- Erik Mathes
- On June 23, 2016
- 0 Comments
If the Amazon Marketplace were anything like the normal world of retail sales, using pricing psychology to sell your products would be a lot more cut and dry.
First, you’d decide whether you want to set your prices based on one (or a mix) of these factors:
- Your total costs
- Your items’ perceived value
- Your competitors’ prices
Then, you’d crunch some numbers to determine your total costs, decide on a price that yields enough profit, and then sit back and hope for the cash to pour in.
You could also employ traditional tactics in pricing psychology. Lowering the left number in your prices by one (as in charging $11.99 instead of $12.00), charging a much higher price than your competitors to convey superiority (like Apple, Maserati, and any designer clothing brand do because, hey, if it’s expensive, it has to be better!), and using relative pricing to create the illusion that one version of a product is a much better value than another in order to drive sales to the more profitable item and some popular methods.
Too bad selling on Amazon isn’t exactly like retail.
Third-party (3P) sellers trying to make it on the Amazon Marketplace have two things much more important than their prices to worry about: Winning the Buy Box and following Amazon’s strict seller rules.
The Buy Box, if you don’t already know, is the section on a product page where potential customers find the “Add to Cart” button that begins the process of buying. Many sellers on Amazon offer the same items, but Amazon awards only one seller the precious position of being in the Buy Box at any given time.
The Buy Box is prime digital real estate for any seller looking for the best possible exposure. That’s because potential buyers have to click onto another screen to see thefull list of vendors selling a particular item — something many Amazon users don’t realize. On top of that, there are specific criteria set by Amazon for 3P sellers to meet in order to even be eligible to win the Buy Box.
This changes the game when it comes to using pricing psychology to your advantage. But that doesn’t mean numerical “mind games” are not a major part in determining whether an Amazon seller winds up in the red or the black when he checks his bottom line at the end of the year.
How the Buy Box affects pricing psychology on Amazon.
While price is one major factor that affects a seller’s ability to win the Buy Box, there are other variables that could make or break a seller’s efforts before price ever comes into the picture.
Prior to even thinking about what prices you’re going to set on Amazon, you have to set yourself up to be Buy Box eligible. New sellers with no sales history on Amazon will have to build a reputation as a reliable vendor before they can even think of seeing their items in the Buy Box.
This presents quite the catch-22 for Amazon newbies.
Somehow, new sellers have to find a way to make sales and develop a solid seller rating while competing with veteran sellers who already have their products appearing in the Buy Box.
And, with the vast majority of purchases on Amazon being made via the Buy Box (as opposed to the Product Listing pages that display all the vendors selling a specific product — even, in some cases, vendors selling for a lower price than the Buy Box winner), your sales strategy needs to revolve around winning the Buy Box, but doing so at a price that still manages to yield you a profit.
If it seems to you like a steep uphill journey for new Amazon sellers, you’re not wrong.
But, of course, there’s a way to work around this.
Why fulfillment method is more important than your price on Amazon.
One way for new Amazon sellers to work around this uphill battle is to change their order fulfillment method to FBA, a.k.a. “Fulfilled By Amazon.” This service from Amazon allows 3P sellers to boost their credibility with Amazon (and its user base) instantly because sellers shift the fulfillment responsibilities to Amazon’s well-trained fulfillment center staff instead of the sellers’ own warehouse employees (or, in some cases, themselves).
FBA takes away the burden of handling and shipping products directly to customers. A 3P seller simply ships his products to Amazon’s fulfillment centers and, once an order is placed, Amazon’s staff picks, packs and ships the products to seller’s customers on his behalf. Amazon also handles returns and customer service for 3P sellers who use FBA, eliminating another major hassle. Best of all, it qualifies 3P sellers to offer Prime 2-Day Shipping, a huge factor in winning the Buy Box and appearing attractive to potential buyers.
As you’d expect, there’s a significant fee associated with this service. But, if your goal is to make lots of money on Amazon with minimal work, going FBA is one of the fastest ways to boost your reputation and exposure in one swift move, while also cutting a huge amount of labor and responsibility.
Fulfillment method also happens to be the most heavily weighted factor in Amazon’s algorithm for determining which seller wins the Buy Box, and you’d better believe that Amazon gives preference to sellers using FBA over sellers who fulfill orders themselves.
Other factors to consider before thinking about pricing psychology.
Beyond fulfillment method and price (which I promise we’ll get to!), Amazon sellers must also concern themselves with two other major factors in order to get into — and stay in — the Buy Box: Shipping Time and Seller Rating.
Having a faster shipping time and a higher seller rating than your competitors is a surefire way to boost your chances of winning the Buy Box, due to their heavy weighting in Amazon’s Buy Box algorithm. Not only that, but even if the Buy Box were out of the picture, there would be plenty of potential buyers willing to pay a premium in order to guarantee they get a product in their hands faster. That’s why working toward having the shortest possible shipping time is one of the most vital goals any Amazon seller should have on his to-do list.
Think of your Seller Rating the same way. Even if there were no Buy Box, shoppers would be more inclined to trust the seller with the best rating given by previous customers because of the inherent trust that a high rating represents.
Supposing all other factors are equal, if you had two sellers with different ratings, you’dalways choose to buy from the one with the higher rating (unless, by random chance, you happened to personally know and like a seller with a lower rating), so always aim to please your customers and strive to make them love you. To further foster customer relations, you may want to consider implementing an easy-as-possible returns policy and adding a personal touch to your business interactions.
