Amazon Pricing Strategies — Part 2
Competing for the Buy Box is a huge deal on Amazon and, as a result, many different types of softwares and solutions have sprung up to assist sellers in their efforts. Some of these softwares include inventory managers, repricing tools and algorithmic estimators. A whole blog post could be written on each of these subjects, but we’ll stick mostly to repricing tools for buy box competitors. When you get to a decent number of SKUs that you are trying to manage, utilizing a repricing tool makes a lot of sense. Many repricers exist, and Amazon even launched a native repricer in their own platform. This is obviously there as a way to naturally drive down prices for the consumer. While Amazon’s repricer works well, there are many others that you can evaluate that tend to have more features.
The basic job of a repricing tool is to monitor your prices and follow your “instructions” to automatically reprice your items as other people change their prices. This can seem like a “race to the bottom,” particularly if everyone in the world used repricing tools (or used Amazon’s native one). This is, however, not always the case.
Buy Box Competition
A good repricing tool will allow you to set multiple types of “boundaries” or “limits” — not the least of which is your basement price and your ceiling pricing. By setting the “lowest price you can profitably go to,” it allows your tool to automatically monitor everyone else’s prices and adjust yours accordingly. Many of the repricers allow for other rules as well like “set my price to always be x% above/below the cheapest/highest priced item.” This type of rule allows you to ensure you are the most competitive you can be under the strategy that you choose.
Many strategies exist for repricing. One of the most popular strategies is to automatically set your pricing to 1-2% higher than the lowest priced item. This ensures that you are not always the lowest priced, and that you will keep a good flow of sales as other people sell out of inventory, hit unprofitable margin points, etc. Remember, everyone else makes business decisions in their repricers as well (if they are using them). This variance in their settings allows for a very dynamic marketplace. Perhaps they got a much better deal on their inventory than you did, and therefore they have more margin to give up to earn the Buy Box and make the sale.
The most important part of repricing strategy using automated tools is to make sure you have calculated ALL of your costs into the COGS of your items. Be sure to include all variable overhead allocations, your return costs, Amazon’s return costs, etc. Once you have determined what your true cost of acquisition is for the inventory, you can decide how much profit you need/want to make at the lowest possible point — and set your repricer “floor” to this margin. This will ensure that you will always make at least that amount on your sales. A repricer is not going to race to the lowest price you’ve offered. The role of a repricer is to find the highest price you can sell something for while remaining competitive.
Many people like to set a standard margin % in their repricer and let the inventory sit. This is a great strategy to ensure a consistent internal margin. You do have to keep in mind that Amazon charges long-term storage fees twice a year, and if you fail to move your inventory effectively you may be stuck with some massive charges that can wipe out your entire profit across the board.
Another way to look at pricing is to set a specific date or time period that you want the items to be sold by. This will allow you to be very dynamic with your pricing and decrease your prices as that date draws near.
Lastly, keep an open mind to changing your strategy as needed. If you are so lucky, you could find your sales screaming fast and need to adjust your strategy to maintain enough stock to replenish. In this fortunate circumstance, you will most certainly want to raise your price in order to slow sales down before running out of stock.
Private Label Pricing Strategies
Pricing strategies for private label sellers are very different than for everyone else. First, you must determine what your “sales price” is for the item. This can most effectively done through a strong Competitive Landscape Analysis. What do similar items sell for? Is there an average price that seems to be the “market balance” across the board? Are there sellers who are priced higher but moving more units? Why? Content, optimization, brand recognition? Are there bottom-feeder pricing that is keeping your sales numbers low?
It is imperative when you launch an item to be intentional about your strategy. You do not want to find your product sitting on a shelf with zero sales. Nor do you want to be priced so low that you are not maximizing your profit. Remember our GMROI discussion? You want to maximize your return, not necessarily sell the most amount of items possible. Remember, you’re in this to make money, not sales. Many times, selling fewer units at a higher margin is the better solution. Pulling out the tools of GMROI, Price Elasticity of Demand and Pulse Advertising could help you make intelligent pricing decisions.
The same goes for your discussion about how to optimize your sales price and also your listing. You will not be able to charge an average price or a premium price if your listings is not optimized or not created with enough care to convert. You cannot convert with a crappy listing! You must spend a great deal of time creating a well-optimized, beautiful and confidence-inspiring listing in order to convert at any average or above-average sales price.
Once you have set an MSRP for your item, this does not imply that you are done and can walk away. No way! Sales demand and supply are always fluctuating as more sellers enter your market and try to steal your precious sales. You must be constantly evaluating your competitiveness in the marketplace. You can do this manually or with software. Many types of software allow you to test different sales prices, pictures, listing changes, etc. and monitor the effect these changes have on sales. Profit Peak, a Splitly product, allows you to algorithmically monitor your listing changes, stock tracking, holiday sales peaks, seasonal sales, ranking of your store and competitors and more. While you may or may not wish to utilize software to manage this process for you, it is a great idea to check these softwares out and see exactly what they are doing to help test your pricing strategies. Once you know what they are doing, you can choose to do these activities on your own!
Private label pricing strategies are not always tied to launch — the smartest Amazon sellers are constantly looking for ways to beat themselves by optimizing their listings, prices, etc. It’s always better to maximize your profits, not your sales or MSRP. You want to make sure that with all of the effort you are putting into your store, that you are always making the greatest ROI possible. You want to focus on your NET RETURNS, not on your sales. If you can sell fewer units and generate a higher profit, you are in a fantastic position. If, however, you need to sell a higher number of units to get to your maximum profit number, then you need to focus on how to get more volume in and out of the account through pricing strategies, advertising strategies, and conversion techniques.
Lastly, don’t forget about Sponsored Ads! Advertising is a crucial part of selling on Amazon, particularly for Private Label sellers. You will not reach your full profit potential if you are not advertising. Maintaining a clear and constant advertising strategy will help you optimize your pricing as you determine what the market is willing to pay.
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