In 2021, the best sellers on Amazon will be obsessed with pricing strategy, and for good reason: it’s the best way to appeal to shifting consumer needs without compromising on sales numbers.
As an Amazon seller, your pricing strategy determines whether or not you make it to the Buy Box, which will help you make more sales. Besides, it is one of the factors that will influence a customer’s decision as to whether they’ll buy from you or another seller. A good Amazon pricing strategy 2021 (+pdf) will enable you to remain competitive in the marketplace, while also giving you the maximum possible margins.
In this blog post, we’ll break down the fundamental aspects of the ultimate pricing strategy for Amazon in 2021. We’ll also look at the best practices for Amazon’s pricing strategy to help you find the right balance between maximizing your margins and increasing sales volume. Read on to get an idea of what makes for a great Amazon pricing strategy 2021 (+pdf).
Why Do You Need a Pricing Strategy For Amazon?
In many niches, the competitive pricing landscape on Amazon has become almost unbearable, making it hard for brands to stand out without doing something different. Apart from offering excellent service and ranking higher on Amazon SERPs, you’ll need to adopt the best pricing strategy to remain competitive and make good profits.
Pricing is one of the most important factors in your marketing mix and competitive strategies. It determines the acceptability of your product to the customers as well as the amount of profit you’ll make. The wrong pricing strategy can bring down your Amazon business faster than you can imagine. Setting your prices too high will make it difficult for you to retain customers. Although you can have more profit margins, it will result in lesser sales. On the other hand, low prices may increase sales volume, but it will be very hard to increase prices at a future date. The best way to balance between the volume of sales and profitability and still retain customers is to fix the optimal price.
Generally, a good Amazon pricing strategy will ensure you remain competitive in your niche, improve your profitability, and create a good first impression for your business. Read on to learn more about the foundations of a good pricing strategy and how to develop the best Amazon pricing strategy in 2021.
The Foundations Of A Good Pricing Strategy
While pricing your Amazon products may seem to be a simple process, it is not. With the many pricing strategies to choose from, setting prices for your Amazon products can be challenging. If you set your prices too high, potential customers are more likely to buy from other sellers and this will reduce your volume of sales. Conversely, setting your prices too low will reduce your profits. Thankfully, developing a good pricing strategy for Amazon doesn’t have to be difficult if you understand the foundations of a good pricing strategy.
Pricing Always Starts From Your Business Model
The first step to developing the best pricing strategy for Amazon 2021 is to consider your business model. The pricing strategy you choose should complement your business model because the price of your products affects the revenue of your business. Typically, Amazon business models aim at maximizing short-term or long-term profits, achieving market stabilization, and increasing market share.
If your Amazon business model is based on maximizing revenue, a price maximization strategy would be ideal. This strategy works best for new sellers who are looking to increase their revenue and gain market share. However, a price maximization strategy will entail minimizing fixed and variable costs as well.
If your business model is based on attracting more buyers, the best pricing strategy would be market penetration. This strategy entails pricing your products at a lower price than your competitors to increase market share. This pricing strategy helps Amazon sellers to acquire and retain customers and it gives a business a competitive edge against other sellers. It also allows you to increase the volume of sales, which helps you to compensate for the lower price. However, this pricing strategy for Amazon can backfire if it’s not implemented the right way. An initial income drop can be very difficult to come back from.
For sellers targeting price-conscious buyers, economy pricing is an ideal option. Unlike market penetration which involves setting prices lower than competitors, economy pricing involves selling your products at a price lower than the market average to minimize business costs. However, economy pricing can be risky for new sellers with a low market share, as their profitability relies on the volume of sales.
Generally, the type of Amazon pricing strategy 2021 (+pdf) that you choose should be in line with your business model so that you increase the volume of sales and maximize profit.
How Consumers React To Pricing In 2021
The truth is that nearly all consumers like to get a good deal. When evaluating whether a deal is good or not, one of the factors they will look at is the pricing. Typically, an upward price change is expected to have an adverse effect on sales volume but this is not always the case. When you increase your prices, customers who value your product will continue buying while the price-sensitive ones will most likely buy from other sellers offering a lower price. On the other hand, consumers who aren’t price-sensitive won’t even notice the price change; hence they will also continue buying. Therefore, an upward price change can only work in your favor as a seller if you have a considerable customer base. Besides, you must offer better value than your competitors to justify the price increase and retain customers.
However, in an extremely competitive niche, a price increase is most likely to result in fewer purchases. This is especially true if your customer base comprises of price-sensitive consumers. If customers don’t think your products compare well to others in your niche, a price increase will work against you.
Although Amazon shoppers like good deals, keep in mind that low prices can scare off customers. Some customers believe that you get what you pay for and this is one perception you’d like to take advantage of to adopt the best pricing strategy. However, that does not mean low-pricing strategies don’t work for some businesses because there’s a considerable portion of consumers who see low prices as good deals. Amazon sellers can use marketing strategies to influence how consumers feel about low prices.
