Pricing for Profit: Grow your Business Profitably
Nov 2, 2023
Whether you sell private label or resell products for a profit, pricing is a key driver of your sales. Understanding your net average selling price and your cost structure at a product level is essential to ensure that you are building a lasting Amazon business. We will dive deeper into different pricing strategies that you can leverage to grow your business and profitability, but first let’s go over the basics.
Basic understanding of Amazon
No matter if you are a new seller or already an expert you have heard about the BuyBox and its importance. The BuyBox is the section of your product detail page where customers are able to i) see your pricing, ii) see which company is selling the product, iii) see the fulfilment method (most importantly, whether the product is eligible for Prime delivery), iv) add to cart and buy with one click, v) see other offers for the product (from other sellers or used products). The BuyBox displays the best available offer, which is not always necessarily the lowest priced offer. There are multiple attributes that Amazon takes into account when determining the BuyBox offer: Price, Fulfilment method, Fulfilment fees, reputation of the sellers, age of the account, amongst others.
The BuyBox is particularly important in three main scenarios:
Ensuring that you have an offer for the product so that customers can buy it
Tracking the percentage of times your product wins the best offer (BuyBox % Win)
If you are a Brand Owner, ensuring that you are the sole seller of your products
Now that we understand the basics of how Amazon displays an offer, let’s dive into pricing strategies.
Amazon Pricing Strategies
Pricing isn't just about covering costs and making a profit; it's about psychology, perception, and strategy. Below we'll explore some of the most effective pricing tactics that can help Amazon sellers not just compete, but dominate in their market.
Before diving into numbers, understand that your product's reviews and ratings can be just as crucial as your pricing strategy. High-quality reviews and strong ratings can justify a higher price point, providing you with a competitive edge. Consider investing in customer service and product quality to enhance your reputation, which can, in turn, allow for more flexible pricing strategies. If you are starting your first Amazon FBA business or launching a new product, consider using programs such as Amazon Vine to get quality reviews from professional product reviewers. If you are enrolled in Amazon’s Brand Registry, you might be eligible for benefits such as 5% back in branded sales, 30 free reviews on one product using Amazon Vine, or free transparency codes.
Psychological Pricing Tactics:
The human mind loves a good deal. Pricing items just below a full dollar amount (like at $19.99) can psychologically appear as a better deal than $20. This strategy, known as charm pricing, can significantly impact buying decisions and increase conversions.
Penetration Pricing:
For new products, a penetration pricing strategy can help you enter the market and attract customers quickly by setting prices lower than the competition. Once you've established a customer base and brand recognition, you can gradually increase your prices to a more sustainable level. You can measure your brand recognition by keeping track of search volume generation in your branded keywords using Amazon Brand Analytics.
Strategic discounts and promotions are essential for positioning new products. They provide increased visibility by placing your listings on Amazon's 'Top Deals' and 'Coupons' pages, acting as visual cues that attract customer traffic. This extra exposure not only boosts immediate sales but also accelerates the accumulation of reviews and ratings, essential for long-term product success. Use these promotional tools to enhance your product's prominence and kickstart a cycle of visibility and growth.
Value-Based Pricing:
Value-based pricing goes beyond mere numbers; it's about presenting your product's worth visually and compellingly. Start with your main image—this is your first impression, your handshake with potential buyers. Make sure it's sharp, high-resolution, and varied; multiple shots of the main image can help you stand out in a sea of competitors. Employ A/B testing with different images to see which one resonates more with customers and leads to better conversion rates.
Maximize your product's presence in the image by reducing excessive white space; a product that fills the frame garners more attention and improves click-through rates. Be strategic and make every one of the allowed seven images on Amazon count. If you have attractive packaging, showcase it. It's part of the experience and can influence perception of value.
Infuse your listing with infographics; they're not just popular, they're effective. Infographics can elegantly communicate your product’s benefits and features, showing customers exactly what problems your product can solve for them. Complement these with 'lifestyle' photos that depict your product in use. Customers aren't just buying a product; they're buying an experience. Showing your product in a real-life context helps customers visualize it in their own lives.
Lastly, consider 3D renders if possible. A well-rendered image presents a cleaner, more professional look, enhancing the perceived value and quality of your product. These visual strategies, when applied thoughtfully, can significantly influence your pricing power and help you command the price your product truly deserves.
Bundling Products:
Creating product bundles not only increases the perceived value but also improves customer convenience, potentially enhancing your average order value. Bundles can command a higher price point and often reduce customer acquisition costs, improving margins. You can create virtual bundles from your Amazon Seller Central account to drive sales of different products from a single product detail page.
As you refine your Amazon pricing strategies, it's crucial to remember that the market is not static; it's a dynamic, ever-evolving landscape. This requires a vigilant approach to monitoring market trends and adjusting your prices accordingly. With 3fin.io you can seamlessly track product performance and play around with your unit economics, providing real-time insights that empower you to make informed decisions, ensuring your pricing remains competitive and aligned with your profitability goals. Regularly revisiting your pricing strategy is not just recommended, it's essential for sustaining and amplifying your Amazon success.
