Quick tutorial on answer the question: How far below Amazon’s offer should you price your listing?
Why can’t third party sellers price above Amazon?
This simple pricing concept will save you a huge amount of heartache, tears, and lost sales.
You cannot price higher than Amazon.
If Amazon is selling a product that you are also selling, you can never price above Amazon. And if you try, you will never get a sale.
The only way you’ll get a sale pricing higher than Amazon is if a drunk Saturday night shopper passes out and hits their head on the “Buy Now” button.
Amazon’s price is always the ceiling. It is an immutable, unbreakable, timeless ceiling that can never be breached.
Everyone prefers to buy from Amazon over third party sellers (yes everyone)
Everyone (yes everyone) would prefer to purchase from Amazon over you. I know you have a really clever store name. I know your feedback score is great. But your appeal will never exceed Amazon’s in the eyes of buyers. This is Amazon’s world, and you’re a second-class citizen.
I got into an exchange with a seller one time. I told them they couldn’t price above Amazon. They said: “Maybe other sellers can’t, but I can. My customers love me. I’ve got a great feedback score. People love me. I take really good care of my customers.” Etc etc.
And I had to tell her bluntly. No they don’t, and no you can’t. No one loves you more than they love Amazon. Your customers buy from you and never think about you again. You cannot build a brand on Amazon. You have a store name and a feedback score, and that’s it. That’s not a brand.
Amazon is a brand. And they’ve invested billions in being among the most trusted brands in the world. Everyone would prefer to buy from Amazon over you.
Never price above Amazon. Don’t even try.
Then how far below Amazon should you price?
The question becomes: How far below Amazon should we price?
I’ve labored to keep this book very specific and action-oriented, but there is no specific answer to this question. So don’t worry about getting it “just right.” What is crucial is that you’re underpricng Amazon. Beyond that, the specifics aren’t going to have a high impact on your business.
Should you price a penny below Amazon? Or a minimum of $5? I’ve seen sellers who do both. And I think both are too extreme in different directions.
I’m going to use evolutionary psychology to answer this question more specifically. This helped me resolve this question that I struggled with for a long time. Is 10 cents enough? Should it always be a dollar? More? Will people pay an extra dollar to get their item from Amazon directly?
How evolutionary psychology solves this pricing riddle
Some years ago I read a book titled Mind Of The Market. It explains the evolutionary roots of our often irrational buying decisions. And one lesson from the book is relevant to the question in front of us right now.
Here’s the lesson: Humans are wired to think of numbers in terms of percentages, not fixed numbers. In other words, a dollar off coupon from the perspective of a customer is vastly more exciting for an item that’s $10 than one that’s $100. Because $1 is 10% of $10, but only 1% of $100. They still save the same amount, but one will get them excited and the other won’t motivate them at all.
Rationally, it makes no sense. It should be exactly the same. A dollar off for a $100 item should be just as exciting as a dollar off for a $10 item because you still save a dollar. But there’s something about the human brain where the percentage is what motivates our buying decisions, not the fixed dollar amount.
What this means for competing against Amazon: The higher Amazon’s price, the further below it you should price.
Think in terms of percentages, not a fixed dollar amount.
Price below Amazon by percentages, not a dollar amount
Remember when someone is about to purchase something on Amazon, they’re looking at Amazon’s offer first, then your offer as the “coupon.”. So if Amazon has something listed for $99, and you listied it for $98, guess what? That’s not a great “coupon.” In this scenario, they’re going to buy Amazon’s offer almost 100% of the time.
Whereas if Amazon’s offer was $10 and yours was $9, you might get a majority of sales.
What is the percentage you should aim for? I don’t have a scientific answer, and I don’t think anyone does. But here’s what I do:
- If Amazon’s price is below $15, I will price my offer $0.50 below.
- If Amazon’s price is between $15 and $25, I’ll price $1 below.
- If Amazon’s price is between $25 and $50, I’ll price $2 below.
- if Amazon’s price is $50 to $100, I’ll price $3 to $5 below.
And it just goes up from there.
The extra sales add up
How much does this matter to your profits?
You may have heard me repeat that there are no small decisions when it comes to pricing. Small losses (or gains) compound over time. This is a good example.
Doing this “right” (or not-totally-wrong) will translate into more sales (or higher price sales) that will add up over time.
-Peter Valley
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