Why Pricing Matters: Pricing Strategies for Your Amazon Business
The new normal has influenced numerous consumers to go online instead of purchasing items from brick-and-mortar stores. The previous lockdown and quarantine protocols led some traditional shoppers to realize the convenience of online shopping. Besides shopping convenience, consumers also prefer shopping online because of the competitively priced listings.
Since price is one of the factors influencing shoppers' purchasing behavior, sellers must learn some pricing strategies to improve the sales conversion of their business. Knowing some of these pricing strategies can be beneficial, especially for Amazon sellers operating in a highly competitive marketplace.
What Is Pricing and Why Does It Matter?
Pricing, in the context of economics and finance, refers to the action of creating value for a product. As an act, pricing happens when sellers or business owners decide how much shoppers must pay for their product.
Moreover, from a marketing perspective, pricing is one of the four main elements of the marketing mix, including product, promotion, and place. Among these four elements of marketing, pricing is the only revenue-generating element.
Simply put, pricing is the perceived value for cash. And since pricing defines the value of your product, it informs customers whether your product is worth their money. Offering a competitive price point to shoppers is pivotal in obtaining profit and business growth.
Almost everything comes second to pricing. It is the most vital profit driver of your business. Hence, developing and implementing an effective pricing strategy is crucial for any business, including your Amazon business.
Different Pricing Strategies You Can Implement
Pricing strategy is the method business owners, or sellers use to price their products. Some factors considered when implementing a pricing strategy include input costs, trade margins, consumers' ability to pay, account segments, market conditions, and competitors' actions.
To help you improve your pricing campaign, here are essential insights concerning some pricing strategies you can incorporate into your Amazon business.
Competitive-Based Pricing Strategy
This type of pricing strategy highly considers competition in the marketplace. Before setting a product price, sellers first observe the selling price of a market rival. >
A competitive-based pricing strategy is practical when there is little to no difference between your product and that of your competitor. That is why sellers must first identify their competitors or competing products for this pricing strategy to be effective.
This pricing strategy is ideal when the brand or product manufacturer is not the primary concern of consumers. Competitive pricing works best when your product serves as a low-cost and commoditized product substitute.
Demand-Based Pricing Strategy
This pricing strategy responds to the market or customer demand, which is why it is sometimes called customer-based pricing. Rather than shaping customer perception or responding to competitors' pricing, a demand-based pricing strategy responds to the ongoing or anticipated changes in market demand.
Implementing this pricing strategy for your Amazon business means adjusting the listing price, often in real-time. Apart from simply considering customer demand, you should also consider manufacturing cost, product quality, and market competition.
Premium Pricing Strategy
The premium pricing strategy means charging higher prices than your competitors. Premium pricing intends to create a perception among shoppers that your product must be of higher value than the competition because of its relatively higher price point.
Since you will be pricing your listing higher than competitors, you will likely have a higher profit margin while creating a formidable barrier for competitor entry.
Before implementing a premium pricing strategy, you should ensure that your product is unique and there is less or no substitute. If your product has a unique feature to it, or has a patent or copyright, this can also help deter other sellers from trying to offer similar products.
It would also help to present your product as a luxury product or of exclusive design. It will lead consumers to think that your product is exceptionally high quality.
Penetration Pricing Strategy
If you wish to penetrate a particular niche or market on Amazon, you can try to implement penetration pricing. As a pricing strategy, penetration pricing helps a new product attract more customers away from competitors.
This pricing strategy is best used by sellers who want to gain market share quickly. For this pricing strategy to be effective, your initial offer should be lower than that of the competitor's price.
As a new entrant, you can quickly capture market share, create brand loyalty, generate significant demand, or even drive competitors out of the market by utilizing penetration pricing.
However, you should be careful when implementing a penetration pricing strategy for your Amazon business, for it can sometimes damage your brand image. Amazon shoppers may perceive your product as something cheap or of poor quality because of its relatively low price point.
Moreover, lowering your product price can also lead to Amazon price wars, which can be detrimental to your profit margin.
Bundle Pricing Strategy
The bundle pricing strategy is one of the highly utilized pricing strategies on Amazon. This pricing strategy means combining complementary products, which are often offered at a reduced price.
When implementing this pricing strategy, you will need to bundle an in-demand product with a slow-moving product. By doing so, you are actually increasing the latter product's perceived value.
To increase the success rate of bundle pricing, you should try bundling products that easily complement each other. An excellent example of this would be bundling a facial wash with a moisturizing cream.
Optimize Your Business Today
Setting prices for your Amazon listings is not a one-time project but rather a continuous process. Along with your business goals, you can use the pricing strategies mentioned above to help you decide how much you will charge consumers for your products.
However, if you wish to automate the pricing process, you can also employ an Amazon repricer to help you quickly achieve a competitive price point for your listings. With the help of repricing software, you can optimize your pricing strategy while decreasing human error and avoiding emotionally-driven decisions.
Moreover, you can also improve your overall sales performance on Amazon if you will incorporate an effective Amazon advertising strategy. Since pricing and advertising are marketing components, optimizing both can improve your overall Amazon sales performance.
If you wish to automate your advertising campaign, you can also take advantage of the Amazon advertising service. Utilizing this type of service will give you more time to check on other important aspects of your business, such as product research and customer service.
Author’s Bio:
Junel Ayala is a writer at Seller Snap. Over the past years, he has been engaged in project management, SEO content writing, and local SEO marketing for various firms in the United States and Europe.