Pricing prestige also determines how consumers will react to pricing in 2021. Luxury items like high-end watches, jewelry, and haute couture clothing are increasingly sought after as their price increases. This is because a high price for luxury products drives a sense of exclusivity. Usually, the pricing of luxury products is based on giving consumers the perception of high quality. If you specialize in prestige items, ensure the prices do not drop too far; otherwise, consumers will perceive your products as low quality.
Another aspect that Amazon shoppers will be looking at when comparing pricing is product improvements. Usually, consumers expect that you’ll make product improvements; otherwise, your products will become undesirable. If you continue to sell your products at the same price without any product improvements, consumers will prefer to buy from your competitors with better products. Therefore, it is advisable to optimize your price/value matrix to remain competitive in Amazon.
Generally, as an Amazon seller, you must gain a deeper understanding of your current price position as well as consumers’ perceptions to determine the best strategies that will make your products competitive. Be sure to check your competitors’ prices to pinpoint price gaps that you can leverage. A deeper understanding of consumers’ perceptions will enable you to take advantage of the factors that have the strongest influence on their perception.
Developing a Pricing Strategy Specifically for Amazon
Once you’ve identified the products to sell on Amazon, the next step is to develop a pricing strategy that will keep you competitive and ensure you make a profit.
Here are practical strategies that will help you develop the best pricing strategy for Amazon:
Strike A Balance Between Attracting Buyers & Maximizing Profit
The best strategy for developing a pricing strategy for Amazon is finding a “sweet spot” where you can entice buyers and still make a profit. Do not be the cheapest seller in your category as this will scare off customers. As already mentioned, low prices may give a perception of low quality.
Scout Your Competitors To See What Their Pricing Looks Like
One thing you can be sure of is that your competitors are checking out your pricing strategy to better theirs. If you’re not doing the same, then you are giving them a chance to gain an edge against you. This approach will help you make quick sales and increase your customer reviews.
Use The Best Amazon Repricing Software To Stay Ahead
The principles of supply and demand come into play when implementing a pricing strategy for Amazon. Therefore, you must keep abreast with your competitors’ strategies. Doing this manually will be an overwhelming task especially if you have many products in your portfolio. The best way is to make use of the best Amazon repricing software to get the best results. A modern repricing solution allows you to compare your product prices to those of competitors.
Identify The Products That Need To Be Repriced First
As a rule of thumb, slow-moving stock needs to be repriced first so that you don’t get stuck with dead stock. In addition, it’s a good idea to reprice the stock that costs the most in your inventory. Reducing the price for such products will have shoppers who’ve had their eyes on the items excited.
There are many other things you can use to implement a good pricing strategy for your business. For example, you should learn competitor’s trends and anticipate their next move to stay ahead of them in terms of pricing. If you’re an experienced Amazon seller, you can use past information to make the right pricing decisions. You must always know the most appropriate strategy that will move your items. Keep in mind that there isn’t a one-size-fits-all pricing strategy that’s going to bring in the desired results in every situation. It’s up to every seller to implement a pricing strategy that aligns with their goals and brand values.
Pursue Stable VALUE-Based Pricing (With Exceptions)
Also known as perceived value pricing, value-based pricing is a strategy whereby sellers set their price based on its perceived value among consumers rather than on its historical price. Unlike cost-based pricing which considers costs per product and the desired margin, value-based pricing uses the economic principles of demand, target audience, market conditions, product specifications, and many other external factors.
Value-based pricing works best for Amazon sellers in highly competitive niches as well as those in price-sensitive markets. Also, sellers who offer highly valuable products can leverage this strategy to increase sales. With a value-based pricing strategy, you can set higher price points for your products. However, customers must be willing to pay higher prices for this strategy to work. Also, you’ll need to continue adding value to your products to justify higher price points.
Advantages Of Pursuing Stable Value-Based Pricing
Below are the advantages of pursuing stable value-based pricing. Use these tips to gain valuable insights into your pricing strategy for Amazon.
Gives A Better Understanding Of Market Conditions
Value-based pricing strategy for Amazon requires a lot of research to understand your target market, competitive landscape, and many other external factors. The research you do on a wide range of factors gives you more ideas that will help you improve your products and stay ahead of your competitors.
Allows For Higher Profits
This pricing strategy is about asking the highest possible price for your products based on how consumers perceive the value of your products. Therefore, for sellers looking to reap higher profits, a value-based pricing strategy is the way to go.
Helps Develop Higher-Quality Products
Value-based pricing will only work for you if customers see value in your products and they’re willing to pay the price for your products. As a seller, this allows you to learn what customers are looking for in your products. Therefore, you can make product adjustments to make your products more attractive to customers. This will help you retain customers when you increase your prices because customers will see value in your products despite the price increase.
Helps Increase The Perceived Value
A stable value-based pricing strategy for Amazon allows you to market your products as top-notch. This can improve the perceptions among consumers about your products, allowing you to make a good profit.
