Amazon has many users and a large reach and is therefore an important platform to sell your products. But the competition is also fierce. What factors go into developing a pricing strategy that allows you to stay ahead of the competition while still making a profit?
With over 310 million users worldwide, Amazon is known to be the absolute leader in e-commerce. Many sellers are therefore inclined to get started with Amazon because of its huge customer base and reach. While there are many benefits for merchants to sell through Amazon, they will have to consider the platform’s pricing. Enough reason to dive a little deeper into Amazon’s pricing model and see which strategies you can apply to be able to sell successfully.
Amazon pricing model
Despite Amazon’s popularity, consumers are extra alert to cheap or deceptive deals when making a purchase through Amazon. That is why it is important that as a seller you regularly re-examine and analyze your prices. Amazon’s pricing model is all about offering the most competitive prices. This means that prices do not remain constant and can even change several times a day. This is also called within Amazon dynamic pricing named.
But competitively pricing on Amazon isn’t as easy as it seems. Amazon’s algorithm is very complex and by only making price reductions you don’t always improve your position on the platform. As a seller, you simply want to sell your product for more than it cost. This is a good starting point, but for a stable profit margin there are many more factors to consider when determining your price.
That starts with the different costs:
- Purchasing costs
- Payment methods (iDeal, AfterPay, Klarna, etc.)
- Amazon commissions
- Amazon FBA
- General return costs
- Amazon will retain 20% of the original commission as a return fee on all return costs
- Customs for international shipping
- Overheads such as advertising and promotions
You can start with cost-based pricing, but once you have more data, it’s advisable to move to competitive pricing.
Competitive pricing strategy
After pricing based on your costs, the next step in determining your prices is to look at other companies selling similar products to arrive at a price that is commensurate with the other offerings on the platform.
Resellers benefit most from a competitive pricing strategy. When reselling a product, the reseller must be within a 2% price difference of the lowest price in order to qualify for the buy box. The buy box is the holy grail within Amazon, because more than 80% of sales go through the buy box. The downside of this is that you don’t have a tiered pricing strategy, as you’re primarily reacting to others. Fundamentally, this is not a good strategy if you want to sell a unique product.
To keep up with Amazon’s pace, sellers will need to automatically adjust product prices in response to competitive events to keep the winning price within the range. buy box to match or improve. But when it comes to the buy box, the price won’t be your only concern. Achieving the buy box depends on a number of different factors, including:
- Delivery time – Amazon customers value a fast delivery time. So make sure you have your logistics in order or use Fulfillment by Amazon.
- Customer satisfaction – Important factors that influence customer satisfaction are the percentage of defective orders, the cancellation rate and the percentage of delayed shipments. Inside your Amazon seller account you can look at your performance on these factors.
- Available stock – When a product is not in stock, you cannot buy box to win. It is therefore important that you always have sufficient stock. You have several useful here tools such as the Amazon sales coach who helps you with inventory management, or a fulfillment manager who automatically ensures that your product remains available when you no longer have stock at Fulfillment by Amazon, but in your own warehouse.
It’s a good idea to keep your prices stable, especially when you’re selling across multiple platforms. Amazon quickly detects when there are too large differences in prices from the same provider. This way you run the risk that your account may be suspended. In addition, customers tend to like more products whose price is not too volatile. Stable pricing also contributes to the credibility of your organization with consumers. But stability on a dynamic platform like Amazon turns out to be more difficult to maintain than is often thought, especially when you have to keep track of this manually.
Manually adjust prices on Amazon
Some sellers choose to manually enter prices on Amazon to gain more control over their listings. Although manually adjusting prices on the marketplaces gives you more control, you will have to take into account that you will spend a lot of time checking and updating your prices. For sellers with a large listing this is almost impossible to do and there is a greater risk of errors.
Today there are countless tools available that automate updating your prices. To set up a good Amazon pricing strategy, a repricer almost indispensable. A repricer scans your competitors’ product prices and then adjusts your product prices based on criteria you set and the competitor’s price change. Immediately repricer you have full control over which products qualify and what price you want to use. In addition, with a repricer faster chance of the buy box.
If you keep these elements and strategies in mind, an effective pricing strategy on Amazon comes a lot closer.
About the author: Olga van Borren is a Content Marketer at EffectConnect.
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