As of April 2023, Amazon, the most popular online marketplace in the world, has a market cap of $1.051 trillion. This most visited e-commerce platform enjoys more than 43% of all online sales in the US.
Sellers who are ready to do business on Amazon, have to decide on a pricing strategy that aligns with their business goals. In this article, we look at the different Amazon pricing strategies that are implemented online by various brands.
Factors to Remember When Deciding a Pricing Strategy on Amazon
Choosing the right pricing strategy is one of the main reasons for the profitability of a business. However, it is a challenge to find the perfect price that drives the most revenue. To earn a profit, sellers have to factor Amazon fees and other miscellaneous costs into their pricing decisions.
Amazon’s aim is to keep the prices on its platform as low as possible for customers to revisit their site for all their online purchases. For this reason, sellers have to constantly revise their prices by monitoring competitor prices.
Though the rules and regulations on Amazon are quite rigid, the Amazon Seller Central dashboard assists the seller in overseeing product pricing. It also helps in tracking customer feedback and analyzing business performance.
Amazon suppresses the Buy Box (also called Featured Offer) of sellers who price their products much above the regular selling price. It has built its Buy Box algorithm to encourage sellers who offer competitive pricing and a positive shopping experience.
Certain sellers attract customers with low prices but trick them by charging high shipping fees. Such pricing tactics reduce the chances of winning the Buy Box on Amazon.
10 Tried and Tested Pricing Strategies on Amazon
Listed below are the examples of top pricing strategies on Amazon:
Competitive Pricing on Amazon
When entering an already saturated market, a new product reduces its price to undercut the competitors. Sellers use competitors’ pricing as the benchmark and set a price to match or beat competitors’ prices. Certain sellers earn profits by pricing say 1.5% above the lowest Fulfilled by Amazon (FBA) competitor. In
a few months, the same seller might reverse the strategy by matching the lowest price on FBA to clear their inventory and sell more volume. This pricing strategy is the safest and easiest to put in place. But on the downside, it is not easy to stand out from the crowd.
As an example, De Cecco spaghetti pasta became the bestseller in the spaghetti category as the product is priced at $2.50, which is way below its competitors.
Seeing an opportunity to compete, 365, the private label of Whole Foods Market by Amazon, entered this segment to sell its 16-ounce Pasta Spaghetti at the lowest price point of $1.59 beating the bestseller price of De Cecco. 365 pasta definitely has an upper hand in this case as the customer is receiving organic wheat spaghetti at the cheapest price. By pricing the lowest in a category, the brand might win the buy box but the business may not be profitable. In this case, if 365 Pasta has a huge volume of sales, the brand will earn a profit.
Value-based Pricing on Amazon
Sellers have the advantage of setting their prices higher than the competitors when the product they sell provides more value to customers for a comparable price as a competitor’s product. In this case, customers look for the better value the product offers rather than just its price. They are willing to pay a high price for the perceived higher value of the product.
In the example below, even though the Petlibro dual pet feeder is more expensive, it is unique as it comes fitted with a camera and two-way audio and provides more value. The usual feeders come in a price range of $6-69.
In the US, Amazon charges all non-prime members $5-10 as shipping fees for orders below $25. Certain sellers enjoy a higher conversion rate when they price a $20-$30 item for a $25 threshold to save the shipping cost for customers. This is another method of offering value to customers.
Seasonal Pricing on Amazon
This is a pricing strategy where retailers change the prices based on the season and the demand for a product or product category.
For example, bunny and egg-shaped chocolates are sold at full price during the Easter season, but after the festive season, the demand for these chocolates goes down, and therefore, retailers reduce the prices of these products.
Market Penetration Pricing on Amazon
The price of a product or a service is reduced to the lowest in comparison to all its competitors in the category. The aim of this strategy is to penetrate the market and gain a majority market share in a short period. This is not a sustainable long-term strategy.
A company can make a profit with this pricing if there is mass adoption of the product. A negative side of this strategy is that bargain hunters switch to other brands when they see a better deal elsewhere.
In the scheme below, all new subscribers of Amazon Music get to listen to free unlimited music for three months. By the end of the promotion period, most habituated subscribers will continue to stay. However, in case a competitor offers a similar promotion, certain customers will jump ship to the cheaper alternative.
