How to price a product for Amazon, especially if you’re selling in more than just one market? Many sellers believe that providing the lower price is all you need to do, but this isn’t necessarily true, especially if you’re selling on Amazon.
For starters, you’re probably not the only one selling your product – at the very least, there are similar products to yours out there. It’s imperative to price to match the competitors, without lowering the perceived value of your product.
Secondly, different cultures have different attitudes towards pricing; some cultures prefer expensive pricing, because luxury consumerism has an impact on self-perception. Others are more frugal in nature, and will wait for a sales period before making a purchase.
Last but not least, rising FBA fees mean you can’t always price your product at a lower price, especially if you plan to hit your desired profit margin.
Understand that the price of your product impacts not just your gross profit margin. It also has an impact on customer perception, market positioning, and your rank on Amazon.
Read on to find out how to calculate the best price for your products so you ensure that your business stays profitable and sustainable – no matter where in the world you may sell! When you learn how to price your products competitively, you ensure the sustainability of your business. Keep on reading, there’s lot of stuff to learn today!
Thinking of expanding globally? Make sure you avoid these costly mistakes.
Section 1: How to Price a Product: Understanding the Basics
Key Pricing Strategies:
There are several different pricing strategies out there. The type of product or service you sell will impact the pricing model you choose. Take a look:
| Pricing Strategy | Description | Business Goals | Examples of Products |
|---|---|---|---|
| Cost-Plus Pricing | Prices are set by calculating the cost of production and adding a markup. | – Ensures consistent profit margins. – Easy to implement. – Suitable for businesses focused on covering costs and ensuring profitability. |
– Basic consumer goods (e.g., generic household items). – Retail products (e.g., furniture, clothing). |
| Value-Based Pricing | Prices are determined based on the perceived value to the customer rather than the cost of production. | – Maximizes profit by aligning price with customer value. – Suitable for differentiated products with unique features or strong brand value. |
– High-end electronics (e.g., Apple products). – Luxury goods (e.g., designer handbags). |
| Penetration Pricing | Initially setting a low price to quickly gain market share, then gradually increasing the price. | – Increases market share rapidly. – Suitable for new market entries or products aiming to capture a broad audience quickly. |
– Streaming services (e.g., Netflix’s initial pricing strategy). – New tech gadgets (e.g., smart home devices). |
| Skimming Pricing | Setting a high price initially and gradually lowering it over time as competition increases. | – Maximizes profits in the early stages. – Suitable for innovative or new-to-market products with little competition. |
– New technology releases (e.g., smartphones, gaming consoles). – Premium products (e.g., high-end fashion collections). |
Let’s go into a little more detail about these types of pricing strategies, so you can choose the pricing structure that works best for you.
The cost-plus pricing strategy is the one everyone learns in Economics 101. It’s the most common pricing strategy out of the bunch. You add up your costs, slap on the profit you’d like to make, and make that your final cost. You might adjust your prices for things like Cyber Monday or Amazon Prime Day. This strategy is a good way to price things like vegetable peelers, bookshelves, shirts, and so on. Chances are, you’ve got a fair amount of competition on Amazon, so the game here is to keep your costs low so your prices stay competitive vs. the others who are selling similar items.
Next is value-based pricing. The price of the product depends on the perception that consumers have of your brand. Many luxury brands price their products using this method; think about those fun TikTok videos where makeup influencers compare luxury makeup brands to drugstore-bought brands, showing that the outcome is often pretty similar. Sure, luxury products do have higher costs due to more premium materials or ingredients, and that will definitely affect the markup, but value-based pricing takes into consideration how your customer sees you, and how the customers value your product. Are you a basic necessity or a luxury item? If the latter (and you can spend on marketing to make sure you’re always perceived as the latter), then perhaps value-based pricing is for you.
