Amazon Pricing Strategies — Part 1

Dec 23, 2017

Pricing your products is a big decision, and one that shouldn’t be taken lightly. Determining the sales price of your items on Amazon is also affected by the type of seller that you have decided to be. Someone who sells retail arbitrage or wholesale will have a much different outlook on this process than a Private Label seller. Why? Let’s briefly discuss the difference in these business models to better understand why pricing strategies vary between types of sellers.

Retail arbitrage

The practice of retail arbitrage is where sellers try to scour retail stores, garage sales and other flea markets to find items that are so deeply discounted that when placed on Amazon they can turn a profit by selling them for a higher price. In this scenario, pricing strategies play a hugely important role in bottom line profits (and in many cases, profitability itself). When purchasing discounted items, your hard cost can vary from instance to instance and you have to keep a hawk-eye focus on your profit. Once Amazon takes their listing fee and fulfillment fees out of your MSRP, you have to have margin left over after your cost of purchasing the item, shipping to Amazon, monthly seller fees, variable overhead allocation costs, your personal return fees, and Amazon’s return fees (yep, they keep 20% of your original listing fee commission as a return fee). Needless to say — pricing strategies in retail arbitrage are vital to success.

Wholesale

Wholesale is similar to retail arbitrage in that sellers try to locate inventory that they can purchase at a discount and sell at a higher dollar MSRP, however it is typically done by purchasing larger volumes at once. It can be difficult to find companies willing to sell their successful listed items to you at discounted prices, but if you can successfully find good deals on repeatable sources of inventory you can build a nice sized business. In this model, it is important to always be attentive to your MSRP on Amazon in order to keep a healthy sales flow of your inventory. It’s crucial to keep your sales margins at a healthy level, but to remain competitive in the market to keep your inventory turns high to avoid stagnant inventory.

Private Label

Private label sellers have a very different pricing strategy challenge than their arbitrage or wholesale counterparts. A private label seller is not usually competing with other sellers of their items for the Buy Box, nor are they typically purchasing their inventory at fluctuating price points. Private label sellers typically have a far-below wholesale inventory pricing structure and take on more inventory at a time with their own labels on the merchandise. While this comes with its own share of challenges, it has many advantages. Regardless, the pricing strategies for private label are very different. They are not trying to “beat out” the competition on their listings, they are actually competing with themselves!

For the sake of keeping things simple and straightforward, we will split these suggested pricing strategies up into two categories in our next post: Buy Box Competition and Private Label.

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