Michael has a degree in international business and currently works for a global e-commerce company.
Identifying the Optimal Price Point
According to research conducted by BloomReach, 90% of consumers do a price check on Amazon even when they are browsing on a different retailer's site. Once they find what they are looking for is available on Amazon, they are likely to purchase it there instead.
In short, the authority of Amazon on pricing is widely recognized and respected. Yet when sellers invest time, money, and effort in preparing and marketing a product to sell on Amazon, they struggle with the decision on just how much to charge.
If you are just launching your first product, you need to look at the price your competitors are setting. Check the average price range in the niche and then set a 15–20% discount on yours.
Why Is This Initial Discount Necessary?
These sellers will already be well established with a sufficient number of customer reviews. Since your product is new it will not have this level of feedback from the market. Hence the discount will make your product more appealing, increasing the likelihood of purchases, reviews, and comments.
In addition, consider providing free shipping for the product. You could do this by identifying the furthest location in the sales territory and calculating how much it would cost you to ship there. This will give you a point of reference to use when estimating the total cost of shipping the current stock you have.
These are of course, not long-term strategies. You may be breaking-even at this stage, but what you are doing is incentivizing the customer - drawing them to purchase and leave the comments your product needs to move to the next level.
Once your launch is complete and you have scored as many sales and reviews as possible, it's now time to sit, compile, and examine the data. Based on this information, you can start raising the price of the product in incremental stages. For example, you could begin with a dollar or even fifty cents each week. Each time you raise the price, check the statistics to see how the market is responding. Are the sales leveling, increasing, or dropping off?
Use these increments and the corresponding sales figures to help you arrive at the perfect price point that the market is ready to purchase. Avoid copying the pricing set by the competition. Your optimal price point will be established as you test incrementally.
Avoiding High Fluctuations
Here, it is prudent to proceed with caution. Simply because there has been a rise or fall in sales does not mean it's time to drastically change your price. Introducing big differentials and doing it too often can prove counterproductive.
For starters, Amazon will pick up on the fluctuation rate and the end result will not be positive for your business. So the changes must not be too frequent and they need to be made in small increments.
Again, don't raise or lower your price to match what you see the competition doing. Instead, follow the same trajectory you are on by gradually raising the price until you reach the point where your sales begin to decrease.
If you observe a drop in sales on the first or second day, avoid taking any drastic action. Give it some time to see how permanent the effect is. It may be that sales have dropped due to a few customers going for an alternative product. This initial response may not be reflective of the entire niche market and you could be overreacting by responding too soon.
There may be other reasons for the drop in sales which have nothing to do with the price. Patience is what will help you ascertain the true position of the market. Depending on the frequency of purchases made, it would be best to wait up to a minimum of 5 days.
What Influences the Pricing Decision?
To profitably determine price, it is essential to factor into consideration the platform's service fees as well as the cost of shipping the product to the customer. it is also necessary to establish whether you plan on purchasing the product directly from a supplier or manufacture/assemble the product yourself.
If you intend to go the manufacturing/assembling route, consider the labor cost in terms of how much you would be willing to pay yourself for your time and effort. An example here would be a baked product that is typically made from procured ingredients. After taking out all the expenses, is there is enough left to pay yourself and to purchase the ingredients (or other source materials) for the next product?
One way you could save time in your research is to head over to CamelCamelCamel and check the price of the product you want to sell. Searches for a product can be executed directly or by simply entering the URL of the product.
The site will show you the pricing history. You will see when the price was raised or lowered and by how much. Armed with this information, you will be able to accurately compute the optimal price point for the product.
The site even allows you to set up a price watch and it will show you through graphical representation how the product price is changing over time. You could also set up an arrangement to receive an automated email with information concerning specific price points so that you can adjust your offer accordingly.
Moreover, as noted earlier, you will need to incentivize the customer from time to time. One way to do this is by providing discounts through a coupon code. It has been stated that coupon codes are disadvantageous because when you use them, you do not get a verified review. However, this may not really make much difference because at the top of the Amazon product description page (which is the first section that customers see), the site does not show which reviews are verified and which ones are not .
