Amazon pricing strategies: what you need to know

Last Updated on June 20, 2024 by Zeljko Drazovic

How are products priced on Amazon?

If you have been selling on Amazon, you already know that the competition is fierce – even in terms of pricing. Unlike many other marketplaces where sales and product prices are heavily related, Amazon’s algorithm is much more complex, and it is important to understand the differences between the different kinds of pricing and pricing strategies that you can deploy on the platform.

Every Amazon seller should be primarily aware of two types of prices: item price and total price.

While item price refers to just the cost of a product, the total price refers to the sum of the product price, shipping charges, and any additional taxes and charges that might get added to the price later.

Basically, the item price is the one customers will see when browsing through products, and the total price is the actual price they will pay when placing the order. If your customers are ordering from another country, they may pay a higher total price, considering the international shipping costs.

5 types of pricing strategies for Amazon

Now that you have a general idea of how pricing works on Amazon, it is important to learn about specific strategies that will help you take your online business to the next level. Here are five pricing strategies that you should know about:

Cost-plus pricing

This is one of the most basic and standard pricing strategies deployed by sellers on Amazon.

In a cost-plus pricing strategy, sellers add a fixed percentage or markup on the product price. This pricing strategy increases the likelihood of sellers attaining their desired rate of return on product sales.

It is a comparatively simple pricing strategy to implement compared to others. However, the challenging part is determining the exact costs behind a specific product. While the cost of producing a product might remain constant, the marketing and operating costs may vary, thus disrupting the overall cost calculation and expected return rates.

Premium pricing

While it is true that Amazon’s pricing competition is quite fierce, you should by no means resort to lowering your prices regardless of their viability. Do not hesitate to apply a premium pricing strategy if the product you are selling and the brand attached to it are premium. In such cases, your prices may be higher than your competitors’ prices.

Remember that many Amazon shoppers are just looking for a good deal and may need to be more brand-conscious. Such customers might avoid purchasing your products because of the premium pricing unless you leverage building brand awareness to convince them otherwise.

Value-based pricing

The next pricing strategy that you should know about is the value-based pricing strategy, which may slightly differ from the usual pricing norms.

The value-based pricing strategy will make use of the perceived value of the products, as opposed to looking at the historical trends. This pricing strategy will also consider the willingness to pay a certain amount from the customers’ end before setting the price. Customer’s perception of product value can be influenced by tactics such as guided selling.

A value-based pricing model is perfect for more established brands, as the product pricing will reflect the brand value and differentiate it from other competitors in the market. Such a strategy also requires supporting your products with a distinct and positive customer experience.

Penetration pricing

If you are a new brand that is still finding its footing on the platform or in a new market, you want to generate as much buzz as possible for your products. A penetration pricing model will ensure that your brand can increase interest among customers by selling them at a lower introductory price.

Keep in mind that this may even mean foregoing your profit margins just for the sake of ranking high in terms of search results. Once you have established a decent customer base, consider increasing the price and setting it according to your product and brand value.

Repricing strategies

Considering the highly competitive retailer landscape on Amazon, it is important to remember that your product pricing may be one of the most crucial factors in comparing you and your competitors. Consider applying a dynamic repricing strategy wherein your product prices will keep changing according to the competitors’ prices and market trends.

It is good to have a few repricing strategies up your sleeve if you manage an extensive catalog of products on Amazon. Here are three ways in which you can handle your repricing strategies on Amazon:

• Manual repricing: This method is the most time-consuming of them all, requiring you to update the prices manually from Amazon Seller Central or other platforms.
• Algorithmic repricing: This is the most sophisticated method, leveraging self-learning algorithms and software to update and reprice products.
• Automated rule-based repricing: This method eliminates the need for manual effort, enabling you to automate the pricing of your products based on specific rules that you can set down directly on Amazon.

Concluding remarks

All things considered, the pricing and repricing strategies you deploy on Amazon can define your performance on the platform.

Regardless of the model you choose, it should be tailored to your revenue goals and help you improve your ROI on the platform.