Third is penetration pricing. Rumors are, this is Temu’s pricing strategy. Prices are incredibly low, to the point that the company lost US$2.76 billion in net losses in 2023. This sort of loss-leader pricing is supposedly because Temu plans to make itself an essential part of every American’s online buying experience, and will eventually increase selling price once it’s achieved its goals. That said, the common mistake in penetration pricing is offering such low prices, that the perceived quality of your product is badly affected, and people assume the value of a product is low based on its price. You’ll find that you’ll lessen your ability to make a profit with such a low product cost, but if market penetration is your short-term goal, then this might be the strategy that works for you.
Last but not least is skimming pricing. The best example of this pricing strategy is Sony. The PlayStation 2 was priced pretty conservatively at first, but when Sony realized there was strong demand and little competition for the PS3, it increased prices to US$599, lowering it to US$299 before discontinuing it. When the PS5 launched in November 2020, it was priced at US$499, which dropped to US$469 in May the year after, and then to US$432 in November 2021. That’s a US$67 price drop over the span of a year. Sony was able to maximize profits in the early stages of each product launch. Why did it work for them? Because their product was so innovative and had such little competition, they had the ability to control the final price – whatever that may have been, month on month.
Moral of the story? Make sure your pricing reflects the products you sell, and the goals you implement. The right price for your product will depend heavily on things like cost of production, market perception, and marketing goals.
Factors to Consider When Pricing Your Product:
To keep it simple, here are a few things to consider when you set your product price:
- Cost of Goods Sold (COGS): Understand the total cost required to produce your product, including materials, labor, and overhead. This ensures that your pricing covers all expenses and maintains profitability. Did you hire a few virtual assistants to help you out? Their salaries should be factored into the cost of your product. Did you source your products from near-shore suppliers to minimize shipping fees? This could mean higher production costs but lower logistics fees. All of these need to be considered.
- Market Demand: Assess the level of demand for your product in the market. High demand may allow for higher pricing, while low demand might require more competitive pricing to attract customers.
- Competitor Pricing: Analyze the pricing strategies of your competitors. Positioning your product competitively can help you gain or maintain market share.
- Customer Willingness to Pay: Gauge how much your target customers are willing to spend on your product. This helps in setting a price that aligns with their perceived value of your product.
Still confused? Maybe use a pricing calculator. When you use a product pricing calculator, you key in all the costs associated with the production of your product, and it’ll spit out a recommended market price. It’s a good jump-off point to determine the price range before you bring your product to market. After you’ve used a pricing calculator to find the price, you can ask yourself which of the pricing strategies we listed above will suit your product best.
Section 2: A Guide on How to Price a Product for Amazon
Amazon’s Pricing Algorithm
Deciding how to price products on Amazon will affect your ranking. Amazon has a pricing algorithm, which plays a critical role in determining the visibility and success of products on the platform. The algorithm considers things like the listing price, shipping costs, and promotions to decide whether a seller’s offer appears in the Buy Box – which, as you know, heavily influences purchasing decisions. Winning the Buy Box will greatly impact sales volume, but the key to winning it depends on maintaining competitive pricing, positive customer reviews, and fast shipping times.
Don’t forget, your visibility also affects your performance on the algorithm. Check out our comprehensive guide to Amazon SEO to make sure you’re found by the correct customer. Once you’ve been discovered by the customer, implement the correct sale price to make sure the customer Adds to Cart.
Dynamic Pricing on Amazon
There’s no doubt about it, selling on Amazon is competitive. It’s crucial to implement continuous price adjustments based on real-time market conditions. Think about lightning deals, Cyber Monday and Black Friday, and Prime Day – these calendar events should impact your pricing decisions.
Granted, you should take a look first at your financial capacity. Should you charge a higher price during non-sales days to provide you with the profit margin to set a larger discount during big discount periods? Will you stay competitive if you do? Will customers still buy from you if you don’t offer discounts during these big sales days?
Amazon offers tools like Automate Pricing to help sellers manage dynamic pricing efficiently. These tools automatically adjust your price based on rules that you set, helping you stay competitive without constant manual intervention.
Ultimately, adjusting your pricing based on Amazon’s selling calendar is your choice to make. See what works for you, and change your pricing strategy accordingly.
