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E-Commerce Trends Price Strategy You Must Know to Successfully Launch Products on Amazon

Registration dateNOV 02, 2023

Price Strategy You Must Know to Successfully Launch Products on Amazon
ECOMCREW is one of the e-commerce podcasts that deals with the topic of various e-commerce-related topics ranging from Amazon to Shopify. In 2022, it modified and made a report that explored various factors that apply when Amazon consumer purchases based on the 2022 Consumer Report. According to the 2023 Consumer Report, 38% of consumers pick “price” as the most important factor when shopping on Amazon, and 35% replied they consider “fast delivery.”[1]

The fact that consumers prioritize “price” over “fast delivery” implies that Amazon sellers’ key factor for increasing the purchase conversion rate is “product price.” In particular, if you are a seller who consigned purchase processing to Amazon by using Fulfillment by Amazon (FBA), “fast delivery” has already been your business strength. Therefore, you need to focus on “price competitiveness.”

It is quite complex to appropriately set a price for a product. This is because the price needs to be lower than rival companies but raise profit and offer attractive pricing to customers at the same time. It is not right to believe that simply setting the price higher or lower is a smart strategy. If the price is higher than your rivals, consumers will go for a lower alternative. However, if you can provide a large and sufficient value to consumers, things can change.

In contrast, if you set the price of a product too low considering price competitiveness, the consumer might raise questions over the quality of the products and the seller might have difficulties operating their sustainable business due to low profit. Therefore, it is important to set the optimal price that can maximize sales and increase profit while attracting and maintaining customers when doing business on Amazon.[2][3]

This post deals with the price-setting strategy of Amazon products for new sellers who are preparing to launch products on Amazon. It will provide useful information even to sellers who are already selling products on Amazon.
How to Set an Attractive Price (Source : Shutterstock)
Let’s set hypothetical scenarios for Amazon seller-to-be and take a look at the method for setting an attractive price on Amazon. This includes the method of using tools freely provided by Amazon.

Many superior companies offer competitive products and market analysis data. However, most of them request a one-year subscription, making it quite difficult for customers to pay depending on their launch budget. A certain amount of learning is required to freely use the tool, so it is recommended that you use Amazon’s free tool.

A Hypothetical Case: Preparing to launch “GL Coffee-like” on Amazon
Amazon seller-to-be GL is preparing to launch “GL Coffee-like,” which is an alternative to coffee.

[Information of Product]
  1. Product name: GL Coffee-like
  2. Manufacturing prime cost: $9
  3. Product weight: 1.1 lbs. (500g)
  4. Product volume: 7 x 5 x 3 Inch (18 x 13 x 8 cm)
  5. Amazon-selling method: FBA (Fulfillment by Amazon)
Recognizing rival products and market prices on Amazon It is extremely important to identify your rival’s price range of the product you are thinking of selling in the stage you are preparing to launch on Amazon. This can be expressed as “market price,” and it becomes the standard of identifying the resistance line of consumers. This becomes even more important when selling premium high-quality and high-price products in the same product line. I strongly recommend you carefully review ”Amazon Category’s Bestsellers.”

1) Recognizing rival products of “GL Coffee-like” – Using BSR (Best Seller Rank)
Use Amazon’s Best Seller Rank (BSR) to identify your rival products and market prices. You can not only catch the top 100 products with BSR but also find related adjacent categories.

How to find Category BSR
  1. Search related popular products with keyword search results.
  2. Search the BSR link on the detail page of the popular products.
As a result of searching with the keyword “coffee alternatives” for “GL Coffee-like,” you can check the Coffee Substitutes BSR link in the “Product details” section by visiting the detail page of the first-exposed product.
[Finding Amazon-Related BRS of “GL Coffee-like”] Finding Amazon-Related BRS of “GL Coffee-like” (Source : Amazon)
You can also find various rival products using the adjacent category’s BSR from the left index of Coffee Substitutes BSR.
[Amazon Coffee Substitutes BSR] Amazon Coffee Substitutes BSR (Source: Amazon)
Setting the logistics cost to the Amazon warehouse If you have identified the range of your rival products’ prices on Amazon and the price resistance level of consumers, it is time to review the cost and revenue for selling on Amazon. There are several cost-related items required for selling on Amazon: logistics costs for sending products to the fulfillment center (FC) of Amazon in the US, product selling fees, FBA purchase processing, product storage costs, etc. Adding to this, another consideration is the budget for advertisements and promotions.
Illustration of calculating logistics costs to Amazon warehouses (Source: Amazon)
Fifty-eight percent of the total Amazon sellers set the price range between $16 and $50. Also, half of Amazon sellers do business with more than a 15% margin.[5][6] Referring to this, the hypothetical case “GL Coffee-like” set the selling price on Amazon as $50 and optimized the price by targeting a 15% margin.

