Pricing for profits: The psychology of the Amazon customer

Guide to understanding the Amazon buyer, and how to price your products for maximum profits.

To understand pricing strategy, you must understand your customer. In this case, the Amazon customer.

This article is specifically catered for FBA sellers, and understanding the Prime subscriber. As an FBA seller, Prime subscribers are your “prime” target. They are who you’re pricing for.

As an FBA seller, many of your sales are going to non-Prime subscribers too. Amazon customers just prefer to buy FBA offers. Simple as that. From the ease of purchasing through the Buy Box, to the free shipping offered for FBA offers totalling $35 or more, to the no-hassle return policy – everyone loves FBA offers.

Especially Prime subscribers. So to sell to them, you must understand their habits, how they think, and what motivates them. This is so important because it obliterates any hesitancy you may have as an FBA seller to ignore FBM offers and price against other FBA offers only. If you don’t internalize this, you’re leaving huge amounts of money on the table.

What is Amazon Prime?

For $139 a year, Amazon’s most loyal and most monied customers get access to Amazon Prime. Here’s what they get:

• Free second day shipping on all Prime-eligible (aka FBA) offers.
• Prime video access.
• Amazon music access.
• Prime Day discounts.
• 5% cash back credit card.
• Whole Foods discounts.
• Prescription medication benefits.
• Cloud storage.
• …and tons more.

Here’s a statistic I was shocked to learn: Prime has 168 million members (as of the time of this writing). That’s almost half the country.

According to estimates, Prime subscribers spend 2x more than regular Amazon customers. They have more money and they’re more willing to spend it.

Another exciting statistic: 82% of Prime subscribers buy on Amazon, even if the item is less expensive somewhere else. In other words, price isn’t the biggest factor in their buying decisions.

And another one: Over 80% of Amazon customers have never purchased a non-Prime-eligible offer.

And another: 92% of Prime subscribers plan to renew their membership.

All this means that Prime functions as a sort of loyalty oath. With Prime, Amazon is locking people into their buying platform. People are paying money for this service. And consciously or subconsciously, they’re thinking: “I’m paying money for this, so I better buy my stuff there.”

So as an FBA seller, your entire pricing strategy is based around targeting Prime subscribers.

Why the Prime subscriber buys

Why do they make buying decisions? Let’s take a walk through the mind of a Prime subscriber.

Let’s say we have a book. It’s the Beastie Boys photo anthology.  Now, let’s say a Prime subscriber wants to buy this book. So they go to Amazon. They’re looking at their options, and they notice a Merchant Fulfilled seller is selling this book for $8, with $5 shipping

Let’s say your FBA offer is priced at $12.95. Your book is in the same condition as the $8 copy. Which do they choose?

You are guaranteed the sale. Yours is priced higher than your nearest competitor, and you’ll still get the sale. But why?

The answer should be obvious. Amazon gives the top spot in the listings to the lowest priced offer, factoring in shipping. Since your $12.95 offer comes with free shipping, it is actually cheaper for the customers. There is zero reason for the customer to not buy your offer (and many reasons for them to buy it, when you factor in all the benefits of Prime-eligible offers). You’re almost guaranteed the sale.

And that’s assuming they are purchasing based on price. Which many Amazon customers do not.

Now let’s say you have that same book priced at $19.95. Now you’re no longer the cheapest price. You’re not the top spot in the listings. What’s a Prime subscriber going to do? They’re not going to buy your exorbitantly priced copy, are they?

They could go with the cheaper offer, and pay $13. They know they’re going to have to wait up to two weeks to get the book due to the slow Media Mail shipping. They know buying from an untrusted third party seller is a gamble, and it’s hit-or-miss whether the condition was described accurately. And they know if they need to return the book, there’s no guarantee the seller will accept the return, or even respond to messages.

But the buyer does know Amazon. They trust Amazon. They know Amazon ships quickly. They know Amazon will accept returns, no questions asked. There is minimal risk. There is a $6 downside in terms of price. But immeasurable upside in terms of convenience and peace of mind.

And if this buyer is a Prime subscriber, the aversion to non-FBA offers is even stronger. They are paying $139 a year for a service that they need to justify.

All this means that even at a higher $19.95 price, you are still likely to get the sale. You may have even gotten the sale at $35. Or more.

That’s how the Prime subscriber thinks. That’s how the Prime subscriber makes buying decisions.

Even at your “exorbitant” price, the sale is yours.

The Magic of Pricing Leverage

If you’re an FBA seller, it’s crucial to understand the concept of “pricing leverage.” Without this understanding, you will not have the confidence to price your Prime-eligible offers intelligently.