The Anchoring Effect
It has been proven psychologically that people will tend to use the first product they see to help them decide concerning what comes next.
This is how it rolls. If you create two extra versions of your product (one being a lesser version and the other a better or improved version), how you introduce the three to the market influences your sales. If you launch the most expensive product first, the market will respond more favorably to the second product (which is the main product you want to sell) since they will see it as a cheaper version of the first.
Thereafter when you launch the third product (the cheapest of the three), it will solidify the position of the second, since the consumers will now view themselves as missing out on quality by going for the third product.
This is what is known as the anchoring effect.
So let's say you launch your first product at the price of $40, your second at the price of $25, and your third at the price of $15. Your end-goal is really to sell the product at the optimal price which is $25.
By launching them in the order of decreasing value, you draw the market into making comparisons. It is likely they will settle for the middle price which they will see as being a cost-effective bargain.
If on the other hand, you were to introduce the same products, but in a different order, the deal will not look as appealing and you may well lose out on sales. This is because the market will be making decisions based on a comparison that is not optimized.
Spending a few extra coins to improve the product packaging which you can then display in high resolution together with the product, gives you more leverage.
The Impact of Presentation
You also need to check and see what buyers are selecting as complementary. What items are being frequently bought together with the product you are selling? For example, if your product is a computer mouse, you may see that buyers are often buying certain mousepads with the same make of mouse that you are selling. This would be your cue to try sourcing mousepads cheaply at wholesale prices from a supplier and then combine the products together to create a bundle.
This will give you the basis to raise the price since the added accessory will have changed the overall value of the product. The same applies to selling whiteboards with markers, electric toothbrushes with cases, dynamic microphones with desk stands, and so on. Try to find a cost-effective accessory to go with your product. You may not be making much difference in terms of the real value, but you will be increasing the perceived value.
Images also create the impression of enhanced value. If you come up with clear, professional photos, complete with attractive and appealing packaging, then asking for a higher price may not come across as being pushy at all.
A picture is worth a thousand words. Therefore how you portray your product matters significantly. The consumer may miss out on the details you have entered in the description, but the images will stand out.
A lot of sellers and vendors on Amazon lodge complaints in the misguided impression that the platform is to blame for their meager sales and failure to rank properly. Yet, their product description pages contain vague titles, scanty information, and unprofessional images.
Spending a few extra coins to improve the product packaging which you can then display in high resolution together with the product, gives you more leverage. It boosts the quality of the product in the eyes of the buyer who frequently has to make a choice between you and the competition. Having a combo means that you have a competitive advantage in the marketplace, though the added cost to you may be comparatively small.
Consumer Pricing Perceptions
When starting your business, you need to be conscious of the perception your price is creating. If your price is the cheapest in the market, it gives the impression of a low-quality product.
Once this price perception sets in, you may see an increase in returned items and requests for refunds. This effect too is psychological, and the culprit is the perceived value created by the cheapness of the product.
It has been noted that buyers who go for the lower-priced products often tend to be the neediest when it comes to customer service. They are the ones who will typically engage in disputes, return bought items, and requests for refunds. This may not be the slice of the market that you want to attract.
Another consideration has to do with the added costs during the checkout stage. Reducing these costs to the consumer makes your product much more attractive when compared to the competition. One way to do this is to offer free shipping. This is possible for Amazon Prime members. For buyers who are not Amazon Prime members to qualify for free shipping, the minimum spend has to be $25.
A lot of sellers without this knowledge will unwittingly set their price points at amounts such as $24.75 or $24.99. This obviously works against their marketing efforts as the customer is not just concerned about the price displayed on the product description page, but also about the other additional costs.
Finally, how the amount is set also influences the perception of the consumer. When you change the price, it is best to remain within the same tenth bracket. For example, it would be preferable to shift a price point from $26.99 to $29.99 instead of $30.99. In this example, your adjusted price will still fall within the range of twenties, creating the impression that it is closely related to the original price.