The only Amazon pricing strategy guide you’ll ever need: How to develop a strategic pricing formula (and maximize the balance between sales and profits).
Small pricing strategy changes = big profits
The way I look at Amazon pricing strategy is this: Pricing decisions compound. One small tweak to your pricing strategy can add up to thousands of dollars at the end of the year. There is no such thing as a small decision when it comes to the formula you use to price (and reprice).
There’s two ways to approach pricing strategy:
- Copy another seller’s formula. This requires memorizing virtually infinite number of scenarios, and how to set a price for each one. Unless the formula is criminally simplistic, this will be – practically speaking – impossible.
- Understand pricing principles. This only requires that you understand the basic concepts that underlie intelligent pricing, then letting them guide your pricing. Once you understand a few core concepts, pricing becomes effortless and intuitive.
By the end of this article, you understand these pricing principles, and there will no need to memorize a long list of “if this then that” formulas.
The tragic reality that renders all strategy null and void
We have to get one sobering reality out of the way, something that undermines most of the principles you’re going to learn here. This truth will destroy your most genius pricing strategies, and render you totally powerless. Ready?
Most of the time, your price is decided by your competitor.
Most of the time, you have little to no control.
What you want to price an item for on Amazon is constrained by what sellers with active listings who came before you have decided. And their prices were decided by the sellers before them. And onward back to prehistoric times (almost).
The reason I’m not making this one of the top Pricing Strategy Principles is that, in a sense, it is an anti-pricing strategy. The pricing strategy killer. It makes many ninja pricing moves you might attempt totally useless, because you are simply constrained by competitors.
Here’s what I mean:
Let’s say you have a textbook. And the lowest merchant fulfilled price for that textbook is $20. And you’re an FBA seller, so you want to capitalize on knowing students disproportionately want Prime-eligible offers. So you want to price your textbook at $99 (not an unrealistic price).
While that would be “smart,” it would also be impossible. Why? Because there are 20 other sellers who have priced that same book between $29 and $30. It doesn’t matter what strategy you want to apply. You’re left with no choice but to price that book at $29 (or $29.99, if you want to potentially wait months longer for that extra $1).
All that is to say: The biggest influence on the price you set is not your strategy, but your competitors.
So with this sobering reality out of the way – let’s begin…
Pricing Strategy Principle #1: Pricing is a balance between sales and profits
Most sellers make one of two pricing errors:
- Setting a price based on what will get them the highest amount for their item.
- Setting a price based on what will get them the quickest sale.
They both right, and they’re both wrong. Because the whole goal of choosing a price is to strike a balance between the two.
So the entire goal of choosing a price on Amazon revolves around this goal:
“Getting highest amount you can for that item, while still selling it within your desired time frame.”
(write that down)
Too much emphasis on “selling something fast”? Your margins and overall profits wills suffer. Too much emphasis on “getting the highest price possible”? You’re turnover is going to be terrible, and have your capital tied up in a lot of inventory for a very long time.
Striking a balance: That’s the entire game of pricing.
Pricing Strategy Principle #2: If item is not repriced, it’s effectively not for sale.
This sounds dramatic, but its true.
If you have inventory listed for sale on Amazon, and you haven’t repriced it recently (preferably in the last 24 hours), that inventory may as well not be listed at all. Here’s why:
When you list something for sale on Amazon, what often happens within minutes (or seconds)? You get underpriced by another seller. And if you get underpriced by too many sellers, customers won’t see your offer. And if they can’t see it, they won’t buy it. Which makes your item effectively not for sale.
If Amazon buyers don’t see your offer, they won’t buy it.
Here’s what this DOESN’T mean (and what I’m NOT saying):
- I’m not saying prices only go down. Prices go both up and down. Price swings can be very dramatic in either direction.
- I’m not saying if you stop repricing completely, you’ll never sell another item again.
What can’t be argued is that neglecting repricing will result in a significant percentage of your inventory getting buried by other sellers, and that inventory possibly never selling.
A man has 1,000 items in his inventory. He hasn’t repriced that inventory in 30 days. How many items does he have for sale?
Sounds like a Buddhist riddle. But this is a serious business question, and the answer might be as little as 100 items. Maybe less.
Because 900 of them quite possibly have been buried by competitors, so deep that they may never been seeing (or sold) again.
If an item is not repriced, it is effectively not for sale at all.
This is why repricing is mandatory.
Pricing Strategy Principle #3: You should (often) price higher than lowest competitor
There’s a time and place for blindly matching the lowest price among your competitors and getting a quick sale.
The problem is that blindly matching (or – gasp – underpricing) the lowest price competitor is the only pricing strategy the majority of Amazon sellers have. Which is no pricing strategy at all.
You should be pricing higher than the lowest price when the following conditions apply:
- An item is in high (or reasonably strong) demand.
