Amazon Pricing StrategiesJan 25, 2018
Whilst Amazon is not all about the lowest priced item you certainly need a pricing strategy. It’s one of the most common questions we get asked, ‘how can we compete with these prices’ there’s a few things to remember:
Sometimes a merchant particularly will sell an item for less than the trade price. Strange and as alien as that sounds to me you must remember the days of loss leaders, and whilst Amazon can afford short term losses for long term gains by pricing everybody else out the niche, it’s not something we can all afford to do.
Some merchants will not understand the full costs involved in selling on a platform like Amazon and sell items too cheaply.
If using a repricer, if you are not careful and set up a breakeven price you can find you’re losing money on every sale, without even noticing.
Finally you will have merchants that just want to clear stock and turn it into liquid money.
So lets get out of the idea and race for the bottom and think about how we can start winning the Buy Box whilst making margin.
Repricer or Not?
If you are not using a repricer and the only real reason I would expect you not to is if your inventory is quite minimal and you can easily manage to manually change prices. That said, you need to consider how many times per day you are thinking of changing prices sorry did that shock you ‘times per day’? Consider that:
Profitero (2015) : Amazon changes its prices more than 2.5 million times a day. By comparison, Walmart and Best Buy changed their prices roughly 50,000 times each in the entire month of November.
I’m too small for a repricer, if you have products with a high sales rank or you are making sales on Amazon, I would not dream of trying to keep on top of the pricing manually.
Setting your breakeven price.
If you don’t know your breakeven price you will never truly know if you are making or loosing money and this can get quite tricky, so I’m going to try and keep things simple. Starting with your buying price add, Amazon commission for selling, the cost of packaging and delivery then add a percentage (avg rates are around 1%) for returns and you should be about there at the minimum price you need to receive to not loose money. Bare in mind, you would not actually be making money at this price so you will need to add some margin on.
An extra tip on pricing there was a report from Quantitative Marketing and Economics that researched buyer behaviour. The conclusion was that customers prefer a price ending in the number 9, that was only beaten where the price was on sale but if the product was on sale and the price ended in 9 that that would be the best performing price. Other research has shown that customers have a preference for the shortest number, so don’t use £1,000.00 or £1,000 showing a preference towards £1000 or if you follow the previous tip I’d use £999.
Upping prices at peak selling times
You really will need a repricer for this, I have used a couple of CSV also but that idea here is to track the competitions repricers into increasing the price of their products whilst you drop yours. The first stage is to calculate two things; the time you make most of your sales and the speed of the competitions repricer ie does it check ever 10, 20 ,30 minutes. You then create a CSV of your product and increase prices by a percentage then set this to action at say 5pm. Once your prices increase every other repricer will start matching your price (depending on the rules), then you start dropping your price using the repricer again. So you raise your price and then starts dropping them so you have the lowest price, but it’s still higher than normal and this is the period of your busiest shopping time, double win.
Tip: You can set this a number of times per day depending on your market.
Winning the Buy Box
When you list your product and are in competition with other buyers (including Amazon itself) with win the buy box. The reason this is important is because, some people will just press the buy button and the supplier will be the winner of the Buy Box and strangely, that is not always the cheapest seller! This is quite important because price is important but it’s not always the most important thing to customers or the Amazon algorithm. There is a theory that rather than going cheaper than the lowest price on Amazon, you should go 2p above the lowest price, the theory continues that your competition will see that there nearest competitor is 2p above them and increase their price accordingly. If you are using a repricer you can set this strategy so you are always 2p above the lowest price and as your competitor raises their price so do you, keeping the 2p gap and ultimately forcing the price up rather than down.
Just be aware that price is not the only thing that determines Buy Box and Amazon does rotate winners, 80% of all Amazon sales are via the Buy Box.
Set pricing inline with Sales Rank
Sales Rank is basically a number that rates a product on the amount of sales, if a product has a rank of 1 it will be selling very fast and you could price higher for a number of reasons; 1. Lower priced items will sell out fast. 2 There is high demand for this item and at some point you could be the only or lowest price seller. However, if you are ranked 30000 then the possibility is sales are slow and here it may help to lower prices to get some sales and increase the rank. Increase the rank and you can start increasing your price.
Don’t forget Sale rank is sales related and things like Easter Eggs and Christmas Trees will have an higher rank at certain times of the year, nobody wants to pay full price for a Christmas Tree in January (actually that’s when I buy mine).
What else can be done?
If you can win is there still something you can do? Yes don’t compete, so I have an Insulated Lunch Bag and there maybe 16 merchants selling that very same bag, but if I add another item to that bag say a Sports Drinks Bottle, suddenly I have a unique item that I am the only merchant selling. Therefore I can charge almost as much as I want - well the market will only accept a certain limit. Bundling is a great idea of putting items together to create a new offering, just keep them relevant.
Promotions come in all variations and sizes but here’s the main 3. Money off spend x get x% off or buy multiple items get x% off. Buy one get one free, as it says on the time but you can extend it buy 3 pay for two etc. External benefit buy x and get y free for example Post Workout Protein and get a pack of BCAA’s free.
Amazon has recently launched Headline Search Ad’s into Sellercental, once only allowed in Vendor accounts. You can get some very good results and high returns on investment with Amazon ads. You can also target in Facebook linking directly into your product rather than the generic page to give you control of the Buy Box and win the sale. Plenty of budget or good with Adwords, you can do exactly the same but Google can eat your budget much faster than Amazon or Facebook and just remember Amazon is a shopping site not a search portal.
I should like to thank Phabhat Shah of Online Seller UK and Felix and Sinead at Logicsale for their help and support in compiling this post. If you have not started trading on Amazon yet read our blog post How To Start Selling On Amazon.