Published:
April 10, 2024
Like most other sellers, your main objective since registration is to make as many sales as possible. As a new Amazon seller, you will want to correctly price your products as it is a critical success factor. Not only will an effective pricing strategy help you attract customers, but it will also help you maximize your targeted profits.
It is very essential that you familiarize yourself with the three key concepts used by Amazon Stores to setup pricing strategies before you start assigning product prices:
This refers to the lowest price for an item from major retailers outside Amazon. Amazon shares this information with sellers to help them price competitively. To be on the right side, ensure that your standard item price, plus shipping, must be less than or equal to this competitive external price to be considered competitive. For example, if a major retailer sells your product for $20 with free shipping, your price on Amazon should be $20 or less including shipping.
The Featured Offer refers to the offer customers see prominently on a product detail page with "Buy Now" and "Add to Cart" buttons. To qualify for the Featured Offer, your product must be new – also, you are required to set a competitive price and have subscribed to a Professional selling plan. Here is how it works; If multiple sellers are offering the same product, the one with the best price and performance metrics (such as fulfillment and customer service) will likely win the Featured Offer.
As it suggests, this is the lowest price currently offered by a seller in the Amazon store. In the same way as the Competitive External Price, Amazon shares the current lowest price to give sellers the opportunity to match or beat it. So, if the lowest price on Amazon for your product is $18, you might want to match or offer a lower price to stay competitive.
Note: the sections titled "Featured Offer" (II) and "Lowest Amazon Price" (III) are specifically relevant to sellers using a wholesale model on Amazon, rather than those using a private label model.
In the wholesale model, sellers purchase products in bulk from manufacturers or distributors and resell them on Amazon. In contrast, private label sellers create their own branded products and sell them on Amazon. The strategies and considerations for these two models can differ significantly.
After familiarizing with the three concepts regarding product pricing on Amazon, the next thing would be to consider all costs involved in bringing your product to market. This will include manufacturing, shipping, Amazon fees, and advertising costs. Accurately calculating these costs will help you determine a minimum viable price. You can head over to the Amazon fee schedule to get a detailed explanation of the Seller fees involved – or, you can utilize Amazon’s Revenue Calculator to calculate fees, costs, and revenue. Amazon also has an Automated Pricing tool that can go a long way in assisting you to win the Featured Offer in the Amazon Store. Learn more about this tool to effectively price your products.
You can choose from three types of pricing strategies when listing your products: dynamic pricing, psychological pricing, or promotional pricing.
Dynamic pricing is a powerful strategy that allows you to automatically adjust your prices based on market demand, competitor prices, and other external factors. This ensures that your pricing remains competitive and can help maximize your revenue.
Using psychological pricing can significantly impact your sales. For example, pricing your product at $19.99 instead of $20 can make it appear more attractive to buyers. Similarly, offering products at a perceived discount can drive more sales.
Running promotions is another great way to attract customers and boost sales. Amazon offers various promotional tools like Lightning Deals, coupons, and discounts for this purpose. Strategically using these promotions can help increase your product’s sales and customer reach.
Effectively pricing your products on Amazon involves understanding the marketplace dynamics, researching competitors, calculating costs, and employing strategic pricing methods. If you implement these strategies, then you can ensure that your products are competitively priced, and that you attract more customers as well as maximize your profitability.
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