Amazon Pricing Strategy: Setting the optimal price for profits

Amazon is a competitive market. Have your products at maximum prices and customers will probably skip them for being overpriced. Set it to the lowest price and you might not even make any profit (or even suffer a loss) from your sales.

Finding the right pricing on Amazon is not an easy task, especially if your platform is Amazon, the go-to place for many people to shop. When it comes to determining an Amazon pricing strategy, you essentially have two options: Have your price generated by Amazon or adjust the price manually.

Having your price generated saves you time and effort. By pricing manually, you have to do your research by taking in a lot of factors. Of course, that doesn’t mean letting Amazon determine your price is the best method to choose. There are still other factors to take into account.

Regardless of which method chosen, on Amazon, the endgame remains the same: your pricing strategy must come up with a competitive price.

Competitive Price

A competitive price on Amazon is when you set the price of your product so that it is neither too low nor too high. It should be just right so that people will buy it and you can make a profit.

The ‘recipe’ of a competitive price people often go for is the lowest price possible (at least lower than or equal to the already existing price), while also offering the fastest and cheapest delivery. It is a killer combination that any customer desires.

With this in mind, and any other sellers’ minds, people race to set a competitive price and offer the best delivery experience possible. As you make more sales, your product may make its way to be featured in a Buy Box.

Amazon Buy Box

The Buy Box is the box to the right of the product detail page. It’s a box where people can see other offers offered by several sellers of the same product. The top-listed product always has the best deal; lowest price, best delivery time and price (which often FBA users have), and best quality.

Those are factors that decide whether or not a product has a chance of being featured in a Buy Box. Along with that, there are also other things to fulfill:

• Seller’s account mode (it has to be a professional account)
• Product stock availability
• Whether or not the product is new
• Customers’ reviews and ratings of the product

If you fulfill all the requirements mentioned above, then you have a good chance of winning a spot in the Buy Box. Slowly climb your way up by making more sales and your product may have a chance to become a Featured Offer, the next stage after Buy Box.

Amazon’s Featured Offer

After a product gets more sales constantly and receives more positive reviews, it will have a good chance of being featured as Amazon’s Featured Product.

Having a product as a featured offer will boost sales. With boosted sales, your product will have a good chance of becoming a best-seller product if maintained properly, which can easily win customers’ trust and boost sales even further. It is mentioned that having your product as the featured offer can boost sales by up to 50%.

However, there are still occasions where a certain product doesn’t have a featured offer at all.

That can happen if Amazon detects a lower price offered by a retailer outside of Amazon and, at that time, nobody on Amazon offers a price lower than that. Seeing that, Amazon will set no featured offer of that product. So, make sure to check the prices offered outside of Amazon, too.

Now that you’ve learned the end goal of any pricing strategy, it’s time to learn what the available pricing strategies are. The following are the explanations for each way and how each has variations you can try as your pricing strategy.

Utilizing Amazon Pricing Model

Amazon’s pricing model is a sophisticated and complex system that considers numerous variables. This system is the reason why a product may change its price nearly every day. Its heart is with tech companies, so Amazon focuses on improving customer service.

It’s also an excellent way to understand Amazon’s price changes.

The reason Amazon keeps shifting prices is to keep up with market trends and competition. By constantly adjusting its prices, Amazon ensures that it is offering competitive prices and staying ahead of its competitors.

You can access and use this system on the Amazon Automate Pricing Tool. By the time you are in Amazon Seller Central and about to set the pricing, you can also add some pricing rules, and Amazon will take care of the rest.

Despite the naming, this counts as a semi-automatic method since you have to put inputs (which are the rules) into the tool. After inputting the rules, the tool will take care of everything else.

Two factors you have to consider while inputting the rules are as follows:

• The minimum and maximum price. Amazon will adjust the price accordingly to the range of numbers selected
• The SKUs you want to assign the rule to.

To get a better idea of how the prices will look should you wish to use Amazon’s automated pricing tool, you can use this calculator firsthand. You can use this tool to determine your revenue with the proposed price. The calculator already considers variables involved in Amazon, such as referral fee, shipping fee, storage cost, whether or not FBA is used, and more.

