Table of Contents
- 1 How to Determine the Price of a Product Your Customer Is Willing to Pay?
- 2 How to Set Price for a Product on Amazon Step by Step
- 2.1 Do one more research
- 2.2 Use the Amazon FBA product cost calculator
- 2.3 Suggest the price taking profit margin into account
- 2.4 Stay tuned to the competitor’s pricing
- 2.5 Consider Amazon’s dynamic pricing
- 2.6 Launch price testing
- 2.7 Employ charm pricing
- 2.8 Raise your prices intelligently
- 2.9 Build more trust and credibility
- 2.10 Create a branded landing page
- 3 Bottom Line: Pricing Items
Why setting the price of a product is so essential? Ecommerce is developing, and more customers are purchasing online than before. US clients have opted for Amazon rather than any other retail outlet in the past years—whether in-store or online. And when Amazon customers care about discovering items listed at the lowest prices, more than three-quarters of them are ready to spend up to $100 on any item from the platform. At the same time, nearly 60% of successful merchants (those who have earned lifetime earnings of $500,000 or more) price the merchandise below $30. Thus, you do not need to offer luxury items to make a fortune on the platform—you just need to optimize the product pricing structure.
There are a lot of different points of view when it comes to setting the price of a product on Amazon. Indeed, the product’s fixed costs are among the main factors influencing purchase decision-making and the opportunity to choose from the broadest range possible, use free and convenient shipping, and buy everything you need from a single place.
So, your pricing is neither the first nor the last important point you must consider when launching an Amazon store. This article will determine how to define the price point of a product to make it attractive, reasonable, and profitable, perfectly meeting your customers’ expectations.
How to Determine the Price of a Product Your Customer Is Willing to Pay?
One should never guess and set pricing for your goods without any precious market analysis. It might become time-consuming. However, it is a measure worth taking, as understanding what cost your target audience is ready to pay for the goods is the key. So, how to determine the price of a product?
- Use other sellers’ prices as your starting point and study the market. We recommend choosing the exact items to receive a proper comparison.
- Conduct a survey or informal poll via social media or email asking individuals how much they would hypothetically pay for the products.
- As an option, apply to some third-party expert agency to collect this type of information for your brand.
When considering how to set prices for products, you’re looking for a general understanding of what your potential client expects to pay for the item. Sure thing, during your analysis, the final price is likely to be across a broad range. However, it gives you some starting metrics to work with, and you might use these statistics to assist you with developing product pricing strategies.
Regardless of the pricing models you choose, it is worth testing as long as it corresponds with the researched criteria.
Keep in mind that your final pricing isn’t set! If you launch an item at one rate, it does not necessarily mean you should not tweak it due to client demand, fluctuations in expenses or fees, and your competitor’s behavior.
Being on top of the item pricing game needs merchants to track the client’s purchasing habits, cash flow, and total costs and stay prepared to adapt pricing when appropriate.
How to Set Price for a Product on Amazon Step by Step
So, how to price your product to stay competitive on Amazon? Below is a step-by-step pricing strategy for Amazon business owners.
Do one more research
Undoubtedly, you have researched the niche you were going to enter and already have an impression of an average price for your product. But, things on Amazon tend to change pretty frequently, so the first step to pricing your product is to research the niche one more time and validate your pricing suggestions.
Keep in mind that keeping your prices at an average level is the most reasonable strategy for a novice seller. Pricing items at a too low level is unlikely to work for a store with no reputation since the customers are likely to think there is a scam. One should justify a higher price with both product quality and social proof.
Use the Amazon FBA product cost calculator
How to price a product calculation? First, use the product cost-plus pricing calculator Amazon kindly provides you with. With the help of this tool, you can define a price point for the products you already have in-store or for similar products in your niche. The calculation settings are also pretty flexible, allowing you to set the possible shipping costs, state the desired profit margin, and finally calculate the base price you can offer.
But don’t rely on this product cost calculator as your only helper. Its task is to suggest – not to decide. The final selling price for products or services should also be based on more accurate calculations, market situation, your customers’ expectations, and the growth projections you are striving for.
