The eCommerce world is full of retailers who are in constant price wars. Each company assumes that they need to have the lowest prices or risk the potential of losing their customer base. When it comes to an Amazon pricing strategy, setting a competitive price can be incredibly challenging.
This article is going to go through various aspects of pricing products on Amazon. We will go through Amazon's pricing model, how to price, and pricing strategies you can use to improve your sales rank. By the end of this article, you will know where to begin with your pricing system.
1. How Do You Price Items on Amazon?
Because Amazon operates based on an algorithm, pricing on this platform can be pretty tricky. Your ultimate goal is to have an attractive price to Amazon to find yourself in the buy box. This situation typically means you have a lower than average price than the competition.
Take this image as an example:
This screen shows a pricing comparison of Pepperidge Farm Milano Dark Cookies. The dark chocolate tub costs $7.99 per ounce, which is the best price compared to other companies that offer it. Prices in the buy box are almost always the best.
The optimal price for an online retailer's users is the lowest list price. However, other factors do impact getting to the buy box. Those include the following:
- Whether an FBA seller offers the item (Amazon Prime)
- The satisfaction rating of the online retailer
- Whether the thing is on sale
- The cost of shipping and handling
A pricing strategy is one aspect of your overall strategy. However, the product price must be competitive. Otherwise, someone will swoop in and steal the buy box.
2. What is Amazon's Pricing Model?
From what we can see, it is clear that Amazon's pricing model is to be the lowest price available for their customers. Just browsing through almost any of Amazon's departments will reveal this to be true. The popular products among competing sellers are almost always the cheapest price.
An excellent example of this comes during the holiday shopping season. While Amazon's completion can offer price-matching guarantees, those can be a hassle to most consumers. They ask themselves, "Why would I bring in proof of the lower price when I could just get the lowest price shipped to my home?"
Amazon even takes this a step further with their version of Black Friday: Amazon Prime Day. The Amazon Pricing Strategy is impossible to match because it manages to get some of the lowest prices with the ultimate convenience.
With Amazon's entire stock being online, Amazon can easily discount tens of millions of items. Walmart, K-Mart, Office Depot, and Best Buy are all stuck with the thousands of items that pale in comparison.
At its current level, Amazon's pricing tactics as a cost leader are almost impossible to match. However, they also engage in multiple pricing strategies.
3. What are Pricing Tactics?
When you see a price change on Amazon, it is likely to win back the buy box. An Amazon price change can occur due to it. Regardless, they are all examples of pricing tactics in action.
Pricing tactics are when retailers change their prices specifically to elicit a particular reaction. Many prospective buyers hope that price adjustments go in their favor. A price war typically always benefits the consumer, but that's not always the case.
Business Insider gives us an example of one such example of the opposite happening with pricing tactics: higher cost can lead to more pleasure. A 2017 study went as far as to include MRI scans to confirm a more significant brain response from high-cost items.
We also happen to assume that higher cost results in more quality. However, the Amazon Algorithm doesn't operate like the human brain. The algorithm very much works in the opposite form.
4. Amazon Pricing - Pricing Tactics Unique to Amazon
Repricing is a unique Amazon price change strategy that typically seeks to undermine the competition. Competitors can change their price by a few cents to win back the buy box. You can do so easily by logging into Seller Central, giving yourself a slight advantage that will likely only be there for a few moments.
Thankfully, we have a solution to handle this issue.
5. DataHawk's Product Alerting Tool for Amazon Pricing Changes
DataHawk's Product Alert Tool is a customizable notification system that allows you to receive alerts during given situations. The tool will enable you to see changes in the following areas:
- Items going out of stock
- Losing the buy box
- A new seller in the buy box
- Dropping out of the top ten sellers
- Becoming a best seller
- A change in listing details, titles, images, or videos
- Changes in the number of low ratings
- If the buy box is lost or won by Amazon
- If the buy box becomes inactive
These are all of the pre-made triggers which are incredibly useful. However, the creation of custom rules will be particularly helpful in tracking minor price reductions.
A Step-By-Step Process for Tracking Small Price Changes Using DataHawk
- Go to the Reports & Automation section of the DataHawk Dashboard.
- Click on "manager alerts" in the upper-right-hand corner.
- Select "create alert" in the upper-right-hand corner.
- Scroll down and select the "custom rules" tab.
- Click on "add a rule."
- Choose a scape that includes projects, products, or other tags.
- Under rules, choose "price" under the drop-down menu.
- Choose "decreases" or "has any change" under the following drop-down menu.
You can also click the "plus" symbol next to the rule to add a secondary option if the buy box owner changes. If you have to switch to a different daily price, this listing is incredibly competitive.