Beyond that, there are many other metrics that affect Amazon sellers’ chances of landing in the Buy Box, such as Feedback Score, Handling Days, On-Time Delivery, Order Defect Rate, and Cancellation Rate, to name a handful. All of these factors have an effect on your potential customers’ perception of your offerings, so understand that consumer psychology on Amazon is affected by much more than price alone. It’s crucial to focus on improving as many of these metrics as possible to help your listings appear to Amazon’s algorithm as the “best offer” for the Buy Box.
You’re eligible for the Buy Box and poised for success; now what?
Once you’ve attained Buy Box-eligibility, you’re ready to rock. It’s time to start considering how to optimize your prices to reach a comfortable level of sales and profits.
But before you start coming up with your prices, it’s time to ask yourself about costs.
First, think of the obvious direct costs, such as your:
- Cost of products
- Amazon fees (FBA or otherwise)
- Labor/employee salaries
- Overhead for any warehouse(s) you operate (or storage facility fees, if applicable)
There are also indirect costs you may not think of right away, including:
- State taxes
- Customer returns and write-offs
- Internet service
- Product samples
- Paper goods (like labels and boxes) for running your business
Only after you have an accurate accounting for all your business costs can you truly optimize your price points for ultimate profitability.
Understanding the profitability of your inventory at SKU-level.
The difficulty for Amazon sellers when it comes to accounting for costs is that every product has its own set of costs associated with it. You may have different suppliers for different products, and each one has different shipping and handling, customs, and other fees associated with it.
Amazon fees, FBA and otherwise, are also variable per SKU, so this is where patience is absolutely necessary in order to best understand each of your products’ profitability. After conducting a complete SKU-level cost analysis of your inventory, determine which products you want to keep selling and which ones should be eliminated due to a lack of profitability.
For high-selling items that have low or losing margins, you may also want to try to lower sourcing costs to help boost their profitability before giving up on them.
Pricing psychology tactics specifically for Amazon sellers.
As you can see, Amazon is a completely different playing field for sellers than traditional retail. You can’t simply get cute with your prices by making them $X.99, nor can you remove dollar/euro/pound signs from your listings as they do on fancy restaurant menus.
Instead, you have to get creative.
One way to do this is with product bundles. In one swift move, you can reduce Buy Box competition, increase the convenience and perception of the value of your goods, and, in the case of want-based purchases, eliminate buyer’s remorse.
Amazon bundle policy has its own set of strict rules that sellers must follow, one being a requirement that sellers create a unique UPC for each bundle. This may seem like more work, but it actually serves as an advantage on Amazon. That’s because you’ll likely be the only seller with that particular UPC on the Marketplace, which means no Buy Box competition for that bundle.
With a sound keyword strategy for Amazon product detail pages in place, you may be able to draw many customers to your unique bundles and generate a big boost to your bottom line.
Competitive price intelligence: The secret to gaining a pricing edge on competitors.
Now that you understand how limited Amazon sellers are when it comes to using pricing psychology to their advantage, it’s time to consider other ways that sellers can gain an edge on their competition. Luckily, there happens to be a technology that exists for this very purpose: Competitive pricing intelligence, also known as automated repricing software or intelligent repricers.
Amazon sellers can enlist the help of repricing software that uses built-in algorithms to optimize and intelligently automate their products’ prices — in response to the price changes their competitors make. Not only that, they can choose exactly who to compete against based on a number of important factors, such as fulfillment method, shipping time, Amazon seller rating, handling days and back ordered status.
Just let that sink in for a moment.
Now, imagine what that could do for your sales, profits, and schedule.
Competitive price intelligence in action.
Automated repricing software monitors competitors’ prices and adjusts your prices in response in real time to any prices changes they make. For example, you can set your repricer to monitor only FBA sellers with five-star ratings. Or, you can ignore sellers who have handling days higher than 3 days. Then, you can set your repricer to automatically reprice your products lower than your selected group of competitors by a set amount or percentage.
You can also choose a price-matching strategy if you prefer, or even set your prices to be higher than sellers with inferior Amazon metrics if you believe your superior non-price metrics still make your offer more attractive.
There’s a lot of nuance to competitive price intelligence. Every seller can use it his own way, depending on a number of situational factors. But in a sales environment where pricing psychology tactics are limited by Amazon’s “house rules,” it’s a compelling option for 3P sellers to consider using to gain an edge on their competition.
Putting it all together: Sales and pricing psychology for Amazon sellers.
Because the Amazon Marketplace is so different from traditional retail sales, 3P sellers must think outside the box. Beyond considering price, sellers need to think about winning the Buy Box consistently if they want to truly be successful. While price is important, a multitude of non-price metrics also factor into Amazon’s algorithm that determines which sellers get awarded the Buy Box at any given time.
In order to maximize your chances at winning the Buy Box — and doing so at a price that earns you the most profits possible in any situation — you may want to consider adding competitive price intelligence software to your arsenal of seller tools. When utilized correctly, competitive price intelligence can save you hours behind a computer screen. It can also propel your listings into the Buy Box at optimized prices, boosting your exposure, sales, and profits.
Don’t forget to add as many personal touches to your Amazon store as possible, too. That way, you’ll connect and resonate better with your customers, raising your chances of scoring repeat business — even if your prices are a little bit higher than your nearest competitors.