amazon-pricing-strategy-guide

Amazon Pricing Strategy Guide

Keeping your Amazon pricing competitive is key to winning the Buy Box/Featured Offer, which leads to increased sales. A higher sales volume brings you more opportunities for success, from additional cash flow that allows you capitalize on new opportunities to stronger negotiation power with your suppliers.

You work too hard to undersell your products. There's a fine line between staying competitive on the one hand and getting stuck in a money losing race to the bottom on the other. Having a smart Amazon pricing strategy in place means finding the right balance of maximizing your profits while selling steadily.

Start With Your Business Objectives

Ultimately, your pricing strategy should enable your Amazon business to continue to grow. Increased cash flow gives you the power to make decisions that can save you money or increase brand awareness. For example, placing larger orders with your suppliers may win you a special discount from them or implementing an advertising strategy might net you more sales. Hiring an additional team member, improving packaging for a better customer experience, and sourcing new products all require capital.

While pricing and pricing strategy can be (and often should be) product specific, both begin with your business goals. Ask yourself questions like:

  • Are you focused on maintaining a healthy profit margin?
  • Is increasing order volume a high priority?
  • Do you plan to hire new employees, build a warehouse or expand operations in other ways?
  • What financial goals do you need to reach to make your plans a reality?
  • Are you adding new ASINs to your product lineup?
  • Do you need to sell through older inventory to avoid long-term storage fees?

Regardless of where you want your Amazon pricing strategy to take you, it starts with some simple math. You should know your acceptable margin and understand all of the costs associated with each product you sell, from manufacturing to delivery. If your product has a limited shelf life due to seasonality or category (such as grocery or beauty), be sure to factor that into your pricing strategy and have a plan in place for moving any excess inventory.

Charlene Anderson
My pricing strategy begins when I buy products. I am a huge fan of exclusivity agreements with my suppliers as it then avoids any pricing degradation (aka “race to the bottom"). I love bringing new products to Amazon. Couple this with exclusivity agreements and I don’t have to worry about other sellers tanking a price. When I can’t get exclusivity agreements, I pay attention to the other sellers that are on an existing Amazon listing. I stay away from products where the competition are known to push prices down past profitability.
Charlene Anderson
Amazon Seller
amazon-pricing-strategy-guide

Why Competitive Pricing Matters

Learn how your Amazon pricing strategy affects your business.

Let’s face it, we all love a good deal. Amazon shoppers are no exception. They’ve come to expect great prices, fast shipping, and amazing customer service. As eCommerce becomes more ubiquitous, so do price comparisons. Amazon wants you to provide the best possible price for its customers, so competitive pricing is an important factor in the Buy Box algorithm.

Big box stores like Target and Best Buy have been matching competitor prices for years. eCommerce has simply led the charge in digitizing the price matching process. Now browser extensions, apps, coupon sites, and comparison content help shoppers find the products they want at a bargain price. Comparing prices and features has never been easier for consumers.

But attracting customers isn’t all about having the lowest price. Here are several other factors that shoppers consider when making a purchase decision.

Consumer Pre-Purchase Considerations

  • Item quality: How does the item compare to similar products?
  • Item durability: Is it intended for a single use or a lifetime?
  • Item purpose: Can the item be used for more than one task?
  • Shipping time: How long will it take for the item to arrive?
  • Brand: Does the shopper have a positive or negative view of the brand due to previous purchases or influencer recommendations?
  • Customer reviews: What kind of experiences have others had with the product?
  • High rankings: Has Amazon endorsed the item with an “Amazon’s Choice” badge or have other shoppers driven the item to “Best Seller” status?

Screenshot of Amazon Buy BoxOn Amazon, sellers frequently change their prices to compete more effectively. It’s not uncommon for prices to shift multiple times per day for popular items. Product prices shift frequently due to changes in item cost, shipping costs, demand, shopping trends and other factors. For this reason, remaining competitive can be quite challenging, but it is possible.

Your product pricing depends on a number of variables, but it’s important to consider how you compare to your competition. If you offer faster shipping or have a better feedback rating, you may get the Buy Box without having the lowest price. The number of sellers for the ASIN also impacts pricing. For example, if demand is high for an item with only a couple of sellers, you can almost certainly maximize your profits. On the other hand, low demand for a product with numerous sellers means that you might need to sell at a lower price. Depending on your true cost, demand, advertising strategy, and other factors, you may choose to raise or lower your price.

In addition to staying competitive, you’ll also need to find a balance between supply and demand. In many cases, sellers leave money on the table by pricing just above or matching the current lowest price for an ASIN. When supply begins to wane and competitors begin running out of stock, it makes sense to raise your price while the item is in demand. Seasonal items often see an increase in demand during specific seasons; during those times, it is very important to have a sense of the competitive field and how you fit into it. Understanding when to reprice up and when to lower your price is an intricate art. Repricing ASINs is often the most effective way to stay in the running and get a share of the Featured Offer.