To find out more about the calculator itself, you may visit the help page to get more insight.

Having taken care of that, Amazon will take over once you’ve assigned and turned on the rule. Amazon will abide by the rule and adjust your price accordingly to the circumstances of that time. Some variables that Amazon takes into account are as follows:

• Availability of Products
• Demand for Products
• Other Competitors’ Prices
• Pricing history
• Dynamic Pricing
• Shipping Price
• Supply and Demand Curve Trends
• Market Variables (e.g., seasonality)
• Discounts Available on Other Platforms

The Advantages

The advantages you can expect from this Amazon Automate Pricing tool are as follows:

• Faster and Easier: The tools help simplify product pricing, making it faster and easier for you to adjust your prices. No need to compare prices manually anymore.
• Accurate Prices: Amazon’s automate pricing tools use advanced algorithms that consider multiple factors, such as availability of products, demand for products, competitors, historical data, and dynamic pricing.
• Reduced Overhead Costs: By automating the price-setting process, you can reduce overhead costs associated with manual price adjustments since fewer resources are needed to manage this task effectively.
• Better Insight Into Your Market: Automate Pricing Tools provide valuable insights into your market by monitoring other sellers’ prices so you can quickly respond accordingly to stay ahead of them in terms of customer value proposition and sales performance.
• Improved Profitability: By using an automated tool like Amazon Pricing Model, which considers multiple inputs to ensure that your product is priced optimally, thus increasing profitability over time by capturing more customers at a lower cost than manual methods could deliver.

The Disadvantages

Automatic pricing strategy is never perfect, as perfect as it sounds. There are some things you should look out for upon using this feature.

• Amazon’s pricing model may not always be accurate and may need to be adjusted manually
• It does not take into account other market variables like seasonality or discounts available on other platforms
• Lack of control over the final price set for products
• Limited ability to test prices in different markets with different customer segments
• Costs can sometimes exceed target margins if prices set by other merchants are too high

Manual Pricing

As the name suggests, manual pricing refers to manually setting your products’ prices. It requires understanding your competitors’ pricing strategies and researching the market for current trends.

For manual pricing, you need to consider several factors, such as:

• Similar Products’ Prices and other fees: Knowing what your other sellers are charging for similar products and other fees like listing price and will give you an idea of how much you should charge for yours.
• Market Factors: Analyzing the market factors such as seasonality and discounts will help you set prices that align with many sellers and what customers expect.
• Historical Data: Looking at historical data can also help inform your pricing decisions and give you an idea of how your products have been priced over time and the expected profit margins.

Should you wish to manually set the prices of your products, you can try either of the following most effective pricing strategies, whether you’re a business owner or one of the third party sellers.

Price Skimming

This pricing strategy involves raising a high price for products when they are first released and then gradually lowering them over time until they reach the minimum prices. This helps businesses make more money in the beginning and can also help draw attention to new products.

For example, Apple has used price skimming when launching new iPhones. They set a maximum price for the latest model when it was first released and then gradually lowered the prices of older models as time passed. To lower the product price, you can select the fixed interval and the number of percentages to lower.

Raise Prices Slowly

It’s essentially the opposite of the previous pricing strategy. You start off by pricing your products as cheap as possible. After that, gradually increase them on a set interval.

Amazon lets you cut prices as fast as possible; but when you raise prices too fast you may have to suffer a penalization from algorithmic changes. It is not surprising because Amazon is known for being an affordable market.

Loss Leader Pricing

This pricing strategy is when you sell a product at a lower price than it costs to make. You can get people interested in your company or products and make them return for more. Compare prices with other sellers to find out the possible lowest price.

For example, Amazon is launching new products. They have sold devices such as the Kindle Fire at a lower price than it costs to make them draw attention and get people interested in their products.

Bundle Pricing

Bundle pricing is when you buy multiple products together for a discounted price. For example, if you buy a phone and a charger simultaneously from Amazon, the total cost might be less than if you purchased them separately.

Psychological Pricing

Psychological pricing is when a company charges different prices for its products based on how people feel. Companies will use this pricing strategy to make people feel like they are getting a good deal, even if the price isn’t lower than average. For example, if something costs $9.99 instead of $10, it can feel like you’re saving money even though it’s only one cent cheaper.