For more details on using the DataHawk Product Alerting Tool, check our detailed article on the subject. Otherwise, you can go to our demo page to test the effectiveness and ease of use behind the system yourself.
6. Four Types of Amazon Pricing Strategy
When it comes to Amazon price changes, there are four comprehensive pricing strategies you can use. Below is a shortlist of pricing strategies that you can use:
We will dig into how all four strategies can work on Amazon below:
How Premium Pricing Works on Amazon
If you know anything about Amazon, they discourage you from having a "maximum price" focus on your products. However, expensive and unique items cannot take the same price cuts you might expect from standard items.
Let's take one such example where standard pricing practices might not apply on Amazon: Mega Chess.
If you search "Giant Chess" on Amazon, you will not find their most popular chessboard style. However, Mega Chess is unique because of its devotion to creating colossal chess pieces.
As one of the few people who offer this service of giant lawn games, Mega Chess can provide premium pricing. Searching "lawn chess" reveals they hold most top slots before it moves to other lawn games.
Premium pricing is limited to items that you can uniquely sell to fill a particular niche. If your product has a high level of competition, you can't go with a premium price because Amazon's algorithm loves competitive pricing.
Premium pricing has the problem of being more challenging with cash movement. More expensive items tend to move slower because the audience would want these small niches to buy at a slower rate.
However, businesses with alternative money-making initiatives or those with low daily costs might not feel the impact of premium selling.
For high competition areas, you have another method of pricing:
How Penetration Pricing Works on Amazon
Penetration pricing works primarily on the other side of things. This strategy is for new brands who lack the pull to out-quality the competition among items. In that case, they must out-price the competition, undercutting them in the process.
Below is an example of that Amazon pricing strategy in action:
The pricing list above is the current listing (at the time of this writing) for the Smartfood Popcorn Variety Pack. The price of the number one listing is about three dollars less and includes free shipping (Prime).
The combination of the seller being FBA and the price is three dollars cheaper means that this rating will remain as is. This buy box can change if the seller makes too many shipping mistakes or runs out of stock.
The risk that penetration selling has is that you typically have to sell more items than the next guy to make a similar profit. Other people may call it economy selling, which is typical of grocery items with their low barrier of entry and minimum earnings potential.
If you want to do something similar to economy pricing with a greater appeal, there is another form of that strategy:
What is Discount Pricing on Amazon?
Economy pricing and discount pricing can come from the same area. However, companies that use discount pricing are more likely to reduce due to a desire to move stock quickly. A great example of this in action is through Amazon Outlet:
Amazon Outlet is the land of "I have too much something, and I need to sell it fast." Websites like Overstock.com make it their whole strategy.
The idea is to sell items at a deep discount, as the strikethrough on the original price creates these natural responses:
- "Oh boy! It's on sale."
- "It might only be on sale for a limited time."
- "I better buy it before it comes off of the sale."
We've all been there to some degree, assuming that the sale price will go up with time. This option of creating a more appealing Amazon price change is one way sellers can develop a sense of urgency.
It has the bonus of creating a need to buy now while also not running the risk of having stockouts. If you know anything about stockouts on Amazon, you know that those can completely ruin your product listing.
Having a discount on your item also provides an additional layer on top of penetrative pricing. The two strategies go together well, so don't be afraid to use them when appropriate.
Keeping costs generally low also allows you to target potential economy items. However, cost leadership is a difficult challenge on Amazon's Storefront, as everyone targets keeping pricing down with Amazon's encouragement.
Our last area of focus is a bit more dynamic.
Competitive Pricing on Amazon
So far, the area that gets the most attention when changing your cost approach is competitive pricing. This approach to pricing involves continuous changes to remain focused on the buy box. This strategy is where the usage of DataHawk's notification systems will come in handy.
Following our earlier steps will allow you to track significant changes to the buy box. This strategy also involves undercutting the competition by pennies. Everything we've mentioned up to this point needs to be part of a competitive focus.
With most high-traffic products, a dynamic pricing strategy is crucial to securing the buy box. If you have a unique product that isn't sold by others, starting low doesn't help you. A dynamic pricing strategy is more likely to undercut your profits over others.
The reality is that there is no one-size-fits-all strategy for your product list. Determine the barriers to entry and find out your priorities when entering any E-Commerce pricing war.
7. Strategies to Secure the Buy Box
When it comes to finding specific strategies to secure the buy box, we've mentioned several examples that include pricing. While we will be repeating some of those in this section, it's important to note that winning the buy box is not limited to having the most competitive price.
For a more detailed blog on demystifying the Amazon buy box, check out our article on the subject. Otherwise, here's a few quick reminders on what you need to do to win:
Recognize Your Weaknesses (and Overcome Them)
As an Amazon Seller, your first step in winning the buy box is to find out where your product is lacking. If you are a newcomer to the game, the "lacking" bit typically comes back to the amount of success. This focus is where penetration pricing comes in handy, as it will help you get some of those initial responses.