Victoria Sullivan
If you have a product and/or a marketing strategy that's working, now is the time to double down on it. Competition on platforms such as Amazon is at an all time high and it's only going to increase. Plus, marketing and PPC strategies that worked six months ago may not necessarily work today. So, the window of time in which you are the only one selling that product and/or using that marketing strategy is extremely limited. You need to make every sale you can possibly make during the limited amount of time. You literally can't afford to stockout or not be able to fulfill an order. To truly optimize that short window of time, you need to take control of your cash flow. Once you've smoothed out your cash flow and made your marketplace payouts more predictable and more frequent, you are able to easily capitalize on each and every opportunity, order inventory when you need it, double down on marketing, and cover both shipping and shipping materials as you scale."
Victoria Sullivan
Marketing Manager
Payability
amazon-pricing-strategy-guide

Amazon Pricing Policies

Here's an overview of some of Amazon's most important pricing guidelines. 

Reference Prices

In many product categories, you will have the option to supply a reference price. This might be a list price or a manufacturer’s suggested retail price. If you provide a reference price, Amazon requires it to be a price at which you or other sellers have recently made substantial sales of the item. Reference prices provided to Amazon must stay current. If Amazon cannot verify your provided reference price, it may be suppressed.

Pricing Your Item

Amazon allows you to list items at any price that you feel is fair as long as it complies with the reference price policy and certain limitations. For example, if you are on the Individual selling plan, you may not list items at a price higher than $10,000. Sellers on the Professional selling plan cannot list items at prices higher than $300,000. There is an exception for collectible items.

Price Update Policy

In order to maintain fairness for sellers and protect the shopping experience for customers, Amazon reserves the right to process a limited number of price updates in a single day. If you reach the maximum daily allotment of pricing updates, no further updates will be processed until the next day.

Pricing Health

The Pricing Health page is not a policy, but it is useful to understand. Found in Seller Central, it shows all of your offers that are currently ineligible to be a Featured Offer/Buy Box winner because they are not competitively priced when compared to retailers outside of Amazon. You can resolve the issue by changing your offer's total price (including shipping) to at or below the competitive price.

Amazon Marketplace Fair Pricing Policy

Amazon monitors prices on its marketplaces as well as other marketplaces. This includes shipping costs. If Amazon perceives that your pricing practices are negatively impacting consumer trust, you may experience one of the following consequences: removal of the Buy Box, suspension of the ship option, removal of the offer or even suspension/termination of your selling privileges.

Amazon outlines the following pricing practices that harm customer trust:

  • Setting a misleading reference price.
  • Setting a price that is much higher than recent prices offered on or off Amazon.
  • Setting an excessive shipping fee for the product. Amazon considers current public carrier rates and reasonable handling charges in addition to buyer perception when determining whether a shipping fee is excessive.
  • Selling multiple units of a product for a higher cost per unit than the the price of a single unit of the same product.

When pricing your products, be sure to adhere to the fair pricing policy. Always consider how the customer will view your pricing. If a reasonable customer would take issue with your pricing, Amazon probably will too.

amazon-pricing-strategy-guide

Setting Minimum and Maximum Prices

Minimum and maximum prices are an important part of your Amazon pricing strategy. Establishing an acceptable price range for your products helps you operate more effectively and avoid possible policy violations with Amazon.

Minimum Price

Having a minimum price prevents you from selling your item for less than you intend to. If you’re not careful, you could quickly find yourself losing money for the sake of beating a competitor or increasing sales volume. Sometimes this strategy might make sense for your business in the short term, but it’s not sustainable. Deciding on minimum prices for each of your products is an important part of running your business effectively. If finance isn’t your cup of tea, hire someone you can trust to help you.

Minimum Price Inputs to Consider

1. Your total cost per unit, including, but not limited to:

    • Amazon fees (category fees, storage fees, FBA fees, and the like).
    • Transportation/shipping costs(from manufacturer to you as well as from you to Amazon or the end customer).
    • Other operational expenses (prep, packaging, labels, customer service, and so on).
    • Estimated cost of returns.

2. The minimum profit per item you’re currently willing to accept for this product.

Adding this all together will result in your minimum price for this item. Note that your desired profit may be quite different for different products. It may also change for the same product over time. As your desired profit margin changes, it is critical to remember to update your minimum price. Also, consider leaving space in your margin for future discounts and promotions to avoid selling at a loss while offering a deal.