(1) Setting the logistics cost to Amazon warehouse
Identify the logistics cost until the US Amazon warehouse with the forwarding company’s quotes. Set the hypothetical logistics cost of GL Coffee-like as $2 per product.
  1. Estimated selling price on Amazon: $50
  2. Manufacturing prime cost: $9
  3. Hypothetical logistics cost until the US Amazon warehouse per product: $2
(2) Checking estimated selling fee
The rate of selling fees is different per product type and category. The selling fee imposed for selling grocery and gourmet is 15% for products exceeding $15.[7] The estimated selling price of “GL Coffee-like” is $50, so the selling price of 15% is applied. The estimated Amazon selling fee for “GL Coffee-like” is $7.5.
  1. Estimated Amazon selling fee: $7.5
[Amazon’s Selling Fee per Category – Grocery and Gourmet] Amazon’s Selling Fee per Category – Grocery and Gourmet (Source : Amazon Seller Central)
(3) Checking estimated FBA fee
Next, you need to identify the estimated FBA fee. The FBA fee is imposed based on the size and weight of the products. Use “FBA Revenue Calculator” which is provided by Amazon and is free of charge. You can find “FBA Revenue Calculator” by searching on Google and using it without having an Amazon Seller Account.[4]
[Google Search Result – Amazon Revenue Calculator] Google Search Result – Amazon Revenue Calculator (Source : Google)
Enter the relevant information, including product size and weight information, and identify the estimated fee and sales revenue.
[FBA Revenue Calculator] FBA Revenue Calculator (Source : Amazon Seller Central)
[FBA Revenue Calculator – “GL Coffee like” Calculation Result] FBA Revenue Calculator – “GL Coffee like” Calculation Result (Source : Amazon Seller Central)
  1. Estimated Amazon FBA fee: $5.4
The fulfillment cost, the purchase processing fee for Amazon products, is $5.4. The FBA fee is applied differentially based on the volume and weight of products. “GL Coffee-like” was charged $5.4 because of the following reasons: the volume for the standard size tier was “large standard” and the weight belonged to the 1-1.5 pound range.[8]
[FBA Fee – Standard-Size Product Tier] FBA Fee – Standard-Size Product Tier (Source : Amazon Seller Central)
(4) Calculating storage cost
The storage cost was $0.05 as the standard ranging from January to September was applied. The cost increases during the peak season from October to December. The storage cost increases to $0.15 during the peak season in the case of “GL Coffee-like.” The storage cost is calculated monthly, and it is imposed when the product is sold.

Now calculate the sales revenue and costs, including manufacturing prime cost and logistics cost to the US Amazon warehouse. Additionally, if you calculate the advertisement and promotion cost as $10 per product, the total cost for “GL Coffee-like” becomes $33.95, the projected net profit becomes $16.05, and the margin becomes 32.1%.
[“GL Coffee-like” Projected Cost & Margin] “GL Coffee-like” Projected Cost & Margin (Source : Giant Lotus)
Selecting target customers and pricing strategies If you finished identifying the base cost, expense, and margin, the next step is to define who your target customers are. Come up with optimal prices that can incur the most successful performance by selecting a pricing strategy. Proceed with an appropriate pricing strategy considering the characteristics of target customers and the business type. Some examples of pricing strategies are as follows: “cost-plus pricing” which reduces the product price by adding costs, such as advertisement and marketing to the high initial selling price (pricing that reduces the prime cost), and “value-based pricing” which is based on values recognized by consumers, such as character products and idol goods rather than the product functions. Price A/B Test Proceed with the A/B Test for the selling price on Amazon. If the base price is determined, test with different prices. This way, you can check which price works best.

“GL Coffee-like” secured a 32.1% margin by setting the selling price as $50, but it can have a 15.21% margin by setting the price as $37.9. Compare and contrast the performances resulting from selling the product for a certain duration of period. Fix the price and proceed with the A/B Test with various items, including advertisements, promotions, and content. Actively use the result for the Amazon business.

Deciding an attractive price for launching on Amazon is an important stage in the journey of Amazon business. Price decision refers to the setting of costs by considering various factors. It is following a string of processes, such as identifying the cost, studying competitors’ products and the market, and providing unique values to consumers.

Following this cycle, new sellers can not only attract Amazon consumers as their clients but also come up with branding that can guarantee profitability and long-term success. Keep in mind that price is not static but a continuous process where you have to understand the market dynamics and get used to it. # References [1] From Checking Out to Checkout: What Makes Amazon Customers Buy?, ECOMCREW https://www.ecomcrew.com/consumer-behavior-review-2022/
[2] Price – the most important P in the marketing mix?, Price2Spy https://www.price2spy.com/blog/price-the-most-important-p-in-the-marketing-mix
[3] Price your product or service, Info Entrepreneurs https://www.infoentrepreneurs.org/en/guides/price-your-product-or-service
[4] FBA Revenue Calculator https://sellercentral.amazon.com/hz/fba/profitabilitycalculator/
[5] 2023 Amazon Seller Pricing Strategy – How to Price a Product. Jungle scout https://www.junglescout.com/blog/amazon-pricing-strategies/
[6] 2023 The State of the Amazon Seller, Jungle scout https://www.junglescout.com/amazon-seller-report/
[7] Referral fees https://sellercentral.amazon.com/help/hub/reference/GTG4BAWSY39Z98Z3
[8] FBA fulfillment fee https://sellercentral.amazon.com/help/hub/reference/GPDC3KPYAGDTVDJP

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