Implementing Effective Product Prices
When it comes to pricing your products on the Amazon marketplace, you may need to take more factors into consideration than you may have already thought. There are several factors that you should consider that can have a variety of different effects on your sales. But what are these factors and what kind of impact do they have on your sales performance? In this blog, we will be aiming to answer those questions.
Why Pricing Matters
When a customer lands on your listing, one of the key factors they consider before making a purchase is the product’s selling price. Around 50% of customers consider the price of a product to be one of the main three factors for considering purchasing a product (with comfort/convenience and customer service as the other factors).
Primary factors customers consider before making a purchase.
Customers correlate the price of a product with the expected quality – something priced too low will most likely be avoided and thought of as low quality, whereas the higher quality products will have a more expensive price tag. This doesn’t mean you should put your price up incredibly high; it should be positioned within the price range that your ideal customer is willing to pay.
Adjusting your product prices (if done correctly) allow you to increase profitability, and utilising techniques from this blog can help increase sales on each of your ASINs. The most important reason for effective pricing on Amazon is winning the buy box for your products.
Winning the Buy Box
Over 83% of all Amazon sales occur through the buy box, which means it is crucial for you to win it. If you don’t have the buy box for a product, you still show up as a buying option for customers. However, the alternative buying options are usually hidden away from customers, making sales drop significantly in comparison to having the buy box.
When Amazon’s algorithm picks which seller is eligible for the Buy Box, it will prioritize sellers who offer the best total price (plus shipping) for a product. It will take other factors into account, including:
- Fulfilment Method (preferably FBA or Seller-Fulfilled Prime)
- Shipping Time (ideally up to 2 days, must be less than 2 weeks)
- Order Defect Rate (low negative feedback rate, low A-to-Z claim rate, and low chargeback rate)
As well as other metrics.
Buy Box Eligibility
To be eligible for the buy box, you need to be selling new items through a profession seller account that has a Buy Box Eligibility Status. You must have available stock of the products you wish to sell – constantly going out of stock can affect the likelihood of winning the buy box.
As mentioned earlier, selling your product on Amazon prime (whether it be by FBA or Seller-Fulfilled Prime) is also very important for winning the buy box. If you are selling on prime, offer a better price than competitors, and have positive product ratings you can begin to increase your selling price whilst remaining in possession of the buy box.
Common Pricing Strategies
Cost-Plus Pricing
Cost-plus pricing is where you take the total costs of your product (manufacturing costs, parts cost, packaging and shipping costs) and add a profit percentage to create your selling price. This is suitable for ensuring you always generate a profit from your product, but does not change/reflect market and consumer trends.
An example of Cost-Plus Pricing, where the seller takes 1/3 of the revenue as profit (or 50% mark up from the unit cost).
Competitive Pricing
Competitive pricing is where you strategically price your products in correspondence to your competitors prices. While this doesn’t truly correlate this the costs of making and selling your product, it does help you to remain active against competitors on Amazon.
The most common option is to price your product slightly lower than competitors, in order to undercut them and attract customers who wish to save money. There may be cases where you would significantly lower your price to the point of breaking even (or making a loss) for the purpose of generating sales velocity and improve conversion rates. Once both of these factors have improved and the listing is more established, you can gradually increase your price to generate a profit again.
An example of Competitive Pricing, where your product is offered at a significantly lower price than your competitors.
An alternative to undercutting competitors is to charge a higher price – for a more premium product than they are offering. This is only effective when the additional features/benefits your product offers are displayed correctly, and you have a strong brand reputation. A benefit of this method is the increase in your profit margins.
Psychological Pricing
This is the theory that certain prices for products have different psychological impacts on customers. The most used technique is reducing the price of your product just below a round number. For example, pricing a product at £299 instead of £300. Customers will subconsciously perceive £299 to be significantly cheaper, rounding it down towards £200 instead of being closer to £300. This is great for companies that want to sell their product to customers like they’re getting a ‘deal’.
Customers also subconsciously see prices with odd numbers as a deal (e.g., £197.93), while prices with even numbers provide the illusion of high quality and luxury (e.g., £200.00). This is suitable for companies looking to maintain a pristine and luxurious identity.
Product A holds a high quality status with the even price of £300, but doesn’t appear like a good deal. While only being 5p cheaper than Product A, Product B seems like a much better deal.
Psychological pricing can be and is often used alongside other pricing strategies.
Price Skimming
Price skimming is where you initially launch a product with a high sales price, and then lower the price over time to reach cost-conscious customers. This strategy is suitable for maximising profit from the initial stage of selling. This is because there may not be any competitors selling a similar product yet and/or customers who want the product straight away are willing to pay the higher price. This also covers the initial start-up costs of launching the product.
Once sales targets are met from the initial sales, the product price is lowered slightly to attract hesitant customers whilst maintaining the luxury identity over cheaper competitors.
Product is released at a high sales price. This provides maximum profit from initial sales of those who are willing to pay a premium rate.
Price is lowered as demand falls from initial product release. Quantity sold increases as hesitant/cost-conscious customers make purchases.
Price can be lowered as overheads have reduced since release. Quantity sold further increases as listing grows organically and is now high in the search rankings.
Repricing Methods on Amazon
Why Do It?
As mentioned earlier, maintaining a low total sales price is one of the most important factors for winning the buy box on your listing. Without the buy box, you are missing out on the 83% of purchases that go through it.
Manual Repricing
Manual repricing requires you to reprice your products yourself. This provides you with the most freedom, as you can choose to implement whatever pricing strategy you wish. It is free and easy to do through Amazon Seller Central, but can be time consuming to manually update all products prices if you have several ASINs.
- Positive – Suitable for beginners with only a few ASINs to manage.
- Negative – Not suitable for products in a competitive market (where prices are constantly changing.
Rule-Based Repricing
Rule-based repricing involves setting up rules for your product prices to obey. This ensures your products always have the most competitive price in the market. The downside of rule-based repricing is that it relies on the prices your competitors set, and needs manually adjusting often due to changes in the market.
- Positive – You always have the most competitive price.
- Negative – Not suitable for niche products, as it relies on competitors’ prices.
Algorithmic Repricing
Algorithmic repricing is the most advanced methods of repricing, where an algorithm considers multiple variables before repricing your product. This provides the most profitable technique out of the three, and is more suitable for businesses with several ASINs in competitive markets. However, algorithmic repricing requires third party software in a monthly or annual subscription.
- Positive – Suitable for larger brands with lots of ASINs.
- Negative – Requires third party software in a monthly or annual subscription.
Conclusion
We hope this blog has provided you with valuable information about repricing products for Amazon and how it can help you maximise sales. For strategic advice from consultants with over 10 years of Amazon and E-commerce knowledge, get in touch with Actimerce today.