9 Ways to Stay Competitive with Your Amazon Pricing Strategy Analysis
It goes without saying that your Amazon pricing strategy analysis is incredibly important, but if you had any doubt, here’s a staggering statistic: 9 out of 10 consumers price check a product on Amazon, largely due to its reputation for competitive pricing. Your pricing strategy and analysis will impact your conversions and ranking so considering different methods is well worth your time.
Keep this list of
9 Amazon pricing strategies
handy and check it periodically to ensure you’re doing all you can to stay competitive.
Remember your break-even point
Above all else, ensure your product price covers your fixed and variable costs, also known as the breakeven point, where you have 0% profit margin. This is straightforward, but calculating the actual figure isn’t always so simple. Variable costs change over time due to many factors and fixed costs can be set arbitrarily (and inaccurately) if you’re not careful and methodical.
The total cost can include sourcing, manufacturing, and shipping costs, as well as Amazon fees, customs and tariffs fees, sales taxes, etc. Using a set formula like this will help you avoid any miscalculations: Total Cost = Total Fixed Cost + Total Variable Cost.
Your breakeven price, (the floor you can’t go below without losing money on each additional product sold,) equals your total cost. Any profit margin (cash you get to keep per unit sold as a percentage of price) will be experienced at prices higher than breakeven. For example, at a profit margin of 45%, a product with a breakeven of $50 would need to sell at $72.50. The greater your unit profit margin, the fewer units you need to sell to make good money.
Consider Personas and Price Perception
Different customer personas will receive and purchase your listing more or less effective based on their individual habits and perception of your product price set via Amazon pricing strategy analysis.
Imagine two types of Amazon customers: the “impulsive spender” and “diligent researcher”. These customers can be delivered different products and prices based on their spending habits: the impulsive spender will typically spend more on items and therefore can be offered higher quality (and priced) products, whereas the diligent researcher will take time to compare prices, hunt for bargains, and will be better served with lower average price points. Ask yourself: Who is my product better suited for?
Don’t try to sell the same product to both customers! You can be profitable with a pricing strategy for either one, but not both at the same time; inbound marketing tools can help reach the right customers for your price point.
Work on the pennies
Ever wonder why so many products are $9.99 as opposed to $10? It’s called “charm pricing,” and it boils down to how we perceive the first digit of a number: $9.99 is processed by your brain as $9, which is cheaper than $10 and perceived as a bargain. Use this behavioral trait to your advantage through pricing strategies:
- If you’re aiming for bargain hunters, price your products ending in .99. On average, using whole numbers ($10) won’t be as effective in converting customers.
- If you’re targeting impulse or luxury buyers, consider pricing at a whole number with no cents, like $53.
- Test a change, measure the impact, and iterate: strategically making small price changes and measuring any change in conversions can lend valuable insights specific to your situation and products.
Avoid undercutting or “predatory pricing”
Undercutting, or “predatory pricing”, refers to setting prices so low with the intent of eliminating the competition, and is a strategy you should always avoid. It isn’t financially sustainable and you risk significant brand value damage.
Instead, price your products just above (1-2%) the current lowest seller. Your products will be priced competitively and you won’t risk sacrificing your long-term Amazon marketing strategy analysis through brand destruction.
Account for seasonal demand
Ask yourself and do research to answer: when are people buying my products most? Many products have some cyclicality to them, even if it’s not obvious at first. Do the research and study your sales reports over time to find out if your products fall into this category.
If they do, consider optimizing your pricing strategy based on time of day, month, or year and on what the competition is doing if you’re following a competition-based strategy. In monthly or seasonal times of low or high demand, it may make sense to shift prices up or down to take advantage of market trends and cycles. Combining powerful pricing and Amazon ad strategy (PPC) can be very effective in taking full advantage of market trends in a cost-efficient way.
Avoid pricing volatility punishment
Essentially, Amazon’s algorithm will punish you if you raise prices too quickly simply because they are in business to sell items to buyers at competitive, inexpensive prices. They disincentivize rapid price hikes to protect sales and a general perception of low prices across the marketplace. Dropping prices, however, is fair game: drop as fast as you’d like with no repercussions.
Here are a few tips to remember when changing prices:
- If and when you do raise prices, do it conservatively and slowly: only increase by 10-20% of the starting price with each hike, and keep the new price for three to five days before raising it again.
- Have foresight when listing a new product: if you might raise the price in the future, initially list it for marginally more than your ultimate target price. You’ll be able to reduce the price later without any algorithmic punishments.
- Study and understand your competition
Competition-based pricing is a pricing method where sellers use the price of competing products as a benchmark to either meet, exceed or undercut. No complicated formulas are necessary as sellers simply follow a price set by leading competition.
In some cases, competition-based pricing removes the need to advertise based on price due to equal or very similar prices among competitors, but it then adds a need to advertise and differentiate based on other product characteristics; this is a neutral effect.
Consider your specific product features and benefits before using a competition-based Amazon pricing strategy; if your item is truly differentiated, you may be better off relying on a different pricing strategy.
Use A/B Testing
“A/B” or “split” testing consists of analyzing data for an existing product before and after you implement a new Amazon marketing strategy. For example, testing different price points, keywords, etc. while holding all other variables equal (ideally). Be aware of factors that can distort your findings (holidays and seasonal trends), and adjust for them by avoiding holidays and split testing during the same season.
- Be sure to measure the impact and give your test enough time to collect significant data: two or three weeks is typically sufficient.
- Only change one variable between tests; otherwise, you won’t be able to say with much certainty what is driving variance in results.
- Be wary of decreased conversions due to a strategy change. It’s probably not worth drastically lower sales in exchange for data insights.
Set aside your own perceptions of value
It’s difficult to do, but try to be very aware of your own biases while thinking about your Amazon pricing strategy analysis. Consistently remind yourself of customer perceived value. Empathize with your customer to an extreme extent, ignore your own perceptions of value, and (unless you are your precise target audience) stop asking yourself: how much would I pay for this product? It doesn’t matter! What does matter is how much your customers are to pay for your product.
Your customers will spend money on things you wouldn’t even consider because they perceive and understand value differently than you. By remembering to put yourself in their shoes, you won’t be allowing your own views to hinder the discovery of the optimal (and most profitable) price points.