Coupons

Coupons can be used to help make a product cheaper. They are like special codes that you can use either online or in a store. When an Amazon customer enters the code, it will give them lower prices. This way, people might be more likely to buy your product because it is less expensive for them than other products.

Increase Prices On Products Just Below The Free Shipping Amount

With this way, customers have to spend a little more money to get free delivery. They will feel like it is worth spending extra so they don’t need to pay for shipping costs or other Amazon fees.

The Advantages

The advantages you can expect by manually pricing your products are as follows:

• More control over the final price of products: Your wish is their command. Your price adjustment will always fulfill your heart.
• Ability to test different prices in various markets with varying segments of customers: When you are selling a product on Amazon, you can try out different numbers to see which one is the best price; maximum and minimum prices.
• Opportunity to make more accurate pricing decisions based on market conditions: When you set a price for your product on Amazon, you can use the market conditions to help make sure the average price is right.
• Look at data from previous times: You can also look at data from previous times when you’ve sold the product based on value based pricing to help make an informed decision.
• Easier to adjust product prices if competitors set prices that are lower than expected: If other people are selling the same product for less money than you, it is easy to get lower price point to match them. This way, customers will be more likely to buy yours instead of someone else’s.
• Increased profitability by capturing more customers at a lower cost than automated methods: Increased profitability means making more money. By setting a lower price than your competitor prices, you can get more people to buy your product. That way, you can make money even if it costs less than other competitor prices.
• Opportunity to capture more market share: When you set the price of your product on Amazon, you can get more people to buy it by making it lower than other similar products. That way, more people will choose yours, and you can get more customers.

The Disadvantages

The Disadvantages of Manual Pricing are as follows:

• Time-Consuming: Manual pricing can be a very time-consuming process, as it requires constant monitoring of the market and prices to make sure that you are always offering the most competitive prices.
• Risk of Overpricing: There is a risk of overpricing when manually pricing products on Amazon, as you may set a price that is too high for customers or one that does not keep up with changing market conditions.
• Lack of Data: Not all data are provided while calculating the cost. You’d have to search for some by yourself.
• Difficulty in responding quickly to price changes in the market: It can be hard to change the price of your product quickly when the market changes. When prices go up or down, it is hard to keep up with those changes and set a new price fast enough.

What if All Else Fails?

You’ve tried either method and still are not satisfied with the sale numbers you have. It means it’s time to evaluate. Luckily, Amazon also has your back in this matter.

Regularly, you will receive emails from Amazon Seller Central. The email will explain whether or not the product prices you’ve set have been competitive. The emails list down the record of sales, units sold, units returned, new units sold, and more.

Along with this information, the email will also point out areas you may improve to potentially gain more sales.

Another platform you can use to help you evaluate your performance is the Pricing Health Page. The page contains information about available opportunities for your products that are eligible to be featured offers if their prices are updated.

Not just that, the page also shows the price references, average selling price, list price, retail offer price; essentially all kinds of information you can use to determine your next step.

Conclusion

Amazon pricing strategies are essential for maximizing profits, and there are a variety of tools available to help you do this, whether it’s pricing manually or automatically. Whatever your brainstorming ends up with, as an Amazon seller, you ultimately have to come up with a dynamic pricing strategy for your product prices.

Sometimes, you even have to try different pricing strategies, too. Now it’s up to you to take action on setting an optimal price for your products and make organic sales!

Frequently Asked Questions

What are Amazon’s competitive pricing rules?

Amazon’s competitive pricing rule states that if a seller lists an item at the same price as their competitors, Amazon will award the buy box to the sellers with best prices or better fulfillment options.

Why does Amazon pricing change?

Amazon pricing changes for a variety of reasons. On Amazon, prices are set by competitor pricing to stay competitive with other sellers who offer the same product.

What is Amazon dynamic pricing model?

Amazon Dynamic Pricing is an automated pricing system that uses algorithms to adjust prices based on real-time factors such as supply and demand, other sellers’ prices, market trends, customer reviews, and more.