Right now, the first part of November 2017, it’s hard to escape the promise of a good deal. Early Black Friday sales are everywhere. Stores are promising doorbuster deals. Brands are promoting their deepest discounts of the year. These price drops are carefully calculated so that the retailer is still making the profit margin they’re looking for.
The pricing game is tricky. Do it right, and products can make great margins and move easily.
Do it wrong, margins are slim or products are slow to sell. Pricing strategies need to be used year-round and the Holiday season to make sure inventory is moving.
“There are definitely sellers who are anxious and make the mistake of coming out with a really low price and it ends up hurting them in the end versus kind of figuring out what their margin is,” says former Amazonian Marell Morel.
Marell used to work at Amazon managing some of the website’s private label products. Now she works at Cascadia, helping Amazon merchants with their own private label products.
The biggest mistakes sellers make when it comes to pricing products is not considering all the costs that go into manufacturing products. Sellers need to consider things like shipping costs, duties and import costs, storage costs, FBA fees and then there’s any costs associated with creating the product. Merchants should consider these costs and do some competitive research on price before deciding if they’re going to sell a product.
“You need to look at what your costs are because there’s no point in selling an item if you’re not going to make some money on it,” Marell says.
After merchants make a list of all costs and deciding that a product is a good idea, they need to set a goal for margins. That goal should be at least 20%.
“Where I’ve really seen those successful sellers is when their margin is around 35%,” Marell says.
During the whole pricing process, sellers should watch competitors. They’re watching for any changes and making adjustments. They don’t necessarily want to mirror the changes but if all competitors are dropping price, they may need to consider doing the same, if they can keep healthy margins. If just one competitor is dropping price, watch out.
“Maybe the seller whose offering this product is trying to get out of it and don’t want to sell the product anymore so they don’t really care. They just want to get out of the inventory,” says Marell, “That can hurt you because you’re basically following a seller who’s just you know, there is no ground, as to how low they’re going to go.”
Things get a bit tricky when it comes to the Holidays. It seems like everyone is dropping price and merchants definitely want to make sure they’re competing. One way to do that is take a step back and look at all their products. There might be some products that perform better and give higher margins that will enable you to lower price on other products, sacrificing margins on that product, but you’re still ok because of products performing at higher margins that will help overall success
“if your product is a seasonal product, obviously I would be following the flow of other retailers and sellers,” Marell says.
Right now, it’s still in the first part of November and prices should be at the higher end with the knowledge that they will be dropped as it gets closer to Christmas. If inventory isn’t selling as quickly as anticipated, prices may need to be dropped again. January is a slow shopping month and long-term storage fees hit in February.
The best way to make any sort of pricing change, either up or down, is by doing it slowly. This kind of slow adjustment will help sellers find the right price for an item.
“I would just take small steps, and so maybe drop it four dollars or three dollars,” sats Marell, “Leave it there for a couple weeks, see if it moves the needle at all. Are you converting at all? Did anything change? If it’s still no changes then I would take another like $2 off of it. What does that look like? Are there any changes? Then leave it for a couple weeks.”
The hardest part is going to be waiting. If prices are raised or lowered too often, customers will notice and merchants won’t get an adequate read on if the new pricing is working. Sellers should make sure to wait for at least two-weeks before making another change.
The goal is to start at the highest price that a product might sell for, then if it’s not selling start to lower. It’s a lot easier to drop prices on shoppers than to raise them.
Pricing on Amazon needs to reflect pricing on other marketplaces too. Merchants should also make sure to follow competitor pricing on other marketplaces.
Thank you to Marell Morel for her insight and strategies for figuring out pricing. Marell can be found at thinkcascadia.com