Rising FBA Fees and Your Product Pricing Strategy
Without going into too much detail, here are the key FBA fee increases for 2024:
- Product Size Tiers: New, more granular size tiers are being introduced, which may increase fees for certain products.
- Referral Fees: Fees for some apparel price ranges are decreasing, but new inbound placement service fees and an inbound defect fee are being introduced.
- FBA Fulfillment Fees: Fulfillment fees are being adjusted based on the new size tiers, impacting various products.
- Prep Service Fees: Increased fees for sharp and fragile products.
- Removal/Disposal Fees: Fees are increasing based on size/weight tier.
- Returns Processing Fee: Expanded to more categories with additional fees based on high return rates.
- Monthly Storage Fee: Reduced off-peak storage fees for certain product tiers, but overall storage fee granularity and rates are increasing for high inventory utilization.
- Aged Inventory Surcharge: New detailed fee structure across additional age categories.
These fees can very quickly make your product too expensive – or you might end up eating into your profit margin if you don’t factor these fees into the final retail price. It’s absolutely crucial to consider these fees when you create your product price strategy.
Section 3: How to Price Your Product for Different Countries
Selling a product in multiple marketplaces? The price you implement in the US market may not be the same for the Singapore or UAE market, for example. In fact, before you expand, consider how much you can possibly sell your product in these potential markets, and ask yourself if the retail price – and subsequent profit margins – makes sense with your business.
Aside from the pricing strategies we outlined in Section 1, culture is a huge factor in determining price. Different countries have different buyer behavior, and it’s crucial to factor that in when finding a price that works.
Let’s get into the localization of how to price a product for Amazon, especially when you expand globally.
Your Pricing Method Will Change Depending on Culture
How to price a product for a global customer? It all depends on their culture. Think about it. Asian consumers tend to value family needs over individual desires, leading to collective purchasing behavior, while Western cultures often emphasize individualism, which encourages personal fulfillment through purchases. Some cultures will only buy when items go on sale; other cultures will happily buy Top Shelf items because of the prestige it offers them. It’s important to adapt to these cultural nuances as you expand your business.
CheapHotels4UK posted an interesting list of the thriftiest countries around the world. They ranked countries according to savings per household, credit card usage, the amount a household gives to charity, and more.
The top 10 most frugal countries are:
- Singapore
- Ireland
- Saudi Arabia
- Russia
- Germany
- Czech Republic
- Poland
- South Korea
- Sweden
- Slovakia
These results are quite interesting, because buyer psychology disagrees with these findings. dataSpring reported that South Koreans are the largest spenders of luxury goods across the globe, spending approximately US$325 on luxury items, vs. the USA at US$280 and China at US$55. This article on Live Work Germany showed that many foreigners that visit Germany for the first time are intrigued by the German relationship with money, which is characterized by the cash culture, a general distrust of credit cards, the avoidance of debt, and saving as opposed to investing. Yet, according to the International Trade Administration, Germany has one of the largest e-commerce markets in Europe, with sales that hit US$141.2 billion in 2022 – an 11% YOY growth.
So, how to price a product for a new market? Do your research first, and check out what that culture feels towards pricing.
Here’s another thing you should consider – payment methods. eHub reported that the top countries for cash on delivery eCommerce transactions are, in order:
- Vietnam
- Nigeria
- Philippines
- Indonesia
- Thailand
- Saudi Arabia
- Colombia
- Peru
- Taiwan
- South Africa
Often, members of these cultures choose cash on delivery to pay for their online purchases because of an inherent mistrust in digital payments. This could be because of low credit card penetration, the lack of a secure system that will accommodate digital payments, limited or unreliable internet access, or risk aversion (they’d rather see the product before they buy it).
Granted, you’re unlikely to be selling on Amazon to many of these cultures (yet), but consider that they might be minority cultures in other countries that you’d like to sell to. Think about it: the United States, Australia, and Canada have a large and growing Vietnamese population. Outside of Taiwan, Taiwanese people live in the United States, China, and Indonesia. And as of 2019, there were over 12 million Filipinos living overseas – in the USA, Canada, Japan, Australia, and Italy.