If you share the listing with a series of other sellers, everyone works with the same product. In this case, it will be up to you to have the best customer service, fastest shipping, and most competitive price.
If you do not share the listing, you have a bit more flexibility. Still, you will need an engaging product description and knowledge of Amazon SEO to win the search war.
Become an FBA Seller
If you've resisted becoming an FBA seller up to this point, we've got news for you: It's impossible to win the buy box if there is another FBA seller in the mix.
When using Fulfillment by Amazon, they have access to the most robust available logistics in the world. Regardless of your best efforts, Amazon outperforms anyone who tries to outdo its logistics.
If you ship more oversized and complicated items, FBA may not apply to your needs. However, you should check your competition to see what they have to offer.
With most items (regardless of your best efforts), Amazon will always prefer using their company.
Invest in Multiple Advertising Campaigns
DataHawk has run the gambit mentioning all of the advertising platforms available. Amazon PPC, Amazon Live, Amazon Affiliates, Amazon Influencers, and all of the off-platform stuff you can also use.
The point is that all of those campaigns have the potential to grow your business. Depending on your product, one may be more appropriate than the other. Still, the point is to have diversified campaigns to ensure that your platform doesn't fall apart if your choice of advertising fails.
If you don't have enough money to choose multiple campaigns, choose Amazon's standard PPC. Advertising costs can be kept low and transparent through their platform.
Acquire a Professional Seller Account
A professional seller account allows you to access more data and resources than individual sellers. If you sell over 40 products, you lose money on each additional transaction with an individual account.
While you don't need to be a professional to be part of the FBA program, the two integrate into a potent form. Further analytics potential and data use are never harmful.
Do Not Stockout
Amazon sellers who run out of inventory seldom recover the buy box. If you want to avoid dropping quickly from your top position, always keep a close eye on inventory levels.
Seller Central has various tracking software that allows you to receive notifications when running out of items.
Also, with no more ASIN-level restock limits, you don't have to worry about the same inventory limit issues. While this does increase the potential of storage costs, the alternative is potentially never recovering your sales again.
If you can help it, always overstock your items.
Amazon Pricing Alerts to Win Over Your Competition
Our last suggestion goes back to closely tracking any pricing changes. Amazon pricing alerts are necessary because your competition is already using similar alert systems to get the jump on you.
It could take your competitor seconds to win back the buy box if you got it back with a penny reduction. Much like trying to outbid someone on eBay, there's almost always someone trying to take away the top slot for you. If they want it more, they will win it.
When you can't spend all day staring at the buy box, pricing alerts through DataHawk allow you to keep a close eye on those changes for you. That way, instead of staring at the buy box, you can focus on alternative strategies to overcome your competition.
Consider Alternative Options
Our article on the buy box details this further, but there are many options beyond the buy box. Many of these options, like the other sellers and offer listing page. Second place still gives you visibility; that visibility is still a potential to overcome your opponent.
Alternative options can also include Multi-Channel Fulfillment, such as creating an Amazon-supported Spotify page. While your ultimate goal might be the buy box, there are many ways to get there.
Find Out How To Improve Your Process
The thing about shipping anything is that there are two sides: the part where you do something and the "get it to your fulfillment facility" part. If you start to receive regular complaints on an issue, it will prevent you from getting to the buy box.
Find out how you can improve things on your side if you find yourself making an abnormal amount of returns. The point is to offer the best customer service, which sometimes results in handling disgruntled customers.
7. The Final Tip: Don't Jump To Being The Cheapest Seller
Some users on Amazon believe that the only pricing strategy is to be inexpensive. You have to be the lowest cost, highest quality seller. The alternative is falling into the "other seller" abyss.
However, it doesn't necessarily have to be this way. Cost leaders, like Walmart, always have a plethora of resources at their disposal to keep things down. If you want to be a cost leader, this is the path you can choose. Otherwise, don't jump onto the "lowest price" bandwagon.
Price wars need to be alongside careful consideration to your profit margins. Suppose your margins cannot take another price cut. In this case, please don't force it and try to consider alternative options.
For example, if you sell individual snack packs, you might consider sales in bulk. This process requires some changes to your inventory but might be worth it in the long run.
8. Wrap Up
An Amazon pricing strategy comes in many forms. Regardless of how you choose to get there, your ultimate goal is to reach the buy box.
If you don't think an Amazon price change will do it, you might have to focus elsewhere. You may also have to change the strategy to be appropriate for your market. With information on your side, you will make an informed decision on your various strategies. Whether that involves a price reduction or increase is entirely up to your needs.