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How to price your product on Amazon

Amazon has loads of tricks and tools you can use to try and gain an advantage over your competition. 

You’ve got multiple types of advertising tools (Sponsored Products, Sponsored Brands, Sponsored Display etc.), different bidding strategies and lots of options for how to layout your page. 

But how do you determine perhaps the most important thing about your private label product? The price. 

Much of the time it is the single most determinative factor in a shoppers choice of what to buy, so you better make sure you get it right, otherwise you could see your competitors taking your business by undercutting you, or you could leave money on the table that you would otherwise have earned. 

The vast majority of sales on Amazon happen through search, and most of those happen on the first page, meaning that competition is intense before shoppers even get onto your page. Since products are all listed on top of each other on a results page, there is nowhere to hide from potentially better deals offered by your rivals. 

This means, in the first instance, that you can’t get away with prices that are too expensive. At the same time, while price is a crucial metric, data shows that over 75% of shoppers are willing to spend up to $100 on a single product when they’re buying on Amazon, but these, of course, are a minority of shopping trips, and most will fall well below that $100 mark. 


How do I determine a good price?


To know what you want to charge, a good place to start is with your profit margin. Your product will cost a certain amount to produce, and obviously you want to charge more than that number - after also accounting for associated costs such as PPC costs, FBA fees etc. -  but how much more? 

Typically, a solid profit margin lands somewhere between 25-30%, but this number can, of course, vary wildly depending on the product and other factors. Some product lines survive on a 10% margin, while others enjoy 50%. 

Currently, just over two-thirds of sellers on Amazon have their profit margin at over 10%, and just over one third have it over 20%. 

There are three main ways to price an item: 

  • Cost-based pricing: 

          Your minimum price will almost certainly be your break-even price, under which you couldn’t cover your costs and start losing money. Unless you’re just launching a           product and employing some form of aggressive below-cost strategy in order to achieve market penetration before bringing prices back up, a strategy which           carries its own risks, then break even really shouldn't even be considered. 

  • Competitor-based pricing: 

          This strategy is based on the pricing of your competitors’ products. Going this route, you won’t want to let your rivals undercut you, especially if their products are           of similar quality. 

          When you initially launch a product, do some research to determine the average price range of similar products to yours and keep the  price at the lower end of           that range, at least until your product begins to gather good reviews, at which point you will have more flexibility to raise the price and still have shoppers see it as           a justified choice. 

  • Value-based pricing: 

          As mentioned earlier, price may be the most important metric but it is far from the only one. You can differentiate yourself with the quality, function and lifestyle           elements of your product. You can evaluate your product relative to your competitor and charge a premium for a better offering. You will, however, need to justify           this - so make sure your product description and accompanying content is at a high level. Remember that there is a fine line between what is considered           worthwhile and what is considered extortionate and you don’t have a blank check. In the end, the name of the game is to create value, meaning you offer a good           quality product at a reasonable enough price. 

In any event, beware of the extremes. If you price your product too high, then it goes without saying that customers may look elsewhere for a more reasonable offer, but if you price it too low then you could not only eat into your profit margin, but you may also draw suspicion from shoppers about the potential inferiority of your product. The effect of pricing too low can also ripple beyond your own product - if you trigger a downward price war, you run the risk of devaluing the entire segment and make it more difficult for anyone to raise their price back up.


Tips and tests


Even outside the content of product quality, there are situations where it seems better to charge more. Consider, for example, if you are trying to sell to non-Prime members that don’t have free shipping on all orders. If they see that they have to spend an extra $7 on top of the stated sales price just to receive the item - or if they have to add some other item to their order that may well exceed that $7, they are psychologically less likely to want to follow through with the purchase.  It may actually be beneficial to price the product above that free shipment price to begin with, as they would be more likely to convert if they just have to pay what is on the label if it says “free shipping”, even if competitors may have cheaper products that would require postage fees. 

Another age-old way marketers have harnessed consumer psychology is through charm pricing, i.e. charging $9.95 instead of $10. The beauty of it is that even if the shopper knows what is happening and that the difference is negligible, it still works! It will work in a store, and it works on Amazon. 

Finally, even after you’ve examined your strategy, worked out your profit margin and thought about the positioning you want, you could still be unsure of the price point you’ve picked. A great way to make a determination is to carry out some A/B testing. You can do it simultaneously over a certain period of time - ideally at least two weeks - or you can try a couple of weeks at one price point, followed by another couple of weeks at another, and see which one performed better.

Need help?

 

Schedule a free 30-minute audit call with a specialist today. 

Our Solution Architects are trained to understand your business and present your best options to grow on Amazon. All advice is customized to your needs.

About us

 

Old Street Media supports businesses with their advertising, inventory management, and other eCommerce services. We work with over 4000 brands and have helped generate $600M in sales in the past year.

Old Street Media is owned by Threecolts. Threecolts acquires, launches, and grows eCommerce software & services and owns other incredible businesses like HotShp and SellerBench.

Reach out to HotShp for help with product titles, descriptions, bullet points, social posts, and blog posts.

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