Cyndi Thomason
Understanding your product cost is vitally important. First you must understand how much gross margin you are receiving on each product. That determines how much you have available to fund advertising and other marketing costs as well as your operating costs. I recommend people build profit into their product evaluation. If you can’t achieve a high enough sales price to cover landed costs plus profit at 30% plus advertising and operating expenses, then pass. That product will typically only go down in sales price over time and you will be left trying to figure out how to pay for everything."
Cyndi Thomason
Founder and President
bookskeep

Maximum Price

You might wonder why you need to bother setting a maximum price. After all, the higher your product sells, the better. Right? Well, not exactly. Setting a maximum price is important because it allows you to avoid something called price gouging. Price gouging occurs when a seller increases pricing to a level that is much higher than what is considered fair or reasonable. This usually happens after a sudden increase in demand. You may recall news stories about this regarding high prices on bottled water and other supplies when Hurricane Dorian struck Florida in fall 2019, and again with medical supplies during the coronavirus outbreak.

Sellers are required to set fair prices within the limits set by Amazon. Your price must also align with Amazon’s reference prices policy. Having a maximum price in place prevents you from accidentally breaking the law or Amazon policy by price gouging. We’ll cover these policies in the next section.

amazon-pricing-strategy-guide

Common Pricing Strategies

There are many approaches to setting prices for your Amazon products. Let's take a quick look at a few of the more popular methods.

Price Above Strategy

If you’re an FBA seller with stellar account health who wants to get the best profit possible on every sale, you may want to price higher than your competitors. It is possible to get the Buy Box without the lowest price. Seller health, shipping time, and other factors play a role in determining which seller has the Buy Box.

Price Match Strategy

Matching competitor prices can be a good way to get a share of the Buy Box rotation without digging into your profit margin too much. With this strategy, you simply match the prices set for your ASIN by competitors.

Price Below Strategy

Pricing below your competitors might seem like a surefire way to win the Buy Box. However, the Buy Box algorithm is complex and considers a variety of factors, not just price. Even if being the lowest priced offer is the only way to win a particular Buy Box, if you are pricing under a competitor who is trying to price below you, it can quickly become a race to the bottom.

On the other hand, this strategy can be helpful if you are trying to sell through inventory quickly to free up space for new inventory or avoid additional storage fees. If your Amazon seller health is suffering, lowering your price temporarily to increase order volume may be beneficial. More sales also provide more opportunities for seller feedback and product reviews.

Discounts & Coupons Strategy

Amazon allows you to offer coupons and discounts for your products. This is often most successful when combined with an advertising campaign designed to drive traffic to your listing, but offering a coupon or discount can also help your listing stand out from the crowd when a customer finds it in a general search. Be careful not to price below cost when discounting a product unless it is a strategy for moving inventory.

Do Nothing Strategy

This approach is not recommended. Even if you are the only seller of a private label or white label ASIN, having a pricing strategy will help you make the most of high demand and sell more during slow periods. If you sell an ASIN with several competitors, you will likely be left waiting behind the starting line if you are not actively repricing the product.

Data-Driven Dynamic Strategy

A more sophisticated approach to creating your pricing strategy is to implement an algorithmic repricing tool. The right tool can help you compete smarter and faster without sacrificing your profit margin. A data-driven approach removes emotion from repricing, helping you avoid pricing wars that hurt your bottom line. It also works around the clock to continuously reprice your products to stay competitive. Read on to explore how different types of Amazon repricers work and learn why algorithmic repricing is so effective.

amazon-pricing-strategy-guide

How Amazon Repricing Tools Work

Amazon repricing shouldn’t be done randomly.

Competing effectively on price is a delicate art and science, especially when it comes to maximizing your profit margin. There are a few different ways to reprice your products: manual repricing, rules-based repricers, and algorithmic repricing tools.

If you’re using a third-party repricing tool, you’ll enter your Amazon Seller ID during setup. This allows the tool to import your account and listing information from Amazon. The tool will sync with your products via an integration with Amazon. This notifies your repricing tool when there are competitive pricing changes for any ASIN you have listed. Your Amazon repricer then makes adjustments automatically.

We’ll skip the technical details here, but it’s good to have a general understanding of how Amazon repricers work. Below we’ve outlined four options for repricing your ASINs.

Manual Repricing

Screenshot showing how to edit product price in Seller CentralIf you only have a couple of SKUs or are just getting started selling on Amazon, manual repricing might work for you. To get started, go to the Pricing Dashboard in Seller Central to see if you are not getting the Buy Box for any of your ASINs. If you are getting the Buy Box, great! If not, you'll need to do a little research to see how other sellers are pricing the item. Then you'll adjust your pricing. You can do this by updating one item at a time on the Manage Pricing page. You also have the option to quickly price match the current lowest price. (Of course, this may result in lost profits for you, based on a variety of factors discussed elsewhere on this page.) You can also manually change your price on the Manage Inventory or Pricing Health pages.