However, there are some exceptions to pursuing value-based pricing. Typically, this strategy works for products whose perceived value is high. If your products do not possess a certain level of prestige, value-based pricing may not be the ideal strategy to adopt. Besides, this strategy tends to be more effective when the purchasing decision is emotionally driven.
How The Pricing Algorithm Can Make (Or Break) Your Sales
The Amazon pricing algorithm keeps track of price changes for products in the marketplace and plays a role in adjusting rankings based on price changes. Having a wrong pricing strategy on Amazon will result in losses or not making any sales. Your price must be competitive to rank higher on Amazon SERPs. No buyer will find and buy your overpriced product on the last pages of Amazon search results. That’s why you need to calculate your Amazon floor price to know the best point to set your prices.
Pricing too high or too low can negatively impact your Amazon sales and reduce your profitability. One of the reasons most Amazon sellers struggle with slow-moving inventory is because their prices are unrealistically high. While those sellers who set their prices too low can make quick sales, they tend to do so at the expense of profits. Therefore, the best way to make more sales and generate a profit is to strike an optimal balance.
Another factor that can make or break your sales is price stability. To build customer loyalty, try as much as possible to keep your prices stable. Significant price fluctuations tend to scare away customers. However, there are some cases in which you’ll have to make price changes to achieve certain objectives. For example, if you’re looking to increase your rank in Amazon search results, price deviations can come in handy. Another reason why you can make price cuts is to cross-sell your products.
For eCommerce purposes, Amazon is in a league of its own. If you want to be successful on the platform, you have to cater the later parts of your pricing strategy to its ecosystem.
7 Best Practices For Your Amazon Pricing Strategy In 2021
Depending on your product and target audience, you have multiple ways to go about developing a sound Amazon pricing strategy. Here are 7 best practices to follow in 2021:
Best Practice 1: Price Your Products 1.5% More Expensive Than The Lowest Seller
Some sellers assume that offering the best price will bring in more customers. While this may be true to some extent, low price is often perceived as an indication of low quality. Therefore, pricing your products at 1.5% more expensive than the lowest seller will ensure your products are inexpensive and competitive.
Best Practice 2: Do As Others Do
Instead of price matching the cheapest sellers on Amazon, it is a good strategy to check your competitor’s pricing to reprice strategically. This will improve your sales and help you to shift slow-moving stock.
Best Practice 3: Set A Base Price For Your Products
Some sellers on Amazon hurt their profits by engaging in unhealthy price wars simply because they keep lowering their prices. It is a good idea to set a base price that you don’t go below to avoid price wars that could hurt your profits.
Best Practice 4: Automate Pricing In Seller Central
Amazon provides sellers with an automate pricing tool that allows you to automatically adjust your prices based on predetermined rules. This tool looks at prices on Amazon and considers other sellers to adjust prices appropriately. This tool saves you time and it isn’t subject to human error or emotion.
Best Practice 5: Add Value To Your Products
If the price of your products remains the same yet you are not improving its value, you may not be able to recover from a downward spiral in pricing. The competition on Amazon is on another level and this means sellers who are not adding value to their products are losing business to their competition.
Best Practice 6: Consider Your Business Objectives
Your pricing strategy should align with your business model. Ultimately, your goal is to grow your Amazon business by making more sales and a good profit. Before considering a specific pricing strategy, ensure you know your acceptable margin and all the costs involved with each product. Your focus should be on maintaining a healthy profit margin and the pricing strategy you embrace should help you achieve that.
Best Practice 7: Don’t Set Your Pricing Strategy On Stone
It is a good idea to embrace a flexible pricing strategy according to the best sellers on Amazon (but avoid huge price fluctuations as it could scare aware customers). Also, keep in mind that every unique product demands a unique pricing strategy. If your current pricing strategy isn’t maximizing margins and attracting buyers, it is about time you try something else to see how it works out.
The examples above can be applied to most brands on Amazon. However, we recommend running a survey in your target market before making any major changes to your pricing strategy.
Your Brand Story Goes Beyond Just Pricing
It’s one thing to offer good products at the right price, it’s another to have customers keep coming for more. That’s why branding is just as important as developing a pricing strategy. Branding is a great way to set yourself apart from other sellers and showcase what makes your products a better choice.
The bottom line is, there isn’t a single pricing strategy that fits every seller. It is best to choose an Amazon pricing strategy that works best for your business model. Also, be sure to put the customer first while maximizing your margins.
Frequently Asked Questions
Amazon sellers use the repricing strategy to remain competitive in the marketplace and maximize their profits.
They include—economy, premium, skimming, and penetration.
Amazon sellers engage in algorithmically enabled price wars and this is why prices fluctuate in a matter of minutes.
Yes, Amazon uses price discrimination based on how much they believe a particular target market is willing to pay for a product.
Amazon does not always offer the same deals as physical stores as the cost of running a physical establishment can be greater than an online store.