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While pricing is a critical challenge for every business, the ever-changing Amazon pricing combined with a saturated marketplace and distracting promotions for competing products make it even harder for brands to find the optimal Amazon pricing strategy. Often, when brands offer a competitive price, margins drop too significantly to be sustainable. And if they try to keep prices up to preserve profitability, they lose business to competitors.
While pricing is a critical challenge for every business, the ever-changing Amazon pricing combined with a saturated marketplace and distracting promotions for competing products make it even harder for brands to find the optimal Amazon pricing strategy. Often, when brands offer a competitive price, margins drop too significantly to be sustainable. And if they try to keep prices up to preserve profitability, they lose business to competitors.
The Amazon pricing strategy calls for continuous changes to the prices of millions of products throughout the day based on demand, competition, and a number of other factors in its algorithm. Finding the optimal product price is crucial for the sustained growth of companies, but finding the “right” price is never straightforward — especially for Amazon sellers. While you want to remain competitive, it’s also important to note that Amazon will limit the number of times you can change a product’s price and may penalize youfor too many attempts. So, continual manual manipulation of pricing is not an answer either.
Instead, it’s important for sellers to have access to the information they need to set a price that will work well for their business, category, and consumers. Trying to find that information yourself is daunting and inefficient, if not impossible. Luckily, there are options out there that will help you to create an optimal pricing strategy.
In this article, we’ll discuss some of the reasons why sellers are under such pressure to compete on price, what the most significant challenges are facing Amazon brands, and how you can overcome the Amazon pricing struggle with new strategies and innovative tools built precisely for your business needs.
When consumers shop on direct-to-consumer (DTC) brands’ websites, companies can tactfully use product recommendations to upsell and cross-sell. This practice can lead to a significant boost in the company’s average order value (AOV). While Amazon employs similar tactics with product recommendations and comparison views within the marketplace, the goal is to keep customers happy with easy shopping tools and low prices that earn their loyalty. On the other hand, brands tend to lose money or sales, which adds to the pressure that sellers feel to remain price-competitive.
On Amazon, your target consumer is continuously bombarded with suggestions for similar products that are cheaper, higher rated, or offer more features for the money. With so many distractions and reasons for shoppers to click on a competitor’s profile, it’s essential to find a way to stand out and keep your shoppers’ attention. Unfortunately, the answer is not as simple as constantly undercutting prices. Being the cheapest in the marketplace is not a fail-safe strategy. For most companies, that strategy will only lead to one sure thing — failure.
At this point, It’s clear that pricing is crucial and striking the right balance is difficult. But, what are the underlying reasons why finding the ideal Amazon pricing strategy is such a struggle? Here are a few of the most common challenges.
In a marketplace where nearly 3,000 new Amazon sellers join each day, it is difficult for brands to identify the right competitors — whether by category or ASIN (Amazon Standard Identification Number). Some product searches can lead to thousands of results with only a few being direct competitors. So, it requires more time and advanced strategies to narrow searches down to the competitors that are truly relevant to your research.
Finding the “right” price is difficult for brands on Amazon. They are often forced to choose from two less-than-ideal options. They can either take a significant hit on margins or sacrifice competitive pricing advantages.
Sellers who choose to deal with lower profit margins, can typically get their product in front of a larger number of shoppers and convert consumers who are extremely price-sensitive. This is a common strategy for newer sellers who want to steal market share away from their competitors and begin building sales activity and customer reviews in the marketplace. Once interest in their products picks up, they can find a more reasonable price point that doesn’t sacrifice margins as much and hope that return customers and great reviews will help them to stand out. The risk is that shoppers will develop an expectation for highly competitive prices and not return if the cost becomes too high.
Other sellers may choose the premium model. This approach helps them to stand out by maintaining higher prices and using quality and engaging branding to boost product interest. Some shoppers are not looking exclusively for the lowest price. Instead, they may prefer quality, reputation, and luxury. This segment of consumers may be suspicious of lower prices, assuming they are also low quality, which means that a premium strategy would work well for them. The danger, of course, is missing out on sales opportunities with the majority of consumers who are not looking to pay top dollar for every item they purchase on Amazon.
Striking a balance between maintaining healthy profit margins and appealing to a sizeable number of consumers is crucial to establishing and sustaining success in the Amazon marketplace.
Typically, brands can take advantage of seasonal opportunities by raising and lowering prices based on demand, trends, and competitive opportunities. Seasonality enables companies to maximize profits by raising prices at specific times of the year. Or, they can compete head-on with competing brands when they employ aggressive pricing tactics on similar products. However, Amazon can make it exceptionally difficult to benefit from the perks of this type of seasonal strategy.
Amazon’s pricing strategy is rooted in algorithms and technology. It’s virtually impossible to manually assess the competitive landscape and pricing analytics, especially when they change so frequently due to dynamic Amazon pricing algorithms. To get to the next level, it’s time to fight fire with fire and leverage technology that provides automated pricing insights to help you make smarter pricing decisions.
eMargin Tool (eMT) was designed specifically for Amazon brands. eMT supports effective and dynamic Amazon pricing decisions through scalable automation of ASIN-level fundamental competitiveness, performance, and pricing KPIs. Whether you manage a few SKUs or hundreds of them, eMT will help identify which prices will maximize profitability while enabling you to remain competitive. By taking into account multiple factors, eMT can provide you with the assessment and insights that are simply not possible manually.
eMT provides a 360-degree view of the price drivers that your company is dealing with on Amazon, including:
Category competitiveness
ASIN competitor set
Price elasticity
Seasonality-adjusted price distributions
Optimize pricing and keep tabs on your competitors with our Charm eMargin technology. Get on the list and be the first to receive information about the beta.