- The extra profits you’ll get from pricing higher make pricing higher worth it.
Have a very low-demand item for sale? Maybe this doesn’t make sense, and you should just aim to get the quickest sale. Have a higher demand item but the lowest 5 competing prices are all bunched up within a dollar or two of the lowest? Maybe it makes sense just to match that lowest price and get the quicker sale.
But always chasing the lowest price is losing pricing (and repricing) strategy.
The key detail here is that there is nothing special about the lowest price at this moment. It’s just the price right now. Prices go up and down all the time, and there’s no reason to assume the lowest price at this moment is also the best price (it probably isn’t).
Don’t submit to the tyranny of the lowest price, and exercise your pricing rights as a seller and price higher when it makes sense.
Pricing Strategy Principle #4: FBA gives you a big pricing advantage.
Some call this “the FBA bump.” I’ve always called it “pricing leverage.” But this phenomenon is as old as Fulfillment by Amazon itself: People will pay way more to get a Prime-eligible, FBA offer.
This concept is simple and nothing new: Prime subscribers generally only want to buy Prime-eligible offers, and they’re often willing to pay exorbitant amounts for FBA offers. There is a value to the perks that come with an FBA offer. The fast shipping. The built-in trust. And more.
Be aware there are forces conspiring to keep FBA sellers from exercising their true pricing power. One is Amazon’s “high pricing errors,” where Amazon uses a totally non-transparent formula to decide a price is too high, and deactivates the listing. The biggest one is less intelligent (or less bold) FBA sellers who timidly keep their prices close to Merchant Fulfilled offers, bringing prices down. Both are working against us.
But always remember: if you’re an FBA seller, for any items with high or medium demand – you are competing with other FBA offers only.
Pricing Strategy Principle #5: The higher the demand, higher you can price
Amazon Sales rank is the most important factor in your pricing, and forms that basis for all pricing (and repricing) decisions.
You’re going to reprice an item with an Amazon sales rank of 5,000 completely differently than an item ranked 1 million. One is selling hundreds of copies a day.
The concept is simple, and best explained like this:
Let’s say you have two books. One has an average Sales Rank of 5,000 (selling hundreds of units a day). Another has a sales rank of 3 million (selling once every couple months). Let’s say for each of these, the pricing landscape is identical, and looks like this (from lowest to highest):
Despite the prices being the same, you would price each of these books totally differently. Personally, I would price the book with a 5,000 sales rank at $99. Possibly over $100. Yet I would price the book with a Sales Rank of 3 million at $30. Not even a question.
Pricing Strategy Principle #6: There is never a “right price”
You’ll either consider this the best news from this list, or the worst.
The concept here is that it’s impossible to price something “perfectly.” The absolute best price for an item can never be determined. The sales price can never be predicted.
This is why you can line up 10 experienced Amazon sellers, ask them to the best way to price an item, and get 10 different answers. And here’s the thing: None of them are “right.” Some are more right than others, but it’s impossible to perfectly “right.”
Some will see this as glass-half-full: Since no amount of analysis can ever predict the “perfect” price, it relieves a big burden from sellers who feel like they’re never quite getting it “exactly right.” You can relax knowing this is an impossible standard to meet.
Some will see this as glass-half-empty: They’re always either pricing something too low or too high, and can never accomplish pricing perfection.
Bottom line: the perfect price doesn’t exist. All you can hope to do is get close to the most you can possibly get for an item, while still selling it in your desired time frame. If you get profits you’re happy with and it sells in a time frame you’re happy with, then you can consider that the “Right Price” (for you).
Pricing Strategy Principle #7: The price is always changing
There’s nothing special about the price for an item at this moment in time. Prices go up, prices go down. The price is always (always) changing.
On the surface, this might seem obvious. But a lot of sellers don’t accept just how fast prices change on Amazon. And they don’t accept how little significance a price has at any given moment.
Here’s what understanding this will do for your pricing:
No longer needing to react to every pricing change. A lot of seller set up repricers to match (or – gasp- undercut) competitors 10x a day. It’s pure insanity. It’s as if to say “10x a day the best price for that item changes.” That’s simply not possible. Yes, the lowest price changed. But the best price didn’t.
No longer getting upset when the price drops on an item. Because you realize there was nothing sacred about the price you set when you listed the item for sale. It just happened to be the price at that moment.
Allowing time for prices to rebound before panic-dropping. When you understand that prices fluctuate wildly from day to day and week to week, you’re less likely to make rash repricing decisions when a price drops. Maybe with the help of Keepa price history charts, you can more accurately assess the chance of prices rebounding, and hold off on frantic price-drops.
Good pricing strategy is a superpower
Small changes to your pricing can totally change your Amazon business.
Un-evolved sellers blindly chase the lowest price. Elite sellers aim for the best price.