To manually manage repricing effectively, you or one of your employees will need to go through this process several times a day. It involves a lot of data entry and calculations to determine minimum and maximum pricing. Keeping focused on the bottom line can be tough if you get involved in a price war and want to “win” against your competitor. There is also a lot of room for error, especially as you get tired. In short, manual repricing might work for a little while but it can quickly become a challenge, which is why many Amazon sellers turn to automated solutions.

How to Use “Amazon Automate Pricing”

You can set repricing rules within Seller Central using the Amazon Automate Pricing functionality, which is included for sellers with a Professional selling account. Amazon automated pricing is pretty simple: choose the pricing rule that suits your business objectives and select the ASINs you'd like to enroll in Automate Pricing.

Amazon Automate Pricing generally works by lowering your price beyond those of your competitors. That's great for customers, but not for your bottom line. Automate Pricing does an excellent job of lowering prices, but it won't help you maximize your profit. It is also less nuanced than an algorithmic repricing tool.

Screenshot of create a new pricing rule page in Amazon Automate Pricing

Third-Party Rules-Based Pricing Tools

Rules-based pricing tools allow you to select pricing rules that align with your goals. By automating the process of repricing your ASINs, these tools save time. Due to the structure of the approach, you must be prepared to re-evaluate your pricing rules regularly. Failure to do so could negatively impact your bottom line. For example, if all of your competitors increase their prices due to increased demand, you may run out of stock quickly while selling at unnecessarily low margins.

There are some additional limitations with the traditional rules-based repricing approach. You may find your products stuck in a race to the bottom. You could be losing profits by consistently selling just above your minimum price. Sure, your order volume increases, but if you’re constantly operating on a razor-thin margin it is difficult to grow your business. You need a solution that will intelligently and automatically price your items based on the competitive landscape.

Algorithmic Repricing

Many experienced sellers prefer to keep a single source of truth for all cost data outside of Seller Central by using third-party Amazon repricing software. Third-party solutions typically provide more robust functionality than Automate Pricing. Including exact cost information in Seller Central could result in even lower margins, as the tool encourages sellers to price match the current lowest price. Another benefit of a third-party tool is the ability to keep all cost information in a single location, which makes it easier to make decisions about what to restock, when to raise prices, and more.

Keeping cost information in a single location makes it easier to make decisions about what to restock and when to raise prices.

Smart sellers who want to maximize profits rely on third-party algorithmic solutions, which are the best in the business. Algorithms work for you to automatically determine the best possible price for your products based on the competition, your chosen minimum/maximum prices, and other data points.

A quality algorithmic FBA repricer will automatically calculate all Amazon fees and allow you to enter all of your costs for each product, giving you a complete view of the financials of your product. Once you’ve entered your product information, the algorithm constantly works to optimally price any product you list on Amazon, without having to store your product information in Seller Central. It keeps your pricing competitive, allowing you to grab a bigger share of the Buy Box.

Chris Anderson
Competitive repricing is the most challenging aspect of selling on Amazon. It seems there is no rhyme or reason for who gets the Buy Box anymore. Strategies that work in one category will most likely not work in another category. And even individual items within a category may require a different approach. It is imperative as a smart seller to constantly reevaluate your repricing strategy to stay competitive in this market."
Chris Anderson
Founder
Superhero Sellers
amazon-pricing-strategy-guide

Power Your Amazon Pricing Strategy

See why an algorithmic repricer can help you run your business more effectively.

Leverage the Power of Data

You’re busy. You simply don’t have time to stress out about price wars for each of your ASINs, and, let’s face it, that wouldn’t be the best use of your time. Algorithmic repricing gives you peace of mind by automating a time-consuming task with data science. Maximize your profits without losing sleep or spending hours manually changing prices for each of your ASINs.

Less Room for Error

Sometimes your emotions get the best of you. Getting caught up in a competitive pricing battle on one of your ASINs is not the best way to use your time and energy. Automated repricing allows you to step away and be a better competitor. By taking your feelings out of the equation, you can be confident that your products are selling at the best possible price while you focus on other tasks.

Smart and Automatic

Keeping up with the constant Amazon pricing changes for your products could easily become a full time job, but even then it is nearly impossible to manage. Algorithmic repricing allows you to automatically list your products at the right price to remain competitive. By monitoring competitor prices and automatically adjusting your prices in response to pricing changes made by rival listings, an algorithmic repricer can help you compete more effectively.

Sell at the Smartest Price, 24/7

Whether you're hoping to sell through stale inventory or maximize your profit on a popular ASIN, an Amazon algorithmic repricing tool is on the job all day, every day. There are no breaks or sick days. You can rest well knowing that your repricing tool is working for you all day, every day.