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Effective pricing strategies for Amazon (or any other platform)

SkillsCategory
10 min read
Dan Hughes

If you’re a go-getting ecommerce business owner looking to sell your goods on Amazon, having tip-top pricing strategies up your sleeve will push you ahead of the pack.

Oh, and the good news is that there are plenty of effective Amazon pricing strategies you can explore.

Armed with the right pricing strategy, or strategies, you will be able to attract a steady flow of repeat customers while boosting your bottom line.

As such a colossal and saturated platform, setting the right prices for your Amazon can feel like a delicate tightrope act. Set your prices too low, and you’ll barely scrape a profit. Set your prices too high, and your competitors could beat you to the punch.

But, with so many Amazon pricing avenues available at your fingertips, you can strike the best possible talent for your business—and we’re going to show you how.

Ready to level up your Amazon pricing strategy? Let’s get started.

Defining pricing strategy and its importance

With so many factors to consider—including market conditions, consumer spending power, trade margins, and legal or regulatory factors—developing a solid Amazon pricing strategy can seem daunting. But, with the right approach, it’s easier than you might think.

But, before we delve any deeper, let’s consider what a pricing strategy is for a moment.

A pricing strategy is a collective term for the methods, procedures, and processes related to selling services, goods or products. A solid pricing strategy takes a wealth of factors into consideration to remain competitive while earning a steady revenue stream and preserving brand reputation. It’s all about setting the very best retail price for your products.

To set the right prices for your Amazon products, understanding the benefits of developing the right Amazon pricing strategy is a good place to start.

Benefits of a good pricing strategy

Finding a retail ‘sweet spot’ for your various Amazon products is critical to enjoying a healthy profit margin while remaining competitive. Oh, and getting your Amazon pricing strategy right comes with its fair share of benefits, including:

  • Portraying quality and brand value (as mentioned)
  • Giving your target consumers confidence in your products
  • Boosting sales steadily over time
  • Increasing revenue and profit margins
  • Attracting even more loyal customers (which will seriously boost your bottom line)

Impact of a bad pricing strategy

For every brilliant Amazon pricing strategy, there’s a bad one. And there are consequences to being foolhardy when setting prices for your Amazon inventory. These include:

  • Targeting the wrong customers by potentially cheapening your products and attracting low-value, single-purchase shoppers
  • Making potential customers feel uncertain about the value and quality of your brand
  • Low profit margins, sporadic sales, and a loss of revenue

Related: Payment methods: 10 types of payment options

Types of pricing strategies

Now that you know the Amazon pricing strategy basics, let’s dig a little deeper. For your reference (and inspiration), here are the essential Amazon pricing strategies to consider as part of your revenue-boosting ecommerce business plan.

