How to Optimize Your Amazon Pricing Strategy

Ecommerce has become a crowded and competitive winner-take-all industry. 12-24 million eCommerce sites are active worldwide, with fewer than 1 million generating sales of over $1000 per year. Amazon, the top eCommerce platform, has eclipsed Walmart to become the largest retail seller outside China, but other noteworthy names include Alibaba, Otto, and eBay.

Unsurprisingly, many eCommerce players offer similar or even identical Amazon products to compete – but not all do so successfully. Here’s how you can tap into product pricing to up your chances of success in the oversaturated space.

Why Amazon pricing strategies are important

With a good strategy, Amazon sellers can use product pricing to differentiate themselves, as consumers often shop for the lowest price. Yet, profit margins are a tradeoff between pricing a product to sell and maximizing the revenue per item. Brands should adopt an Amazon pricing strategy that requires systematic optimization to come out ahead.

Pricing per seller type

Given the consumer demand vs. profit margin trade-off, it’s nearly impossible for brands to blanket offer their products at the lowest price. However, different types of sellers can take different approaches.

1. Private labels

Private label sellers find Amazon products that are popular but have few product reviews, then brand and sell these as their own. As such, these Amazon sellers may want to charge a higher price than competitors to increase the product’s perceived value.

2. Fulfillment by Amazon sellers

Brands that use Fulfillment by Amazon (FBA), a program where Amazon handles shipping, customer service, and order returns, can also charge higher product prices. With Amazon FBA, there’s a higher guarantee an order will arrive soon, an increasingly common concern of consumers given global supply chain issues.

3. Reputation menders

On the other hand, Amazon businesses with few or poor reviews might want to charge a low price to rank higher on Amazon search and increase sales. While adopting a strategic pricing strategy, these sellers should also ensure that they’re improving their Amazon product reviews.

4. Short-term and newbie sellers

By offering new products at a loss, short-term and especially new Amazon sellers can undercut competitors’ prices and growth in market share. However, as customer engagement grows, the sellers might ultimately need to reprice the products at a higher price point to ensure profitability.

Regardless, an Amazon pricing strategy needs to not only account for the cost of the product and of labor, but also for the cost of storage fees, shipping costs, and Amazon fees. Amazon’s Seller Central offers many resources to help you optimize your Amazon price, such as manual repricing. It even allows you to sell products at a discount via coupons, monitor sales, and view the bottom line in Seller Central.

Tips to optimize your Amazon pricing strategy

Manual vs. dynamic repricing

Manual repricing is both labor-intensive and knowledge-intensive. Plus, you won’t be able to change the price as quickly in response to changing conditions. Resources to help optimize manual pricing can be found in Amazon’s Seller Central.

Dynamic repricing, however, uses sophisticated technologies to pinpoint the optimal price. For example, products may be priced higher during the holiday season, when they’re more in demand.

Pro Tip: Use Similarweb Shopper Intelligence to gain a sense of seasonal fluctuations, raising prices when conversion rates are highest.

Let’s look at another example: When Amazon offers temporary promotions to encourage shopping, such as Prime Day, the repricing methodology can also be leveraged to directly respond to competitors.

If the seller has a new product out earlier than others, they might want to use a strategy called skimming – start with a high price, then lower it to stay competitive as other sellers enter the space.

You might want to track how competitors, including Amazon itself, reprice their products, by viewing price changes over time. You could also systematically experiment with the effects of being an FBA seller and compare metrics, such as total Amazon sales, your overall conversion funnel, and sales conversion rate when you automate or manually implement different pricing models.

Use repricing tools

A number of specialized repricing tools, such as RepricerExpress, are specifically designed for automated Amazon repricing. Additionally, Amazon offers an internal repricing tool featuring an algorithm that automatically lowers the prices of your products in response to competitors’.

Pro Tip: You can also use Similarweb Shopper Intelligence to benchmark the top-performing brands and products in your category.

Adopt Tactics to optimize profit margins

Amazon offers a built-in cost calculator to help brands optimize profit margins, as described with the following formula.

Profit Margin = (Sales – Total Expenses) ÷ Revenue) x 100

Just over two-thirds of Amazon sellers have above a 10% profit margin, while more than a third have above a 20% profit margin. Private label sellers are advised to aim for profit margins of 25–30%, to allow buffer room for pay-per-click (PPC) and other advertising, as well as other expenses.

To boost profit margins, sellers can take advantage of various tactics on its platform, including:

1. Product bundles

To help capitalize on the allure of low prices, sellers can offer product bundles, or multiple similar or complementary products sold together at a discount. With product bundles, buyers can feel like they’re getting a better deal and purchase more.

2. Subscribe & Save

Amazon sellers may also enroll in Amazon’s Subscribe & Save program to ensure recurring revenue by offering products to consumers at a discount if they’re delivered at a regular frequency.

The winner takes the Buy Box

The Buy Box is a box found on Amazon product detail pages. Through the detail page, buyers can learn more about the product and access everyone who’s selling it, their prices, and each seller’s customer reviews over time.

An algorithm determines which of the Amazon sellers are featured in the Buy Box. If multiple sellers are selected, these sellers will rotate positions, as the customer sees just one seller at a time. Because of the algorithm, Amazon pricing that is the lowest or at least competitive is a major factor for whether a particular seller is selected. This potential to boost sales further encourages sellers to offer their products at a low price.

Getting your Amazon business in the Buy Box ups the chances of your sales rank shooting up – the Buy Box accounts for over 80% of Amazon web sales and an even higher proportion of Amazon mobile sales.

More ways to use Similarweb for pricing on Amazon

Your Amazon pricing strategy is a crucial component of marketing a product on Amazon. With Shopper Intelligence, Similarweb can help you curate a strategy to position yourself best relative to similar players in your market, including allowing you to look up and group products by ASIN, in addition to brands, keywords, and attributes.

With this, you can create custom categories of products and track your performance relative to competitors’ performance in each category you identify.

Request a demo

To get started, request a demo of Shopper Intelligence today.