When trying to harness the power of Amazon for your brand, the question of pricing is undoubtedly at the forefront of launching. With over 150.6 million mobile users and a trust score of 89%, Amazon unleashes a level of exposure and sales potential unlike any other in the retail environment. In a study completed by Statista (Links to an external site.) in 2019, it was reported 82% of Amazon buyers state pricing is an important factor of shopping on the platform.
The impressive numbers you don’t often see are the market share of products within a category (hint it’s very low for most sellers), the barrier for entry (very high depending on category) and the total fees (even higher) of selling a product on the platform. While lower pricing can win buy box and increase market share temporarily, it doesn’t necessarily translate to profitability and success of your brand. So, while pricing is undoubtedly a key factor to focus on, you may want to explore other ways to price besides competition-based pricing which often captures price-loyal customers as opposed to brand loyal customers. If you’re using Amazon right, you’ll be leveraging that brand loyalty off the platform as well.
In my time listing and optimizing products and brands on Amazon (Links to an external site.), I have identified some of the best ways to price and strategize your brand for profitable success on their channels. Here are some alternative pricing strategies that maintain brand integrity, optimize profit and act as true measures of brand loyalty as opposed to price-loyalty.
Dynamic Pricing Strategy
In a past life, I worked on setting up an Amazon vendor and seller central account for a reputable lingerie brand with several lines spanning across all demographics of intimate apparel (sexy, casual, plus, etc). Their core collection consisted of about 6 pieces in 4 evergreen colors and 2 seasonally rotated colors. As you can imagine, high season for lingerie is around Valentine’s Day and the Holidays (December). By increasing price points surrounding key market moments, we made up in profit enough to strategically price lower during down time. This created a new baseline for off season sales and increased profit peaks during the holidays. Adopting a dynamic pricing strategy optimizes moments where a customer is willing to pay more while reducing price barriers to purchase the rest of year by allowing for lower price points that do not impact annual profitability.
High Low Pricing Strategy
This one has the potential to be highly effective or highly damaging and depends on where in the product life-cycle your product is. Take the case of a well-established beauty appliances brand that manufactured and sold premium haircare tools. They had over 2 million products in overstock but their brands identity still validated the high price point from the buyers perspective. By identifying the “stale” inventory that had drastically slowed down in sales velocity, we were able to list products at a significant reduction and reduce overstock by 60%! This pricing strategy relied heavily on the brand upkeeping their prestige price point across all platforms they were selling on. Consider this pricing approach with products which have lost their novelty or relevance in the market. Letting go of this inventory, even at a lower margin, frees up space for new inventory at a higher price point and a more effective use of your marketing resources.
Value Based Pricing
Value based pricing has become a niche within retail. eMarketer (Links to an external site.) predicted that as consumers prioritize Value over Marketing, “brandless” brands will surge. In looking to them and the trends, the move may very well be branding yourself as transparent in your pricing and focused on making quality products at an accessible price point. Aside from the customer perception, there’s the actual cost of creating a brand that has equity which can be transferred to your products perceived value. With the high costs on Amazon, value-based pricing and minimal branding can allow you to achieve the volume it takes to make the channel slightly more profitable as well as create a brand consumers trust, which can then be leveraged off Amazon. By focusing on product quality over brand image, you stand to create loyalty to a quality product at a reasonable price. While this strategy may take longer to accomplish, if you are listening to your customers and responding – you’ll stand a better chance of building true loyalty.
Premium Pricing Strategy
In recent years, Amazon has emphasized the need to build a brand and have supported this by adding new features such as Enhanced Brand Content and Brand Stores. A premium pricing strategy will allow you to focus your resources on creating a brand identity that translates into equity which validates higher pricing and an image that creates loyal customers. You should also take into consideration the cost that goes in to creating a brand with a perceived value as well as the time it takes to launch a brand. With higher costs, comes higher amazon fees but this gives you the opportunity to price high enough to be profitable. Similar to value based pricing, this may take more time, as it’s still reported low pricing is a high determining factor on Amazon, but the equity built through exposing your product on a high traffic platform can be transferred later on down the line to your own website and expanded product offering.
Leveraging the power of Amazon should not come at the price of your brand name, identity and integrity. If you look to list your products on their platform to gain access to their billions of shoppers, be sure you are considering alternative pricing strategies that do not rely on competing for customers with your price point. By establishing a price strategy that is aligned with your brand strategy, and focusing on maintaining your brand integrity you’ll be able to use the platform for brand awareness, providing fast reliable shipping for your guests and the strategically aligning your product with other key players in your category.