Amazon Pricing Strategy – The Most Powerful Pricing Strategies [+ PRO Tips]
Choosing the right Amazon pricing strategy can significantly impact your success as a seller. Amazon is a highly competitive marketplace, where pricing decisions affect sales volume, profitability, and your ability to win the coveted Buy Box.
Without a proper Amazon pricing strategy, you risk losing customers to competitors and seeing your profits decline. In this guide, we will show you how to avoid this undesirable scenario, with some actionable tips on how to stay ahead of your competitors.
This guide is a solid read for both new and experienced sellers. Mastering your Amazon pricing strategy is simply essential for growth.
Let’s take a look how to do it!
Amazon’s pricing policies
Before we take a deep dive into what pricing strategies work best on Amazon, let’s take a look at some of the ground rules.
These are a part of Amazon’s Marketplace Fair Pricing Policy and they can be summarized into the following points:
- Don’t set misleading prices.
- Don’t set prices significantly higher than recent prices for the same product (on or off Amazon).
- Don’t sell multiple units of a product in bulk with a higher price per unit than when selling a single unit of that product.
- Don’t set excessive shipping fees.
A smart thing to do is to keep an eye on your Account Health so that you may know where you stand when it comes to abiding by these policies.
Amazon pricing strategies
Dynamic pricing
On Amazon, dynamic pricing can be implemented either through Amazon’s own Automate Pricing feature through the Seller Central or through a third party tool.
It involves adjusting your prices based on market demand, competitor prices, and many other factors in real-time.
There are numerous misconceptions about dynamic pricing, most importantly the one about it causing pricing wars. That is not unheard of, but it all really depends on how you use dynamic pricing algorithms. One of the most important things you can do to avoid price wars is set price boundaries (the maximal and minimal prices you are willing to set).
It’s important to include and test as many parameters as possible, such as customer behavior, time of the day so that you may improve your Buy Box eligibility.
Competitive pricing
Competitive pricing on Amazon means offering the best (lowest) price for the given product among your competitors.
It goes somewhat beyond the regular definition of competitive pricing, which says that competitive pricing is simply setting your prices based on what your competitors are charging. This means you can decide to also increase your price, keep your price between certain competitors, or match competitors.
This is not the case on Amazon. Competitive pricing means the cheapest pricing.
Amazon actually encourages setting competitive prices and it also goes beyond sellers on Amazon. It includes prices on other major retailers outside of Amazon. This is a crucial thing to have in mind when setting competitive prices on Amazon.
Penetration pricing
In the context of selling on Amazon, penetration pricing can be thought of as amplified competitive pricing within a short time-frame.
What does this mean?
In this case, it means setting your prices lower than the competition to gain market share quickly. This approach can also help you win the Buy Box, but we will get to this later in the article.
If you want to steer away from this strategy, you can start to gradually increase your prices as you gain positive reviews and establish your brand credibility.
In order to make this approach more effective, you should consider branching out and adopting a multi-channel selling strategy, with a channel-based pricing strategy. Furthermore, you will simultaneously reduce your dependency on Amazon.
Pro tips for enhancing your Amazon pricing strategy
Optimize your Buy Box eligibility
In order to appear as the default seller in the Amazon Buy Box, you need to fulfill multiple criteria:
- Maintain competitive pricing. Regularly monitor and adjust your product prices to remain competitive.
- Improve fulfillment. Use Fulfillment by Amazon (FBA) for faster and reliable shipping.
- Ensure inventory availability. Keep products in stock to avoid losing eligibility.
- Maintain high seller ratings. Aim for excellent customer service and quick response times.
- Offer competitive shipping. Provide fast and affordable shipping options.
If you focus on these key steps, you will improve your overall Amazon performance, leading to greater Buy Box eligibility and ultimately boost your sales.
Continuously test and iterate
The best way to test your prices on Amazon is by A/B testing them. When it comes to which products’ prices to A/B test, it’s probably the wisest option to choose a product with a stable sales history.
You will also need to decide on the duration of the test and which price points you want to compare. If you need a starting point, you may refer to the three pricing strategies we mentioned at the beginning of the article.
When performing tests, you need to know what you are testing and towards what goal. Do you want to see how a change affects sales, revenue, margins, or something else? Any of those options is fine, but you should only pick one.
Testing your goals one at a time increases their precision and the reliability of the results. In other words, you should keep your tests to one input at a time, so that you can know what changes lead to what outcomes.
The most insights can be obtained when testing during high-traffic events. Think of Prime day, Black Friday, Cyber Monday, and other similar holidays.
However, there are few things you should have in mind when performing pricing tests.
Avoid frequent major price fluctuations. This can confuse customers, create frustration, and hurt your brand image and sales. As much you are able to, keep your price changes moderate and purposeful.
Monitor your Buy Box status. Price changes can directly impact your eligibility to win and maintain the Buy Box. Track whether you gain or lose the Buy Box after a price change, see where the pricing threshold is, and how it all impacts your sales.
Amazon’s eligibility criteria. You need to fulfill Amazon’s criteria including Brand and ASIN eligibility in order to run experiments.
Monitor competitors
If you want to adapt the competitive pricing approach, you will have to monitor the prices of your competitors. Otherwise, you will simply be guessing do you have the lowest price or not.
The good thing is that Amazon has numerous tools for sellers that help you with this. However, there are also numerous third party price-scraping tools that can help you with monitoring and analysis of your competition.
Firstly, you will need to identify your key competitors, especially the ones who are selling the similar products as you and competing for the Buy Box.
Then, what you want to do is go beyond simply monitoring the prices. You want to go in-depth and see when they are starting with promotions and for long are they offering them. Go into your competitors’ marketing tactics.
Once you have these insights, you can adjust your own approach. Tweak your prices, bundle products, and offer promotions of your own.
Conclusion
Mastering your Amazon pricing strategy is crucial for maintaining competitiveness and winning the Buy Box. Whether you are using dynamic, competitive, or penetration pricing, the key is constant testing and monitoring.
Basically, you have to be ready to put in work if you want to extract value from Amazon.
Make sure your listings are optimized and up to date. This, alongside controlled A/B price tests and competition monitoring, will help you meet Amazon’s requirements and protect your profit margins.
