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.
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]
- Product name: GL Coffee-like
- Manufacturing prime cost: $9
- Product weight: 1.1 lbs. (500g)
- Product volume: 7 x 5 x 3 Inch (18 x 13 x 8 cm)
- Amazon-selling method: FBA (Fulfillment by Amazon)
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
- Search related popular products with keyword search results.
- Search the BSR link on the detail page of the popular products.
(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.
- Estimated selling price on Amazon: $50
- Manufacturing prime cost: $9
- Hypothetical logistics cost until the US Amazon warehouse per product: $2
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.
- Estimated Amazon selling fee: $7.5
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]
- Estimated Amazon FBA fee: $5.4
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” 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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