the Eva Guru application in less than 15 minutes. Schedule a demo today to watch the magic of Amazon unfold before your eyes. If you’re willing to stay after 15-days, you can sign up for our starter, essential, growth, premium, or ultimate package for as low as $24 a month. Happy selling on Amazon!