How to Find Optimal Prices for Your FBA Business

August 24, 2023

In the dynamic world of Amazon, pricing is anything but static. With special days, seasonal sales, and ever-increasing competition, prices can change more often than we think.

According to a 2018 report by Business Insider, Amazon will frequently adjust its product prices, generally every 10 minutes. Nowadays with the rise of AI trends and an increasing number of people shopping online, we can expect Amazon product prices to undergo more frequent changes compared to the past.

That's why Amazon sellers should be more proactive in responding to price changes, and not just adjust product prices only when they witness a drop in rankings or a decrease in profits. On the contrary, sellers need to learn from Amazon and constantly experiment with different price points to discover the optimal prices for products.

Why is dynamic pricing important for amazon sellers

Dynamic pricing is a smart pricing strategy that allows sellers to change product prices frequently. Instead of sticking to fixed prices, sellers can dynamically adjust their prices to keep up with different factors, such as market demand, competitor pricing, inventory levels, customer behavior and more. 

Moreover, dynamic pricing empowers Amazon sellers in different ways. First, it allows sellers to optimize their revenue by identifying and A/B testing the sweet spots where customers are willing to pay while maintaining healthy profit margins. Dynamic pricing ensures sellers stay competitive in a fast-paced market by adjusting prices swiftly to help sellers capture the attention of potential buyers.

Studies have shown that even minor price adjustments can significantly impact consumer purchasing decisions. By employing dynamic pricing, sellers can leverage this sensitivity to their advantage, nudge customers towards making a purchase and find the optimal prices for their Amazon products.

How do sellers execute their pricing

In the rapidly evolving landscape of e-commerce, finding the perfect pricing sweet spot can be the difference between a promising Amazon store and an unsuccessful one. From our observation, Amazon sellers usually apply the following three approaches to maintain their product prices.

• Traditional pricing approach

Based on our experience talking to Amazon sellers of different sizes, many of them still rely on traditional pricing methods. Namely, they use Excel/google spreadsheets to maintain their prices. In general, they seldom adjust prices unless a significant loss in sales performance is detected.

However, as more competitors join the market and more products are launched on Amazon, it is apparent that traditional pricing techniques cannot fulfill the complex pricing environment.

• Rule-based pricing approach

This approach involves setting predefined rules that determine price adjustments based on specific triggers. These triggers can encompass competitor pricing, market trends, demand fluctuations, and more. The benefits of rule-based pricing are evident: it provides a structured approach to price adjustments, allowing sellers to quickly respond to market dynamics and maintain a competitive edge.

Nevertheless, this method can lack the responsiveness needed to thrive in Amazon's dynamic landscape.

• AI-based pricing approach

In a digital world, it is best to avoid relying solely on intuition and market trends. With AI-driven solutions, sellers are now able to connect the platform to Amazon Seller Central automatically, set up some basic preparation, and let AI manage all dynamic pricing tests. With the wealth of data and information available, the algorithm will learn by itself and help sellers get the optimal prices with ease, saving tons of time and effort.

Though the AI-based pricing approach is smart and convenient, many Amazon sellers still demand full control and flexibility over their pricing, rather than leaving all the decision-making to AI.

Leverage AI-based & rule-based pricing strategy to find your winning prices

You may ask: isn't the AI-based pricing approach or rule-based approach sufficient for Amazon sellers? The answer is No. Being a massive e-commerce platform, Amazon functions within a complex network of algorithms, seasonal shifts, and a wide array of factors shaped by various sellers. Therefore, depending solely on one pricing approach cannot satisfy Amazon sellers’ requirement.

Many Amazon sellers require rule-based functionality, as they sometimes have better judgment than AI in determining whether price adjustments are necessary when faced with sudden changes in product performance or ranking.

On the other hand, in our observation, Amazon sellers are hesitant to raise prices most of the time but our case studies have consistently shown that moderate price increases tested by AI can actually lead to higher overall profits.

That is, the combination of these two pricing approaches is the optimal solution for Amazon sellers. It empowers Amazon sellers with control over their pricing strategy while enabling AI to dynamically adjust prices and conduct A/B testing to identify optimal price points for different products. This aligns perfectly with the vision of our Amazon Pricing Engine (APE).

Do optimal prices always equate to lower prices

Of course not. At times, higher prices can create a perception of superior quality or service, resulting in increased profits. If customers accept the higher prices, even though your click-through rate (CTR) and conversion rate (CR) might decrease, the overall profits generated by sales and your ranking could experience significant improvement.

As an Amazon seller, it is apparent that optimal prices will change throughout the time. Therefore, constantly conducting pricing tests leveraging machine learning technology is the best way to save your time, money and manual effort.

Your next step

With Amazon adapting its product prices frequently, responding to this dynamic environment is crucial for Amazon sellers. Sometimes, even a slight increase in price can benefit your business. However, you won’t know if you always stick to your original pricing strategy.

Therefore, optimizing your product pricing constantly is the best strategy. With Priceloop’s APE, you are empowered with creation of your own pricing logic and can enjoy the benefits of our algorithm A/B testing various prices to identify the sweet pricing spots for your products. By embracing this hybrid strategy, Amazon sellers can effectively steer their businesses towards sustained growth and success in this ever-evolving digital marketplace.

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