We all know Amazon Marketplace is the juggernaut of all e-commerce platforms … but just how big is big?
Spanning across 180+ countries, Amazon Marketplace has over 300 million active customer accounts. When you become an Amazon selling partner, you have the opportunity to tap into this enormous market and get your products in front of the eyes of millions of potential customers.
So you better make sure you get your prices right.
Why is pricing on Amazon so important?
Amazon Marketplace is huge—and that spells big opportunity for sellers. But it also spells big competition.
In fact, few people realize just how many sellers there are on Amazon and how difficult it can be to get noticed.
There are over six million sellers on Amazon, and the average seller has over 100 items for sale. That's six million listings!
With such a saturated market, it's easy to get lost feeling like a small fish in a big pond. If you want to find success selling your products on Amazon, you need to price your products competitively so they can stand out from the competition.
In this article, we'll dive into:
- The most common pricing strategies Amazon sellers use
- Tools you can use to manage your prices
- Top FAQs from Amazon sellers about pricing strategies
The 4 most common pricing strategies for Amazon sellers
Finding success selling on Amazon starts with picking the right prices for your products. But how do you pick a price for Amazon? That’s the big question.
Here are the four main strategies Amazon sellers use to determine prices for their products:
1. Competition-based pricing
With a competition-based pricing strategy, you set your prices based on what your competitors are doing. Basically, the idea is that if your competitor is selling a similar product at a lower price than you are, then you should lower your price to stay competitive.
Let’s take a look at an example. An Amazon seller charges $6 for a spatula. In order to compete with this seller and try to attract more buyers to your store, you drop the price of your similar spatula to $5.
But competition-based pricing isn’t always reliable, and it can be difficult to implement in a way that really maximizes your profits.
2. Economy pricing
Economy pricing is a pricing strategy that focuses on lowering the price of a product to the lowest possible level.
This may seem counterintuitive, but supporters of economy pricing subscribe to the school of thought that if you offer a lower price, you’ll end up selling more products. In the end, the hope is that by selling more units, you’ll make up for the loss in profit per unit.
For Amazon sellers, one of the most popular use cases for economy pricing is bundling. This is when several products are sold together at a discounted rate.
For example, suppose you sell a travel kit that includes a neck pillow, an eye cover, and a pair of compression socks. With economy pricing, the price of the travel kit would be lower than the price of all the products sold separately—but you would hope to sell more travel kits than individual items.
3. Cost-plus pricing
Cost-plus pricing is a pricing strategy where you set your price based on the cost of making your product—plus an added percentage.
For example, suppose you sell linen shirts on Amazon. You buy each linen shirt for $10. If you resell that linen shirt for $20, then you have a 100% markup; if you sell it for $30, then you have a 200% markup.
Unlock economy pricing, this strategy can be helpful for businesses that are worried about losing money on each sale. But keep in mind that cost-plus pricing isn’t necessarily the best pricing strategy if you want to maximize your profits.
4. Dynamic pricing
Competition-based pricing, economy pricing, and cost-plus pricing are all solid pricing strategies that can help you turn a profit—but the dynamic pricing strategy takes everything one step further.
Dynamic pricing is a business model that allows you to change your product prices based on real-time factors, such as customer demand.
For Amazon sellers and e-commerce businesses who are trying to stand out and compete with the millions of other online stores, dynamic pricing packs a one-two punch: Not only does it empower them to increase profits, but it lets them do it on autopilot.
Imagine, for a minute, that you’re the customer.
You’re shopping online for a new pair of shoes. You see that the price of a specific pair changes from time to time—it might be $100 one day and then $85 the next.
This e-commerce seller is using dynamic pricing. Why?
Dynamic pricing helps them make sure they don’t run out of inventory before they sell out. And by keeping up with market changes, it also helps protect them from losing customers who might think their prices are too high compared to the competition.
3 top tools to help you set prices on Amazon
As an Amazon seller, there's a lot to think about when it comes time to price your products. For one thing, the marketplace is simply huge. Beyond that, figuring out how to predict demand, competition, and long-term trends is notoriously tricky and can be a full-time job all on its own.
How can you navigate the topsy-turvy world of setting prices on Amazon?
Here are three tools you can turn to for help:
1. Manual pricing
Before you can get started with manual pricing, there are a few things you need to take care of.
First, make sure that your price is consistent with both the prices of other products in your category and those of your competitors.
Next, if you're using a third-party tool to manage your pricing and your inventory, make sure that it is properly integrated with Amazon's API. This is a can't-miss step. If your tool isn't properly integrated, any pricing changes you make with it may not be accurately reflected on your Amazon website.
Once all of this has been taken care of, then you can start setting your prices manually.
There are two ways to manually adjust your pricing: through Amazon Seller Central or directly through their API.
Either way, manually adjusting your prices is a long, tedious process. More importantly, manual adjustments don’t take into account real-time fluctuations in competitor pricing or market conditions, such as buying patterns.
2. Amazon Automate Pricing
Amazon offers Automate Pricing to help brands set prices for their products.
This is a great, easy starter tool for Amazon Sellers who are just getting their feet wet in Amazon Marketplace. While the built-in price optimization functions certainly aren’t perfect, they can be a good starting point when you’re trying to figure out what your ideal price should be.
With Automate Pricing, you can set a price range and then automatically adjust your prices as needed based on market demand.
As helpful as Automate Pricing is, the important thing to remember is that it is just a tool—it’s not necessarily right or wrong, and it’s not guaranteed to work. Instead, Automate Pricing is most useful to help you get a sense of what’s working and what isn’t. From there, you can then make your own informed decisions about how you want to price your product.
3. Profasee’s intelligent pricing algorithm
A must-have for Amazon sellers, Profasee’s dynamic pricing tool uses a powerful combination of technology and science to accurately determine a customer’s ability to pay—then it automatically adjusts your prices accordingly.
Profasee gives you the ultimate Amazon advantage. By enabling you to deliver the best price to each customer, Profasee helps you win the sale, every time. Then you can sit back and watch your revenue, margin performance, and profitability grow.
The best part?
Our dynamic pricing software integrates with your storefront’s products in just a few clicks. This means you can spend less time fretting about product prices and more time optimizing other aspects of your Amazon store.
There are plenty of different methods and tools to help you set product prices on Amazon, but dynamic pricing is the only solution that can give you the real Amazon advantage. By giving you the power to predict the perfect price for every product at each precise moment, you can take the guesswork out of the game and just start profiting.
Do you think you’re ready to start your dynamic pricing journey? Sign up for a demo and let Profasee’s intelligent pricing algorithm analyze millions of real-time data points to help you discover your optimal prices.