There’s no shortage of factors to optimize when you’re an Amazon FBA brand owner. Tweaking product descriptions, planning for product variations, crafting compelling advertising campaigns, and more — these are time-consuming tasks. That’s why it’s essential for brand owners to tackle the low-hanging fruit that has the greatest impact on their brand’s performance. When it comes to beating the competition, there’s nothing more impactful than a well-crafted Amazon pricing strategy.
Optimizing your product listings for search, for example, will help — but not if your product is wildly under- or over-priced. Identifying the right price range for your product and where it should fall within that range under a given circumstance is key to growing your brand. Let’s explore what factors brand owners need to keep in mind when crafting a pricing strategy.
Laying the Foundation for Your Amazon Pricing Strategy
Before you develop a pricing strategy, you’ll need to lay some groundwork first. Broadly, there are three key areas that you’ll need to consider in order to inform your Amazon pricing strategy.
1. Watch What Your Competitors Are Doing
It’s both a blessing and a curse: For any given product type on Amazon, there will be no shortage of competitors.
While this means you’ll have to work harder in order to rise to the top of the results pages and win market share, it also means there’s plenty of data readily available to you to inform every aspect of your brand, including your product pricing.
Successful FBA brand owners constantly gather information about their competitors. Identify the top 5 competitors for a given ASIN and track the metrics you’ll need to inform your pricing strategy on a daily basis. It might seem like overkill, but there’s a lot to observe in your competitors’ product listings, and it all changes very quickly.
Obviously, you’ll want to track your competitors’ price, but it’s also important to assess other metrics like their number of reviews and star rating, search optimization, variations, accessories, and anything else that might impact the overall price of an item. It could be that they have a comparative price to your product, but maybe you have a better review count. Or, maybe you offer more variations on the product. Differences like these might justify a price increase.
Watching your competition may very well be the most important source of data that you can use when setting a price. While conducting a daily review might seem time-consuming, there are a variety of tools out there that can help. Most brand owners are familiar with Keepa graphs, which enable owners to track ASIN’s price changes over time. There are also keyword tools like Helium10 or Sellics. Strategically investing in different tooling like this can make monitoring your competition on a daily basis less tedious and more valuable.
2. Learn How to Get Answers About Your ASINs’ Pricing Fast
If there’s some market event that might prompt a change in pricing (like COVID-related shipping delays, for example), you should be able to rapidly determine what price you can set to achieve your goals without excessively hurting your margins.
Here’s where it pays to exercise your spreadsheet skills. Build a calculator that you can clone for each of your ASINs. Using this calculator, you should be able to dynamically input and analyze information on your:
- Profit dollars at a given price point
- Margin at a given price point
- And more
Essentially, think about what data you need in order to make an informed decision about your pricing, determine a way to calculate that data point, and build it into your calculator. With a quick and easy custom tool like this, you’ll be able to rapidly answer questions like whether you can afford to reduce price to gain market share, whether you can increase your price to avoid a stockout, whether you can meet or beat a competitors’ price given your current inventory and margins, and so on.
By having a pre-built calculator, it’ll be less tempting to rely on your gut when you’re forced to make a decision, and you’ll have gained the time efficiency necessary to regularly review your Amazon pricing strategy.
3. Pay Attention to Market Events
Just as you regularly review your competitors’ pricing strategy and your own pricing strategy, you’ll want to regularly review the market and keep an eye on news that could impact your operations. It might seem obvious, but there are owners out there that only pay attention to the market when something’s gone wrong.
Consistently checking in with your manufacturer, paying attention to the news in their country of manufacture, reviewing newswires, and generally becoming a diligent consumer of the news will ensure that you can act fast if an external market event is going to have an impact on your operations.
Setting an Amazon Pricing Strategy
Equipped with the right data to inform your pricing strategy, you’ll be prepared to intelligently execute on it. Broadly speaking, there are two major modes you should operate within: Avoiding stockouts and growing market share.
In running an Amazon FBA business, your priority should always be to avoid a stockout. Attracting excessive demand without regard for your inventory levels is very clearly a case of one step forward, two steps back.
Stocking out signals to Amazon that you’re an unreliable supplier, damaging your rankings in both the short- and the long-term. Your competitors will gladly take advantage of your drop in rankings to claw away hard-won market share from you.