Pricing strategyOverviewProsCons
Bundle pricingStrategy of combining complementary products for one price.- Increase average order value
- Easy way to introduce new products
- Eliminate old or excess stock
- Can lower profits for particular products
- Creates a barrier to entry
Competitive pricingPricing based on prevailing prices charged by competitors in the market. Competitive pricing requires that you regularly adjust your prices to maintain an advantage.- Easy to implement
- Low risk
- Can use in conjunction with other techniques
- Focus is on competitor, not customer
- Reduced profit margins
- Prone to market volatility
Cost-plus pricingAdding markup to a product’s cost to cover your costs while also including a set profit margin.- Straightforward to implement
- Ensures cost recovery
- Requires little research
- Ignores market forces (demand, competition, etc.)
- Limits upside
Dynamic pricingSetting a price strategy that fluctuates and varies due to promotional strategies and market demand.- The ability to change product pricing in real-time
- Keeping your product prices competitive based on constantly changing market conditions
- Different prices for similar products, leading to consumer mistrust
- Potential price-setting inaccuracies that result in poor profit margins
Economy pricingSetting a product at its lowest possible retail price to generate more awareness and sales. - Gaining a decent market share in your niche
- Keeping your prices competitive
- Consistently low profit margins
- Constant pressure to sell large volumes of products
Freemium pricingOffering "lighter" versions of products or services to offer a taster of your service or attract more customers.- Boost brand awareness and attract more customers
- Inspire customer or subscriber loyalty
- This doesn’t work well for every kind of ecommerce business model
- Sales, upgrades, and customer loyalty are not guaranteed
Geographic pricingA strategy based on setting different product prices based on specific regional or international locations.- You can keep your pricing fairly dynamic and meet different market conditions or demands
- You can attract a wider international customer base
- Having lots of regional prices can become confusing or stressful when it comes to bookkeeping and compliance
- Unless you get a steady flow of sales from your target regions, this strategy might not offer the best return on investment (ROI)
High-low pricingSetting your product prices high when you sell them originally, then dropping them to a lower or discounted price when they become less desirable.- This staggered Amazon pricing strategy will help you maintain decent profit margins while attracting the right consumers at the right time
- Gives customers a good perception of your brand value
- Running promotions can come with its fair share of marketing costs
- Customers might start to expect constantly discounted prices
Keystone pricingThis is a method where a business sets its retail price at double the cost price of a product or product range.- A higher-end price can give customers the perception of brand and product quality
- You stand to enjoy consistently healthy profit margins
- Some customers might not be willing to pay for slightly higher retail prices
- This strategy can be quite rigid in a constantly shifting marketplace
Loss-leading pricingIn contrast to keystone pricing, this is a strategy where you set a retail price a little lower than average. - This can help you stand out in a crowded marketplace
- It can also inspire customer loyalty
- Low profit margins
- Customers may only buy your loss-leader priced products, reducing your revenue in the process
Price skimmingThis is a strategy where a business sets a new product at the highest market price possible, and then lowers it incrementally over time.- Can spread product awareness early on
- Can attract early product adopters and offer healthy profit margins
- If your strategy is executed poorly, you could end up with dead stock or excess inventory
Penetration pricingOpposite to price skimming, this is a strategy where you set a product at a lower price and gradually increase it over time.- It can motivate customers to invest in your business over a competitors’
- It can boost brand reach and expand your customer base
- Setting your prices low and increasing them too swiftly can put loyal customers off your brand
Premium pricingPricing a product or product range at a high or premium rate on purpose to create a superior brand perception.- Get it right, and you’ll enjoy consistently healthy profit margins
- It can position you as a superior brand in your niche
- Your target customers might choose a slightly more reasonably priced competitor.
- This pricing strategy is a little limited in scope
Psychological pricingThis classic pricing strategy is based on setting a product a price fractionally lower than a whole number.- It makes people feel like they’re getting excellent value for money
- It can attract attention when people are browsing for products on Amazon
- It can sometimes yield inconsistent results
- It can sometimes imply lower quality
Value-based pricingThis strategy is centered around pricing around how much a customer thinks it’s worth.- It can give customers trust in your brand or product
- It can help you become a market thought leader
- Not everyone will agree with your personal brand perception
- Setting a value-based price takes finesse

What to consider when creating your pricing strategy

Now you have a host of potentially epic Amazon pricing methods at your fingertips, let’s look at some key considerations you should make when creating your strategy.

First of all, if you manufacture your products in-house, you should think about your production costs. These include things like raw materials, labor, factory overheads, and production supplies.

Secondly, niche or sector aside, there are certain factors that you must look into when you’re performing an Amazon pricing strategy analysis. These are:

  • Your core business goals. Are you looking to increase overall revenue or sales? Do you want to boost your market share or go for full market penetration? Whatever your goals, define them, execute them, and set your pricing strategy accordingly
  • Current trends and potential supply chain roadblocks, including product seasonality, sustainability, and media fads
  • Your target audience. Look at things like consumer demographics, customer pain points, and consumer ‘willingness to pay’ for products
  • Market research, including current demand, competitor campaigns, and consumer buyer personas

Get support from Amazon and other ecommerce platforms

When you’re trying to decide on the right pricing strategies for your business, reaching out for help and advice will get you where you need to be. And, one of the best places to look for promotional pearls of wisdom is from Amazon support or other ecommerce platforms.

For your price strategy-boosting information, here are the best forums around:

Review your pricing strategy regularly

This point is often overlooked, but it’s essential: You need to review your Amazon pricing strategies regularly.

In the digital age, consumer expectations, as well as market conditions, fluctuate.

So, you should carry out an Amazon pricing strategy analysis at least once a year—or when a big market change occurs.

Doing so will keep your pricing relevant and competitive, boosting consumer trust and optimizing your sales performance in the process. Fail to review your Amazon pricing, and you’ll fall behind your competitors pretty quickly.

Tools to help set your Amazon prices

Staying on top of your Amazon pricing strategy can be a lot of work. Some businesses invest in a pricing analyst—but if you’re on a bit of a budget—there are several optimization and adjustment tools out there that can help you with your efforts, including:

Take the time to explore these accessible pricing platforms and choose one (or a mix of tools) that align with your business goals the most.

Final thoughts

There are several ways to approach your Amazon pricing strategy. But, the most important takeaway here is: Amazon is a saturated marketplace and setting any kind of strategy is far more effective than shooting in the dark or hoping for the best.

Test, trial, and error the Amazon pricing strategies covered in this guide, and you’ll find the methods that offer you the best possible ROI while putting your brand on the map.

FYI: Every good Amazon pricing strategy is accompanied by a good seller strategy—so marry the two together.

By doing the math and understanding your costs, you’ll develop the very best pricing strategy while strengthening the bottom line for your business—one that helps you stand out from the pack.

Now you know what to do, it’s time to set the wheels in motion—go for it—you’ve got this.