Suggest the price taking profit margin into account
A profit margin is your pure earnings after paying all the fees, taxes, and additional product costs. It answers how much profit I should make on a product, and a reasonable profit margin on Amazon is 10-30%.
How to set the price of a product with a profit margin in mind? First, calculate all the product’s costs and expenses (the price to buy the product from a supplier and deliver it, plus Amazon FBA costs and referral fees, plus advertising spend) and add 10-30% of this figure to the price. Then, correlate it with the market price to find the middle ground.
Stay tuned to the competitor’s pricing
Being well-aware of how things are going with the competition is an evergreen strategy for any market. So, let your competitors provide you with the answer to how to price a product to sell it successfully. To facilitate this task and stay updated on your competitors’ price changes, consider SellerSonar, the Amazon price tracking software. With the help of this tool, you will get instant alerts each time your competitors change their prices to adjust yours accordingly and keep your market share.
Consider Amazon’s dynamic pricing
As you know, Amazon largely relies on artificial intelligence for most of its business processes, and pricing for profits isn’t an exception. For the products sold by Amazon exclusively, for example, Amazon Basic, the marketplace uses a dynamic pricing strategy that launches automatic pricing changes every ten minutes, taking market price, shopping trends, and AI-sourced predictions into account.
Amazon sellers can also join the Sold by Amazon program and let their prices be adjusted automatically. In this case, you can also set a Mimibun Growth Proceed that will be paid by Amazon regardless of the price the system suggests.
Launch price testing
A great way to check at which price your items perform better is to have an A/B or split test. The A/B price test is easy: list your goods at two different rates for a certain time. After that, compare their performance. Running such a test helps sellers make data-driven decisions on product prices instead of simply guessing.
For instance, let’s say your item is priced at $26.99, but you wish to know if it will still go well at a higher rate point. So, for a couple of weeks, monitor your item’s sales at $26.99. Then, for the same amount of time, list the product at $28.95. When the time passes, compare your sales. If you managed to sell more at a higher cost, keep it!
Employ charm pricing
Psychological pricing, also known as charm pricing, is a common practice of purposely setting the price for goods to impact clients’ purchase behaviors.
For example, try pricing the item at $9.99 vs. $10. At $9.99, the item looks like a better option, even though it is only one cent cheaper. Also, when selling goods that are rather “impulse purchases,” like some novelty item, psychological pricing of your product might help boost your conversions as the client might feel like they are getting some discount.
Raise your prices intelligently
How to set prices for products that are worthy of being sold higher? The most intelligent strategy is to build your brand on Amazon step by step. First, consider registering your trademark and joining the Amazon brand registry. This program will also allow you to cut off some referral fees when you attract buyers from third-party sources, such as social media. So, you will be able to revise your price of goods and make it a little higher.
Build more trust and credibility
Then, proceed with gathering more social proof to make your brand more credible and reliable in the eyes of prospective buyers. The truth is that most users are ready to pay a little more for a product that comes with top-notch quality confirmed by the experience of previous buyers and is supplied by reliable sellers.
Invite your buyers to share their impressions with the help of SageMailer. This Amazon feedback management tool allows you to send kind requests to your buyers, ask them to leave a review, and build your online reputation step by step.
Create a branded landing page
As the last step on how to set prices for the Amazon brand, consider creating a branded landing page. It is one more option registered brands get. With its help, you can better build your brand image, better communicate to your customer base through branded content, and justify the slightly higher price than competitors offer.
So, how to determine the price to make it a win for your small business? What is the ‘how to price a product’ formula? There are two correct answers. Firstly, stay tuned to the niche trends, changes, and updates to promptly respond and keep your prices competitive. Plus, consider SellerSonar for this purpose.
As the second step, improve your store reputation ongoingly. The only way to do it on Amazon is to gather user feedback day after day. With the help of SageMailer, you will be able to automate this process significantly, plus receive instant alerts on each new review your buyers share on their own.
SageMailer comes with a 30-day free trial you are welcome to use. Get registered now to unlock its top-notch features!