We’re not saying that your Filipino customers in Rome will insist on paying for your garlic peeler in cash. Chances are, they’ve got credit or debit cards themselves, and can pay Amazon Italy accordingly. But it’s definitely something to think about. Is a sub-section of your target demographic more frugal in nature? Showing them respect by accommodating this mentality is a good way to win their loyalty.
YouGov presented some pretty fascinating data about discount methods by country. It’s pretty standard practice to offer discounts and coupons to boost sales and acquire new customers, but – if we’ve said it once, we’ll say it again – do your research first. It’s possible that your French customer will wait until your item goes on sale before they buy it, whereas your Arab customer is happy to buy at normal prices because they perceive your product to be a luxury item. This sort of buyer behavior needs to play a role in how to price a product for Amazon.
Let’s say you decide not to offer a Black Friday discount for your American customers – so, why offer one for the other countries you sell in, right? Uniformity in pricing strategies is a good thing, right? Not necessarily. If your customers were just waiting for that item to drop in price before they pushed through with their purchase, and it doesn’t, you might find yourself with a few abandoned carts here and there. And you might lose customers because they found a better deal elsewhere.
Pricing is tricky. No doubt about it.
That’s why it’s crucial to employ effective translation and localization through well-optimized listings. This way, your pricing strategy will communicate the value of your product effectively across cultures.
Section 4: How to Price a Product with Flexibility: Testing & Adjusting
So, it’s quite clear that market research plays a crucial role when it comes to setting the right price for your product. Understanding what your target customers are willing to pay is the foundation of effective pricing. By conducting thorough market research, you can gather insights into customer expectations, preferences, and perceived value, allowing you to set a price point that resonates with your audience. Consider this part of the due diligence you should conduct before entering any new marketplace.
Additionally, analyzing competitors’ pricing is essential for finding your market position. By understanding where your product stands in comparison to others, you can determine whether to position it as a premium offering or a more budget-friendly alternative. Competitive analysis will help you determine where your product stands vis-a-vis market expectations, while helping you carve out a unique niche.
Once you set your price, the process doesn’t end there. Iterative pricing adjustments are key to finding the sweet spot. By testing different price points and strategies, you can gather valuable feedback and sales data to refine your pricing over time. This continuous improvement approach allows you to respond to market changes, customer feedback, and competitor actions, ensuring that your pricing remains competitive and effective.
A/B testing can be a powerful tool in this iterative process. By testing two different price points or pricing strategies with similar segments of your market, you can identify which option performs better in terms of sales, conversion rates, and customer satisfaction. This data-driven approach helps you make informed decisions about the most effective pricing strategy for each market, maximizing your chances of success.
The best product pricing is an organic thing, forever changing, forever growing. It’s important to find the best way to price products – that takes consumer sentiment and economic capability into consideration.
It’s only respectful, after all!
Conclusion: How to Price a Product for Amazon? Do Your Research!
In conclusion, pricing a product for Amazon is a nuanced approach. It’s important to balance competitive analysis, cultural understanding, and strategic flexibility. A low price may not always be the right price; the price tag can make the product resonate with your target audience, or alienate them altogether. It also involves lowering your costs to make sure your profit margins justify growth and sustainability.
Consider things like FBA fees, competitor pricing, and the diverse attitudes of global consumers towards spending. Do your research, employ A/B testing and iterative adjustments. Keep those costs low. You’ll be better primed to position your products for long-term success across different markets – ensuring the sustainability of your brand.
Pricing is as much an art as it is a science. Getting it right can make all the difference in your global expansion efforts!
If this article gave you value, you might want to read up on where to get products to sell on Amazon. Lower the cost of goods by choosing your product carefully, and it’ll get easier for you to adjust the price of a product to accommodate market shifts, buyer behavior, and discount cycles.