Listing Optimization

Why Pricing Matters and How to Price Your Products on Amazon

by Seller Snap Oct. 28, 2021

Setting the right product price is considered the fastest and most effective way to attain maximum profit. That is why many online sellers inquire about product pricing, especially those without prior entrepreneurial experience.


Despite the recognized value of pricing, some online entrepreneurs still lack the initiative of improving their listing prices. The thought of losing customers prevails over price optimization. Thus, resulting in minimal if not negative profit margin.


Pricing of inventory items is a fundamental and essential function of online sellers. To help you improve your pricing strategy, here are the important things you should know about pricing.




What is Pricing?


Typically, a business is established to provide value and generate revenue. To profit, the value provided comes with a monetary equivalent.

This perceived value for cash is known as pricing. In other words, pricing defines the worth of your product.

Pricing is the exchange rate sellers place on the intangible and tangible business aspects. It is the only revenue-generating element among the four Ps of the marketing mix, namely product, place, promotion, and price.

In setting your product price, you should consider the following:


  • Product Quality
  • Revenue Goals
  • Manufacturing Cost
  • Target Market/Marketplace
  • Marketplace Competition
  • Marketplace Condition


Why Does Pricing Matters for Your Business?

Whether you are selling on Amazon, eBay, or other leading online selling platforms, pricing is crucial for the success of your business. As mentioned in the preceding paragraph, the price of your product determines its value.

However, more than just a numerical representation, pricing is an integral aspect of your business because:

It Offers Flexibility

Pricing is the most flexible element of the marketing mix. Changes with product, place, and promotion can take a long time to implement. On the other hand, pricing can be easily adjusted depending on the marketplace situation.

It Provides Promotional Opportunities

Pricing is also a critical part of promotional campaigns. Sales promotions can be more effective through price adjustments that encourage more customers and sales.

It Engages Shoppers

Price is often the first thing shoppers notice when checking an item online. Although the overall value and benefit of the product is the final buying factor, price is the triggering factor for customer engagement.


Common Objectives of Product Pricing

Pricing also has other objectives apart from simply generating revenue. These pricing objectives include but are not limited to the following:

  • Survival
  • Company Growth
  • Increase Market Share
  • Maintain Price Leadership
  • Enhance Product Image
  • Create Product Interest and Excitement


Common Types of Pricing Strategies


Premium Pricing

This pricing strategy aims to establish that the listed item has a higher value than other products because of the premium price tag. A high price is a benchmark for this pricing approach.


Penetration Pricing

Sellers often use this type of pricing strategy to attract online shoppers to a newly launched item. To stir interest among shoppers and penetrate the market, sellers offer lower prices than their competitors.

The main goal of penetration pricing is to gain traction upon product launch and establish a market share. However, once the promotion period is over and a significant market share has been obtained, item prices will be increased to their normal level.


Price Skimming

In contrast to penetration pricing, price skimming sets the price high to maximize profit. It is a short-term approach that targets online shoppers who are eager to purchase the item and willing to pay the high price.

Since you initially target only prime customers, sales are expected to be less but more profitable because eager buyers are willing to pay a high price to receive the product the soonest.

Once prime shoppers are exhausted, sellers steadily reduce the product pricing over time to accommodate customers on a budget but still eager to purchase the item.   


Cost-Based Pricing

This is a plain and simple pricing strategy. When pricing the item, sellers mainly consider the costs for manufacturing, distribution, and selling of the products. On top of the aforementioned factors, sellers also take into account return rates when setting prices.


Demand-Based Pricing

This is a pricing strategy mainly used by sellers for seasonal or cyclical inventory items. The demand for a product during a specific season dictates the pricing of such a product.

Consumer demand falls into two main categories- peak and regular periods. The former seeing more demand for products normally provides sellers an avenue to increase their pricing.


Competitive Pricing

This pricing method is one of the highly utilized pricing strategies in retail eCommerce. Amazon sellers, in particular, employ this pricing method to help them win more Amazon Buy Box.

This pricing strategy is highly effective in mature markets with numerous substitutes or competitors. Pricing your product is based on factors such as competitors' actions, marketplace behavior, and target audience.

There are three main actions you can adopt when pricing your product using this strategy. You can price your products higher, lower, or at the same price point as your competitors.

In most cases, a repricing software is utilized to automate the pricing of listed items and achieve a competitive price.


Checking Market Threshold for Pricing Opportunities

It is crucial to know how much your target customer is willing to pay for your product. This will greatly influence how much to price your item for.

To help you navigate through the time-consuming market research task, you can start with the following:

  • Checking of your competitors' pricing
  • Checking on your target shoppers' payment threshold

You can obtain the following information either by conducting your own research or utilizing a third-party repricing solution.


Effective Ways of Product Pricing


Understanding Market Trends

You need to understand that when pricing your items, you should always check the market trend regardless of your strategy. Understand where the market is heading in terms of demand or future sales of your products.


Price Monitoring

Apart from checking the market trends, you should also monitor your competitors' pricing. Compare the fluctuation of your competitors' pricing with your own pricing and make necessary adjustments to maintain competitive prices.


Perform Price Increases

Be open to price changes. You should be open to increasing your product price in relation to the changes in your competitors' pricing and the market demand.

Do not be afraid to test the price range to check which price point the market will favorably respond to in terms of customer engagement and profitability. However, avoid alienating customers by drastically increasing your product pricing overnight.

In order to carry this out successfully and automatically, you can utilize an algorithmic repricer which will set the optimal listed price for you, once you provide minimum and maximum price points.


Try Decreasing Price

Lowering your price is generally not a good idea. However, you can proceed with lowering your price if you intend to grab the market share with your extremely competitive pricing.

As a tip, try lowering the prices of excess items or those soon-to-be discontinued product lines. This will entice online shoppers to visit and engage with your online store.


Bundle Products

This is another common pricing strategy implemented by most retailers to sell lots of items at higher margins. This approach is highly effective since consumers perceive discounts over package deals. You are basically selling multiple items for a single price.

Aside from product bundling, you can also explore other marketing approaches to complement your offers. This may include offering rebates to online shoppers.


The Impact of Price Optimization


Price optimization is a method of finding the most effective or ideal price point for your products by evaluating customer and overall market data. When properly executed, price optimization can lead to steady customer growth, improved brand awareness, and increased profit margin.


Significant Tool for Success

Since it is an indispensable decision-making factor checked by shoppers, you should learn to set the right price for your product.

Remember that pricing determines the future, market acceptability, and profitability of your product. Overall, pricing should be viewed as a tool for competitive advantage, which is why Amazon automatic repricers were invented.

Using a repricer, like Seller Snap allows sellers to increase profit margins across their products, without entering profit killing price wars. The repricer makes calculated and tailored price changes based to outsmart your competition.