Amazon Pricing Strategy in 2023 - A Comprehensive Analysis

1. AMAZON PRICING STRATEGY IN 2023: A COMPREHENSIVE ANALYSIS

2. Amazon is a pioneer e-commerce company that revolutionized how businesses operate online. It single-handedly paved the way for 'accessibility' wherein people around the country - as it initially began in the United States - were given access to millions of products that could be easily shopped at their comfort. The brand has now become synonymous with convenience, competitive prices, and a vast product array. As one of the largest online marketplaces, Amazon employs various pricing strategies to attract customers and maintain its market dominance. In this report, we will explore the Amazon pricing model, delve into how different sellers price products on the platform, and discuss strategies for pricing your product effectively on Amazon. The Amazon Pricing Model Amazon’s pricing model is built on a robust foundation of dynamic pricing – made to offer the best value to shoppers on the world wide web. This customer-centric approach is rooted in the deep-seated philosophy of the company to make its platform accessible and feasible to all users across all countries. The uniqueness of Amazon’s pricing strategy comes from price fluctuations wherein the product’s price can vary throughout the day. According to a study by Minderest, Amazon may alter product prices by up to 20% when its competitors offer promotions or discounts1. A user shopping in the morning might find a better deal than another user shopping at night. With the addition of multiple sellers for each product category, Amazon can offer the lowest product price based on seller preference. As sellers are ranked in the ‘Buy Now’ section taking into consideration the lowest product price among other factors, they are incentivized to keep prices competitive to get more sales. In the following sections, we will further explore the seller aspect of Amazon and its impact on pricing. Key components of the Amazon pricing model include:

3. Attractive Pricing: Amazon aims to provide customers with the lowest possible prices for all products offered. It utilizes dynamic pricing algorithms that consider factors such as supply and demand, competitor prices, and historical data to determine the optimal price point. The below graph by Feedvisor shows how Amazon determines its ideal pricing – which can be either selling at a slight loss (for high volume sales) or selling at a decent profit for low-to-moderate sales. Source: Feedvisor Price Visibility: Transparency is crucial in Amazon's pricing model. Prices are prominently displayed on product listings, allowing customers to compare and make informed purchasing decisions.

4. Image: Differences in pricing between Google Pixel 6a and Pixel 7a Deals and Discounts: Amazon frequently offers time-limited deals, lightning deals, and discounts on various products. These promotions help attract customers, generate sales, and increase customer loyalty. Image Source: Business Insider India

5. How Different Sellers Price Products on Amazon On Amazon, sellers have the flexibility to set their own prices within certain limits. However, competition among sellers on the platform can significantly impact pricing strategies. Here are some common approaches employed by different sellers: Competitive Pricing: Many sellers opt for competitive pricing, where they closely monitor the prices set by their competitors and adjust their own prices accordingly. This strategy aims to match or slightly undercut competitors to attract customers. Premium Pricing or Value-Based Pricing: Some sellers choose to position their products as premium offerings, setting higher prices to convey exclusivity, quality, or unique features. It works for products sold by established or high-end brands determining prices based on their brand name and its associated value (brand, status, luxury) from a customer’s point of view and their willingness to pay for it. This strategy targets customers who are willing to pay a premium for perceived added value. Image Source: Corporate Finance Institute

6. Volume-based Pricing: Sellers can also market products at a much lower price if they’re guaranteed higher sales, i.e., for a product that sells well or retailers that have a large, easily replenishable inventory. Even though each item is sold at a marginal profit, the overall high volume of sales will compound to good profitability. Cost-based Pricing or Margin-Focused Pricing: Sellers calculate their costs, including manufacturing, shipping, and Amazon fees, and add a desired profit margin to determine the selling price. It also works when retailers have limited inventory that’s not regularly replenished and want to stay profitable with every sale. In this case, sales volume takes lower precedence while profit per item is prioritized. Image Source: Wall Street Mojo Promotional Pricing: Sellers may periodically offer discounts, promotional codes, or limited-time offers to stimulate sales, generate customer interest, and increase product visibility.

