Pricing policy on Amazon marketplace
Online marketplaces are convenient places to sell customers your products. They give consumers a chance to find and compare offers, and facilitate secure shopping. Online sales platforms are already the first place for most buyers to start searching for products. And this is why you should implement a good pricing policy on Amazon.
Marketplaces give sellers the opportunity to display their products in a relatively easy way, without requiring experience in building an online store and marketing. They don’t have to come up with strategies and conduct promotional activities outside of the sales platform.
Unfortunately, sellers have to pay a considerable commission for it (which is standard 15% in Amazon FBM model – Fulfilled by Merchant). This cost may influence on lower margin, however, marketplace’s sellers agree to its limitations compared to their own store.
How to set the price based on your pricing policy?
The basis for determining the price of the product is the sum of all incurred costs and adding the expected margin.
What should you consider when setting a pricing?
– the cost of producing / purchasing the product along with transport to your own warehouse
– storage cost
– cost of shipping and handling the order
– platform commission
– cost of advertising / promotion
– VAT (depends on the country of sale)
However, the pricing policy is more than the sum of the above-mentioned components. Competitor price analysis should be used as a starting point, but there are a few more factors that should be considered.
In addition to the costs mentioned, it is worth considering:
– type of product: is it unique or nondistinctive,
– product popularity: what is the potential demand, how much are the most popular sellers selling,
– how many are the same or similar products when searching for the most popular phrase,
– how big is the competition: do other sellers dominate the niche with the number of similar products,
– how many and what kind of reviews the competition has.
Knowing the answers to these matters can be transferred to choosing a pricing policy.
Among the various methods of price determining, several strategies applicable to marketplace are used:
– Market penetration strategy – fix a low price to quickly increase the sale and obtain a large part of the market.
– Domination / elimination strategy – set the lowest possible price, sometimes below profit to dominate the market.
– Value-based restrictive strategy – estimating how much the customer will be able to pay for the product and value that it brings. It will require in-depth analysis of the market and a target group of recipients, but can be effective.
– skimming the market strategy – set an inflated price on the beginning and gradual reduction. The first customers are able to pay more (for example for new market or luxury product) and the price becomes affordable for an increasing group.
The specificity of Amazon and how to adjust your pricing policy
The position of the listing in the search results list of a given phrase depends on various factors, including:
– the number of opinions (review),
– quality of opinions (number of stars),
– bestseller ranking,
– seller ranking,
– Prime offers.
The new listing doesn’t have most of these advantages, but there are steps that can help make it stand out from the crowd.
Depending on the popularity of the product, the number of offers, and the number and quality reviews on listings, it is usually enough to compare the competition on the first three pages of the search.
In essence, listings that already have good feedbacks are the most important. It’s also a good habit to compare competitors’ pricing policy with our own.
Market penetration or price for higher quality
In the case of a popular product existing on the market and a lot of competition, a good way can be penetration strategies. That is the initial price reduction in the short term in order to boost sales. While not each seller implement this, you should consider adding this point to your pricing policy.
The new listing has worse position compared to already existing. Determining one of the lowest prices helps to move the listing higher in the search results. More orders gives a better position of the listing. A low, attractive price is worth maintaining until you receive over a dozen positive feedbacks.
That will result into a better position on the searching list. Then you can slightly raise the price and monitor the number of orders. It should be remembered that maintaining a low price in a long perspective is dangerous because it deprives the seller of margin.
Another situation will have an attractive high quality product that is a novelty or has little competition. You can try a skimming the market strategy. Also weak competition reviews give this opportunity. The customer may be willing to select an offer that will not be the cheapest, expecting a good higher quality product.
Regardless of the chosen strategy, the key is the ongoing analysis of the competition and sales monitoring.
Prime offers (FBA-Fulfilled by Amazon sales model) are more promoted than merchant offers (FBM-Fulfilled by Merchant). In addition, Prime always comes with free shipping with no minimum order amount. Therefore, to compete with such offers, you need to offer the buyer free delivery and ultimately include this cost in the purchase price of the product.
The magic of nines
It is a common procedure, i.e. prices not rounded to the full amounts. In fact, the price of EUR 99 seems more attractive to the customer than EUR 100, despite the fact that they differ only by EUR 1. The same applies to price endings, e.g. 9.99 or 9.89. Most people are visual learners, so they immediately pick up and remember the lower price. This move may seem trivial, but it is very effective.
Summary of pricing policy
On Amazon everything changes very dynamically. Especially on the beginning of sales, it is worth monitoring the situation on an ongoing basis and adapt to changes. You need to be flexible and, above all, verify your assumptions from time to time. The strategy is not rigidly bound to one product and you can always change it or test another one. What works for one case may not work for another. Visit our BLOG on the daily basis to stay up-to-date.