Read our detailed article on Penetration pricing.
Price Skimming on Amazon
As is the case with most technology-related products, brands charge the highest possible price at the time of launch to give the impression of high quality. Over time, when competitors introduce their own products with similar features, the price of the product comes down.
When the Samsung Galaxy S22 Ultra model launched in 2022, the price was $1199.99 with no discount. Now, the same model is available on Amazon for the skim price of $799.99.
Read more: What does Price Skimming Mean?
Economy Pricing on Amazon
Sellers who follow economy or marginal-cost pricing, set prices close to marginal cost and rely on smaller profit margins. Though it may take more time to break even, it is done on purpose to sell more volume while staying profitable. Generally, economy pricing works well for daily-need products that have relatively low production costs.
In the example below, a value pack of 18 Post-it memo pads which was originally priced at $29.79 is now selling for $15.24. Similarly, a pack of 50 disposable masks is priced at $11.99 i.e., merely $0.24/mask. Sellers of these products are taking minimal profits.
Introductory Pricing on Amazon
A company introduces a new product at an attractive price, with the intention of making more buyers try the product. This price is usually offered for a limited time ranging from one month to a year before it goes full price.
In this introductory offer on Amazon, three varieties of Gleow serums are offered for the price of one.
Psychological Pricing on Amazon
Most of the customers buying on Amazon are price-sensitive. JC Penny’s strategy of odd pricing creates a greater perceived value in customers’ minds. Ending the last digit of the price in an odd number is called odd pricing. By employing this pricing in an effective way brands sway value-conscious consumers into believing they are offering a bargain.
For instance, both Colgate and Venus Visage are teeth-whitening pens that are technically priced below $20. By setting prices at $18.49 and $19.99 instead of $20, products appear more affordable through this charm pricing technique.
Discount Pricing on Amazon
In 2022, Amazon reported Prime Day to be the ‘biggest ever two-day sale event. In the 2-day event, more than $3 billion shoppers bought items from over 100 million small businesses which proves that consumers love discounts.
A tactically executed discounting strategy is definitely a crowd-puller. Prime Day, Black Friday, Cyber Monday, or the daily lightning deal, increases sales and strengthens the customer experience. Having said that, online retailers may not be allowed to advertise products below their Minimum Advertised Price (MAP).
Given below is another method of influencing customer emotions through price points. The white king-size sheet set is priced at $199.99, which is much above the market rate. But the listing says, when a coupon is used, the buyer gets the product for a 50% discount. A king-size bedsheet is available for $80.99 without any coupon or discount.
But, psychologically, customers tend to feel they’re getting a greater deal with a coupon.
If the goal is to sell more units, discount pricing or a limited-time deal is a good strategy. There are various types of discounts. In an incremental discount strategy for instance, when buying an item at full price, the customer gets 15% off on the 2nd item and 20% off on the 3rd. Thus, customers save more if they buy more.
Bundling Pricing on Amazon
The bundling strategy combines complementary products into a single package to offer it at a discounted bundled price. It conveys a sense of value through the savings the customer receives by buying a bundle of products. It boosts sales by selling more products to a customer who wasn’t looking to purchase the bundle in the first place.
A very similar offer is the BOGO (Buy One Get One), where when one item is bought at full price, an additional item of the same kind comes free.
For example, the savings a customer makes when buying L’Oreal Shampoo and Conditioner as a bundle rather than individually is just 64 cents. However, customers are more likely to buy bundled products as they perceive them to get more value. Thus, this strategy is used by many brands on Amazon to boost sales.
Poor reviews reflect negatively on Amazon’s customer metrics. Some sellers offer discounts on such products to prevent giving false expectations to customers.
Setting the right prices can drive sales. But, there isn’t a single successful pricing strategy formula that will fit all brands selling on Amazon all the time. What works today, may not work tomorrow. So, repricing the products according to market and competitive conditions is an optimal strategy. For a successful online business, sellers have to align with Amazon’s motto of providing customers with a variety of products at a good deal.
If you need price monitoring solutions for your Digital Shelf, contact MetricsCart, and we will be glad to help you. We can share actionable insights on sellers, track MAP violations, and monitor competitor pricing on any e-commerce platform including Amazon.
* Disclaimer: The product images and prices in this article are screenshots from Amazon between April and May 2023.