7. While these various strategies provide great clarity on the different pricing models, finding the optimal pricing technique that works best for your business can sometimes be a struggle and an uphill climb. The next section will delve into how products can be priced right to generate sales. How to "Price Right" for Your Product on Amazon There’s no one-size-fits-all rule to price products on Amazon. Different brands will require different strategies based on the type of product, audience, market competition, and segment they cater to. Businesses that have already built a reputation and presence may find it easier to use Amazon as an additional platform to sell their products without the need for crafty marketing techniques. Up-and-coming brands or digital- first brands looking to establish a name for themselves can find it harder, in comparison, to establish a loyal customer base on the platform to drive continuous sales. To optimize your product pricing on Amazon and maximize sales, there are a few strategies to consider: 1. Market Research: Market Research by definition is a step that cannot be missed. Without knowing what’s out there, other brands’ performance, customer requirements, challenges, and opportunities, any strategy adopted will only be half-baked. Analyzing pricing trends, customer preferences, and perceived value can inform making the right pricing decision. Taking the Samsung Galaxy Tab S2 as an example, during the period of 19th June 2023 to 26th June 2023, we observe that while the price of the product remained stable at Rs. 28,000, the pricing within the Tablet category experienced slight fluctuations. Access to this data enables Samsung to craft better offers, as customers seeking to purchase their product would eagerly seize the opportunity for a favorable deal that aligns closely with the category average, in this case around the Rs. 22K-23K range.

8. Image Source: 42Signals 2. Competitive Analysis: Monitoring the pricing strategies of your direct competitors is another integral step to price right. Today’s shoppers are always on the hunt for a good deal and with several price comparison tools available, it’s very easy to compare which brand is offering the best price for the product. The aim of this exercise is to position your product competitively, balancing price with quality, features, and customer reviews. Again, taking the same example of the Samsung tablet, smartphone brands competing with the giant in the same segment can closely monitor the discounts Samsung offers while also looking at discount strategies by other manufacturers. A smart move here would be to have a flash sale or a huge discount either when there are no offers running or offering a higher discount compared to other brands (while staying profitable) to grab new customers.

9. Image Source: 42Signals 3. Pricing Tools: An article by Business Insider finds that Amazon changes product prices 2.5 million times a day, meaning that an average product's cost will change about every 10 minutes2. Utilizing Amazon's pricing tools or third-party software like 42Signals that’s built for consumer brands, B2C and D2C3 – to monitor price adjustments based on market conditions, competitor prices, and demand fluctuations - can automate the process. These tools help you stay competitive without the need for constant manual monitoring. 4. Customer Reviews: The same tools can also support monitoring and responding to customer reviews. Positive reviews can positively influence pricing perceptions, while negative feedback may require price adjustments or product improvements. Insights from a platform like 42S can show granular insights into the product’s performance, and what the customers are loving and dislikes, in an easy-to-understand manner. Below is an example of the iPhone 14 Plus by Apple. The price point for this model sees more negative than positive ratings which can be taken into consideration for future releases.

10. Image Source: 42Signals Conclusion With all the above data in hand, a sound pricing strategy can be selected based on the aforementioned options. Amazon’s pricing guide4 provides details on how to go about pricing products with examples that are useful for sellers. The buck doesn’t stop there, once a pricing strategy is decided, it needs to be continuously tested and improved. Monitoring sales data, evaluating customer responses, and looking at profit margins is a good way to gauge the efficacy of the adopted strategy. Based on the results and performance metrics, adjustments or new approaches must be adopted to get the best outcome from an e- commerce platform like Amazon.

11. References 1 What is Amazon’s dynamic pricing strategy? | Reactev 2 Amazon changes prices on its products about every 10 minutes — here's how and why they do it | Business Insider 3 Digital Shelf Analytics | 42Signals 4 How to set the perfect price for your products? | Amazon