As an Amazon seller, you know that the right pricing strategy can mean the difference between a bestseller and a dud. It makes sense to start with the three basic options: Competition-Based, Cost-Plus, and Value-Based.
In this post, we’ll review those popular pricing strategies and talk about how you can execute on each one (and make more profit) as an Amazon seller.
Why Pricing Strategy Is So Important for Amazon Sellers
Price is everything on Amazon. Get it wrong, and you’ll either miss out on sales or end up in the red—or out of stock at the wrong moment. Get it right, and you could see a surge in profits. But how can you figure out which one is right for your business and the products you sell? And will you ever need to change strategies based on the market?
In this post, we’ll review the main three most popular pricing strategies available to Amazon sellers. We’ll also provide guidance on how you can execute each one in order to maximize profits. Whether you’re an old pro on Amazon looking for an edge or you’re just getting started, read on for our insights on the best pricing strategies for success.
Competition-Based Pricing
One of the simplest and most popular pricing strategies available to Amazon sellers is competition-based pricing. Also known as “market-based pricing,” this strategy involves setting your prices based on what similar products are being sold for by your competitors.
To execute this strategy effectively, you’ll need to keep a close eye on your competition’s prices and adjust yours accordingly. You’ll also need to make sure that your product quality is high enough to justify any price premium over your competitors. But if done correctly, competition-based pricing can help ensure that you’re always offering a competitive price that attracts buyers.
Services like SellerSnap and Aura can monitor the competition and automatically reprice your products to maintain a competitive edge and make sure you offer the best price. There are various repricers out there that function slightly differently, so here are some key things to look out for:
- Repricing rate: Repricers will vary in how often they check the competition for pricing updates and adjust your prices to reflect the market changes. Obviously, the more frequently price changes are checked, the more likely you are to stay ahead of the competition, especially if you’re up against someone else who is also using a repricer.
- Price: Again, the cost of repricing software can vary massively with some repricers coming in as high as $400/month and others as little as $9/month.
- Ease of use: There is no point in having a product with a multitude of features that are difficult to use or understand. Make sure you go for an option that you can navigate with ease.
Cost-Plus Pricing
Another common pricing strategy used by Amazon sellers is cost-plus pricing. Also known as “markup pricing,” this strategy involves setting your prices based on the cost of goods sold plus a desired profit margin.
For example, let’s say you’re selling a widget that costs you $5 to manufacture. If you want to earn a 25% profit margin on each unit sold, you would price the widget at $6.25 ($5 x 1.25).
To execute this strategy effectively, you’ll need to have a thorough understanding of your costs and desired profit margins per product and product line. You’ll also need to be able to regularly and quickly adjust your prices when manufacturing and other costs go up (or down).
But if done correctly, cost-plus pricing can help ensure that you’re always making a healthy profit on each sale. Just be sure to keep an eye out for sudden movement among competitor’s prices so you don’t miss the market.
Value-Based Pricing
Value-based pricing is a more sophisticated approach that takes into account not just the cost of goods sold but also the perceived value of the product to the customer. In other words, with value-based pricing, you would set your prices based on what customers are willing to pay for the product—not just what it costs to produce or what your competition is charging.
Luxury brands follow this model. Their cost of goods sold and overall product is similar to regular brands, but they charge a premium based on the perceived value of their brand.
To execute this strategy effectively, you’ll need to have a good understanding of your target market’s needs and willingness to pay. And ideally your brand (or the brand you sell) can effectively capitalize on both. Product categories in which this strategy can be successful include vitamins and supplements, and clothing and apparel.
It’s tricky, but if done right, value-based pricing can help ensure that you’re maximizing both sales and profits. Don’t jump into this one head-first unless you’ve done this before or you’re reselling a luxury brand or something otherwise rare, vintage, or unique.
Conclusions on Pricing Strategies for Amazon Sellers
There’s no one “right” way to price what you sell on Amazon. It is an extremely competitive platform, which leads many sellers towards competition-based pricing strategies. But a lot of sellers also get by selling with the cost-plus method—adding their desired profit margin on top of cost of goods sold. Value-based pricing is rarer on Amazon, but it’s still out there for luxury items in certain product areas like skincare and fashion.
The key is to understand these 3 different strategies and to select the one(s) that best suit the products you sell and your target market. By keeping these considerations in mind, you can set yourself for pricing success—and more profits—on Amazon.
