Originally published on February 5, 2020, updated July 1, 2020
In this guest post, Ryan Flannagan of Nuanced Media discusses how price impacts your conversion rate on Amazon.
Pricing has long been a factor in Amazon’s success story. For Amazon business owners, it’s often a hotspot. For years, there’s been a focus on MAP pricing and MSRP – setting specific minimums across the board. Yet, there’s been a big shift over the years in all retail strategies.
Today, Nuanced Media’s team of Amazon Consultants are seeing more focus on direct to consumer strategies. These seem to encourage a race to the bottom. That’s due to higher competition, knock-off products, and the global economy as a whole. There’s no doubt that Amazon also encourages this heavy competition.
If you’re in this place, you’re left to wonder – what are you supposed to do to remain competitive?
Ranking and conversion rate affect one another, but slashing prices is not a silver bullet to get to the top of the search rankings.
Slashing prices is not a silver bullet to get to the top of the search rankings.
When you drop your prices, this may temporarily give you a nice boost in conversion rate. However, if your product is suffering from low visibility or sales performance at the current price point – before the drop – there is no guarantee that a lower price will make any real improvements happen for you.
In addition, consider how Amazon builds its algorithms. They are designed to benefit Amazon, not your business. Dropping your prices doesn’t help the company. This race to the bottom, then, doesn’t benefit Amazon at all. Why would they help support that long term?
Every sale on Amazon gets a percent referral fee. The higher the price of that product, the higher the fee is. It’s also important to remember that Amazon rewards products that have the most profitable combination of both sales volume and price. For this key reason, dropping your prices isn’t going to build the profitable business you need.
There’s a common misconception about pricing and branding. Some Amazon sellers believe that being competitive at the lowest price point possible early on may be the best way to grab attention. It may get you a few sales, yes. However, in the early stages, you may not realize that higher prices may actually increase your conversion rate more.
Higher prices may actually increase your conversion rate.
Remember, price isn’t just about the cost to make something. It’s also the perception of value in the consumer’s eye. If you own something that you truly cherish, you would pay much more than it cost to repair. Think about something you buy on a consistent basis that’s at a higher price point than what other products similar to it cost because, for some reason, you believe it to be a higher value. Sometimes, this is about the quality that you expect to be present in this brand versus another.
It’s not easy to see this as a retailer just starting out on Amazon. However, it’s not uncommon to see those just starting out with a higher-priced item selling at a faster rate. It’s all due to the perceived boutique notion – that because an item is the most expensive, it must be better in some way.
To get the best of this, work to understand the market and niche you’re in. Learn about the competition and what your customers’ psychology is when buying products like your own. Find out what they value and what they would consider worth a higher price. Then, decide on your initial pricing.
Once you have a strong connection between the product’s value and its price, and you have some sales volume, it’s time to consider split test pricing. Set an acceptable range to do this in to determine what’s the right spot for your items.
There’s a variety of software on the market that can help you to do this. The goal is to help you find the ideal profitability point for your product, using both pricing and conversion rates. These programs can help you split test numerous elements of your listing pages, too, including the descriptions, titles, and virtually every other component. You should be using them as a part of the process of creating your listings and optimizing conversions.
Your products conversion rate for a full-price sale directly correlates with its search ranking for terms indexed within the listing. Keeping that in mind, you need to consider every way you can optimize your items, but make sure to remain within the acceptable margins for your goals.
The on-page optimization work you are doing is important. Also, consider the value of optimizing any links you use to drive outside traffic to the product listing page. If you are using a program to promote a discount to a subscriber base, for example, use a link generator.
There are a few other words of warning to consider when it comes to how price impacts ranking on Amazon.
#1: It’s easy to increase price without a lot of blowback. However, decreasing your price means you’ve permanently altered the perception of your product. That means people believe it’s worth less now.
#2: Create agreements with distributors with care. Make sure these agreements abide by MAP pricing. Ensure you’re not giving away so much of your margin that distributors can offer your product for less than you feel comfortable selling it for.
#3: Get on Amazon’s brand registry. Apply for a trademark. This helps keep pricing consistent. Without this, distributors can put pressure on you for pricing and winning the Buy Box. This also means you’re no longer as vulnerable to counterfeiting.
Many companies try to rank with Amazon by using strategies to reduce prices and cut into their margins just to boost their ranking. Yet, this doesn’t always lead to long-lasting results or any effective increase in conversions. Instead, Amazon sellers need to simply align their product to customer expectations and do everything they can to exceed those expectations to boost product value, creating demand for even higher-priced items. Want to learn more about improving your seller reputation? Reach out to Nuanced Media’s team of Amazon marketing experts for more insider best practices.
You can read more from Ryan on the Nuanced Media blog.
Originally published on February 5, 2020, updated July 1, 2020
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.