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Amazon has loads of tricks and tools you can use to try and gain an advantage over your competition.
You’ve got multiple types of advertising tools (Sponsored Products, Sponsored Brands, Sponsored Display, etc.), different bidding strategies, and lots of options for how to layout your page.
But how do you determine perhaps the most important thing about your private-label product? The price.
Much of the time it is the single most determinative factor in a shopper's choice of what to buy, so you better make sure you get it right, otherwise you could see your competitors taking your business by undercutting you, or you could leave money on the table that you would otherwise have earned.
The vast majority of sales on Amazon happen through search, and most of those happen on the first page, meaning that competition is intense before shoppers even get onto your page. Since products are all listed on top of each other on a results page, there is nowhere to hide from potentially better deals offered by your rivals.
This means, in the first instance, that you can’t get away with prices that are too expensive. At the same time, while price is a crucial metric, data shows that over 75% of shoppers are willing to spend up to $100 on a single product when they’re buying on Amazon, but these, of course, are a minority of shopping trips, and most will fall well below that $100 mark.
To know what you want to charge, a good place to start is with your profit margin. Your product will cost a certain amount to produce, and obviously, you want to charge more than that number - after also accounting for associated costs such as PPC costs, FBA fees, etc. - but how much more?
Typically, a solid profit margin lands somewhere between 25-30%, but this number can, of course, vary wildly depending on the product and other factors. Some product lines survive on a 10% margin, while others enjoy 50%.
Currently, just over two-thirds of sellers on Amazon have their profit margin at over 10%, and just over one-third have it over 20%.
There are three main ways to price an item:
Your minimum price will almost certainly be your break-even price, under which you couldn’t cover your costs and start losing money. Unless you’re just launching a product and employing some form of aggressive below-cost strategy in order to achieve market penetration before bringing prices back up, a strategy that carries its own risks, then breaking even really shouldn't even be considered.
This strategy is based on the pricing of your competitors’ products. Going this route, you won’t want to let your rivals undercut you, especially if their products are of similar quality.
When you initially launch a product, do some research to determine the average price range of similar products to yours and keep the price at the lower end of that range, at least until your product begins to gather good reviews, at which point you will have more flexibility to raise the price and still have shoppers see it as a justified choice.
As mentioned earlier, price may be the most important metric but it is far from the only one. You can differentiate yourself with the quality, function, and lifestyle elements of your product. You can evaluate your product relative to your competitor and charge a premium for a better offering. You will, however, need to justify this - so make sure your product description and accompanying content are at a high level. Remember that there is a fine line between what is considered worthwhile and what is considered extortionate and you don’t have a blank check. In the end, the name of the game is to create value, meaning you offer a good quality product at a reasonable price.
In any event, beware of the extremes. If you price your product too high, then it goes without saying that customers may look elsewhere for a more reasonable offer, but if you price it too low then you could not only eat into your profit margin, but you may also draw suspicion from shoppers about the potential inferiority of your product. The effect of pricing too low can also ripple beyond your own product - if you trigger a downward price war, you run the risk of devaluing the entire segment and making it more difficult for anyone to raise their price back up.
Even outside the context of product quality, there are situations where it seems better to charge more. Consider, for example, if you are trying to sell to non-Prime members who don’t have free shipping on all orders. If they see that they have to spend an extra $7 on top of the stated sales price just to receive the item - or if they have to add some other item to their order that may well exceed that $7, they are psychologically less likely to want to follow through with the purchase. It may actually be beneficial to price the product above that free shipment price to begin with, as they would be more likely to convert if they just have to pay what is on the label if it says “free shipping”, even if competitors may have cheaper products that would require postage fees.
Another age-old way marketers have harnessed consumer psychology is through charm pricing, i.e. charging $9.95 instead of $10. The beauty of it is that even if the shopper knows what is happening and that the difference is negligible, it still works! It will work in a store, and it works on Amazon.
Finally, even after you’ve examined your strategy, worked out your profit margin, and thought about the positioning you want, you could still be unsure of the price point you’ve picked. A great way to make a determination is to carry out some A/B testing. You can do it simultaneously over a certain period of time - ideally at least two weeks - or you can try a couple of weeks at one price point, followed by another couple of weeks at another, and see which one performed better.
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