Specifically, “pricing leverage” refers to the ability to price FBA offers higher than FBM. I’m going to give you an understanding of the psychology of the Amazon buyer, and why so many are willing to pay vastly more for FBA offers.

Without this understanding, you’ll be pricing “from the heels” – in other words, too conservatively.

Amazon Prime is a cult

Remember, Amazon Prime causes otherwise sane consumers to lose their minds and spend a bonkers-level amount of money on products they could obtain more cheaply elsewhere.

Amazon Prime members will pay way more to obtain “Prime Eligible” offers – just to get the benefits of Prime.

Subscribers behave in an (almost) cult-like fashion. That makes Amazon Prime (almost) literally a cult.

And you don’t need to be Amazon itself for members of the cult to throw themselves at you. You just need one thing: A Fulfillment by Amazon account. That’s it.

And all the trust Amazon has spent years building gets transferred onto you.

You become the standout rock star of all the offers you’re competing against.

As an FBA seller, you get the vast majority of all sales.

You own Amazon.

Six Reasons Pricing Leverage Words

Here are the six reasons that pricing leverage works.

#1: Prime offers (usually) win the Buy Box

As an FBA seller, you get strong preferential treatment for the “Buy Box.” While you can never guarantee that every offer will “own” the Buy Box (that depends on numerous factors), Amazon rarely gives the Buy Box to non-FBA sellers. This means FBA sellers enjoy more sales than non-FBA, guaranteed.

There could be 100 million FBM offers for an ASIN listed at one penny. And if there’s one FBA seller for $100, that FBA seller is going to get the Buy Box the vast majority of the time.

Consider this: Amazon has a massive amount invested in its FBA infrastructure. Warehouse, employees, etc. So it’s in Amazon’s strong financial interest to steer the eyeballs of customers to FBA offers.

Amazon has mad scientists working around the clock to figure out how to get customers just to buy FBA offers. And in ways that aren’t limited to the Buy Box. The fact is that Amazon’s pages are optimized to steer all the traffic towards the buy box.

As an FBA seller, you can always be confident that Amazon has your back and is working overtime to steer buyers to your offer – both via the Buy Box, and subtly in untold other ways.

#2: Prime offers get free shipping

“Free shipping” has a powerful influence on consumer psychology. People love free shipping.

Even if you’re a non-FBA seller and you match (or even underprice) an FBA seller, customers still feel the pull of “free shipping.” This translates to a big sales boost.

And it’s not just free shipping for Prime subscribers. Non-Prime Amazon customers get free shipping if they have $35 or more in FBA products in their order. This is a huge incentive for all Amazon buyers to buy FBA offers only.

#3: Second-day shipping 

It’s not just the free shipping, it’s the free second-day shipping.

For most of the country, Amazon will deliver FBA orders in two days or less. Merchant Fulfilled sellers simply can’t compete.

Increasingly, packages taking longer than two days to arrive is seen as archaic, and customers are increasingly unwilling to tolerate the wait. Fast shipping speed is a feature many Amazon buyers are willing to pay for.

#4: Most Amazon buyers have never (and refuse to) buy non-Prime offers

Remember this stat? “Over 80% of Amazon customers have never purchased a non-Prime-eligible offer.”

By being an FBA seller, you’re not just capturing Prime subscribers. You’re making yourself more appetizing to the vast majority of Amazon customers across the board.

Even non–Prime subscribers exhibit a strong resistance to buying Merchant Fulfilled offers. They present too much uncertainty. When will the item ship? Will it ship at all? How long will it take?

For most Amazon customers, it’s not worth the headache.

#5: Prime subscribers want to justify their Prime subscription

Prime subscribers are paying over $100 for their subscription. And that subscription has to be psychologically justified.

That’s 168 million people who are seeking out Prime-eligible offers because the identify as “Prime members.”

This is a subtle but powerful driver of FBA sales.

#6: Amazon confers trust on Prime-eligible offers

Amazon is consistently rated as one of the most trustworthy “brands” in the world. They spent decades building up that trust among consumers. And all that trust is conferred upon you simply for being an FBA seller.

Having that small “Prime” logo next to your listings means you get to piggyback on that decades of trust, and have to do almost nothing for it. That logo is a giant stamp that tells customers they’re going to get their order fast, they’ll get exactly what they ordered, and they’ll enjoy hassle free returns.

When customers buy an FBA offer, they feel like they are buying from Amazon directly (and in a sense, they are). That trust has value. And that value manifests in your ability to price much higher than Merchant Fulfilled sellers and still get sales.

Takeaway

Selling on Amazon as an FBA seller is like getting prominent end-cap placement on the shelves at WalMart.

All of this means that FBA sellers can price their offers outrageously, and get away with it. 

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