Because you’re running an FBA business, you’ll have little control over how fast Amazon’s pick, pack, and ship process runs. As a result, you could be out of stock for weeks or months. Once you’ve replenished your inventory, you’ll have to burn through it at a rapid pace just to regain your lost position.
It can be tempting to think that this situation isn’t really all that bad – after all, you sold out because demand for this product is high, so once you get your inventory you’ll just pick up where you left off, right? Not exactly.
Keep in mind that in-demand products attract fierce competition, and that market demand is never fully consistent. It could be that you missed out on a spike in demand, and your competitors took the opportunity to seize top ranking from you. The next time demand spikes, they’ll be in a favorable position relative to you.
Thus, sometimes it’s better to stand still if you’re at risk of stocking out. Strong inventory management practices can help you stay alert to your stockout risk. Once you’ve determined that you are in danger, you can take a graduated approach to reducing demand for your products to avoid a stockout. We recommend following these steps in order – if one approach doesn’t cut demand enough, then take the next step:
- Reduce Ad Spend: If you’re trying to reduce the amount of demand for your product, slow down your advertising, or pause it entirely. Buyers that are searching for your brand will still find you, but you won’t attract as many new customers. If you’re facing a temporary spike in demand that threatens to wipe out your inventory, then new customers are a cohort you’re trying to avoid for the time being.
- Remove Coupons: After cutting ad spend, you may still be flirting with a stockout. In this case, it’s a good idea to cancel any coupon offers that you have running. If you have any Lightning deals or 7-day deals scheduled, you may want to cancel those as well, but only if they haven't launched yet. Otherwise, you'll still be charged the full fee for running a deal and Amazon may not permit you to run future deals.
- Increase Your Price: If the previous strategies didn’t work, then it’s time to use your price as a lever to reduce demand. If you’ve built out a calculator for each of your ASINs, you’ll be able to determine roughly what price you need to set in order to curb demand to the point where your inventory can sit at comfortable levels.
Growing Market Share
Fortunately, you won’t always be battling against the threat of a stockout. Eventually, you’ll have comfortable inventory and plenty of margin to focus on growing your market share.
In this circumstance, you’ll want to apply the same strategy described above – except in reverse.
Start with lowering your price to attract more customers. If you’ve still got the margin and inventory to continue, begin adding deals and coupons. If you’re still in a comfortable position, increase your ad spend.
Even after exercising these options, you might find that your rankings aren’t where you want them to be. In that case, make sure that you’re focusing on your conversion rate. Amazon places a heavy emphasis on conversions, so if your price is attractive but you’re not seeing many purchases, see if there are aspects in your advertising or product descriptions that are misleading or are otherwise un-optimized.
Another tip is to always run deals (assuming you’ve got the margin and inventory to support this). You can run Lightning deals once a week and 7-day deals once a month. Ideally, you’ll be running these every week and month for all of your ASINs. After a few months, you’ll likely observe that some products aren’t seeing increased demand even when you’re offering a deal. In this circumstance, it’s clear that you should stop offering deals on these ASINs; if they’re not generating demand, then you’re just losing money.
You won’t always be trying to gain market share or avoiding stockouts — what about when you’re beating all of your competitors?
Over time, you’ll build an understanding of where your optimal price point is, but the odds are you won’t stay there very long. Amazon is a highly dynamic and competitive space. If you want to remain competitive, you’ll almost always be tinkering with your Amazon pricing strategy in one way or the other.
The Challenge of Scaling
The advice in this article is pretty involved, even for just one ASIN. But if you apply it diligently, you won’t just have one ASIN to manage. Your brand will grow and your product offering will diversify. Maintaining this level of diligence across your entire inventory can quickly become overwhelming.
You can always refine your processes and purchase tooling to make executing your price strategy more efficient. In fact, we advocate for brand owners to squeeze as much efficiency out of their business as possible, but the odds are good that you’ll still have a lot of work on your plate if you’re successful.
You can hire more staff to support your efforts, but this also comes with a host of new responsibilities. Pretty soon, you’ll be managing admin at your business rather than managing your Amazon brand. This is where most brand owners reach an inflection point. They can choose to continue to scale, or they can start investigating exit opportunities.
If you want to learn more about what the exit process for Amazon FBA brand owners looks like, we recommend getting in touch with the team at D1 Brands. We’re always happy to support brand owners investigating the next step for their business.