Amazon pricing strategy

"In the mundane act of naming a price, we translate the desires of our hearts into the public language of numbers. That turns out to be a surprisingly tricky process." William Poundstone
 
Why Pricing Strategy Matters in e-commerce
So let's talk about this. First of all, why does this even matter? More than ever, e-commerce entrepreneurs have had crazy rises in costs. Whether it's shipping or raw material costs, they have shot up. Amazon ads costs have also gone up across the board. At least 50% year-on-year increase in Amazon ad costs.

Focussing on Amazon pricing and how it drives profits, the maths is pretty simple. Let's come back to more mundane math that we can all grasp, but overlook, which is this:

If you have a $20 product, which has say a 20% profit margin, that means if you're good at math, you are making $4 in profits.

Let's say you increase the price by 10%. Let's say also you can maintain that price and keep your other costs the same.

Well, guess what? Your profit has increased from four to $6. Yes, that isn't a dramatic amount in absolute terms. But, it's a 50% increase in profit for a mere 10% increase in price.

 
Can I just increase my price on Amazon?
 

Now, can you just increase your price by 10%? Well, that's an interesting question. Isn't it?

In some cases, the answer is - yes, more than you might think! In those cases, this maths has got huge power. It goes straight to your gross profit line. Not only is it not abstract, but it's not a casual matter. This drives huge amounts of profit if you get it right. That's why it's a subject worthy of serious consideration. And of intense action.
Price Sensitivity - a key part of Amazon Pricing Strategy
(it's not always what you think!)
So one concept I want to talk about is price sensitivity. We all as sellers tend to assume that all products are very price-sensitive on Amazon. At least most people I've ever worked with or spoken with. Back in the day myself, I've done that as well.But in the 10 K collective mastermind, we've found a different reality on the ground.

 
3 product categories of price sensitivity
Learning how price sensitive your products are is a critical piece of your Amazon pricing strategy. But it's a bit more subtle than that. From the mastermind, it seems that three categories have emerged of price sensitivity on Amazon.

 
1. Price-sensitive products
First of all, some products are indeed quite price sensitive. So if you raise your price and the competitors keep theirs, then you find that the sales drop off. And if you raise your price a lot, they drop off a great deal.

Sometimes it's caused by the competitors lowering their prices. Sometimes that kicks off a price war. Of course, we're all incredibly familiar with that. However, there are new forces coming into play now. Sometimes you and the competition might keep prices the same but still see price sensitivity. Consumers become more price-sensitive because they feel under financial pressure. That's a very strong trend and set to continue.

For the foreseeable future in mid-2022, they will be feeling the effects of inflation. Who knows what comes next? We already have inflation. A recession may well be to come, probably with rising unemployment to follow. All of these reduce consumers' purchasing power.

So with all that at play, that sounds like the mundane boring and rather depressing reality of the normal price sensitivity.

 
2. Price insensitive products
However, some of the more savvy members of the mastermind have discovered some products are quite price insensitive. That is to say, you can raise the price quite a significant amount before demand drops. That's a dramatically powerful discovery! And thus a key part of Amazon pricing strategy.

So you raise your price by 10% and you maybe increase your profits anywhere, depending on your profit margin From 30% to 50 per cent or more...