Chapter 11 The Amazon Pricing Strategy that Will Boost Your Revenues
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Wrong pricing, fake reviews or just bad customer service can kill your Amazon adventure faster than you think. To many, this makes Amazon complicated. But, your pricing strategy on Amazon must be dead simple, and lead with the customer in mind.
Your goal is to generate as many sales as possible, get authentic product reviews and provide the best customer service to your Amazon customers.
In this chapter, I will detail the exact strategies we used to build our private label brand KAVAJ from scratch in 2011.
Further, I’ll give you insight into our approach to pricing on Amazon. We are selling our products solely as a marketplace seller via Amazon (Europe, USA, Japan) and have sold more than 500,000 KAVAJ products, making more than $19 million in revenue.
Before we begin, always remember your ultimate goal: you want your products to be within the top three spots on the first page of the search results for your most relevant keywords.
Example: Organic Search Results on Amazon.com for “iPad case genuine leather brown”
Further, you want to build a long-term brand on Amazon which will result in Amazon promoting your products throughout your product detail page.
In the KAVAJ example below you can see the effect of building a brand on Amazon. In the “Customers who bought this item also bought” section, Amazon will automatically promote all your other products.
Example “Customer who bought This Item Also Bought”
Sales, Sales, Sales
Optimize Your Product Detail Page
The basics just aren’t very good.
Before you even start thinking about generating traffic, putting any marketing budget to work, or refining your Amazon pricing strategy, you have to do the basics.
On Amazon, this means you have to optimize your Amazon product detail page for Amazon’s organic search results. The vast majority of sales on Amazon happen through search and more than 70% of it on page one of Amazon search results.
So, it’s best to spend time optimizing your products for Amazon’s search. Bryan Bowman details every aspect on this topic in his part “A Seller’s Guide to Amazon SEO.” Make sure to read that first.
Set Your Prices For Page One on Amazon & Know All Your Costs
If you get your pricing wrong, you will either lose money or won’t sell anything.
Setting the right price on Amazon doesn’t have to be that hard for private label products where you don’t have any competition on your Amazon product page.
In general, there are two variables you need to consider for every single product you sell on Amazon.
- You want to be profitable (Find your lowest price)
- You want to maximize profits (Find your highest price possible)
First, you need to consider all of your costs, and what your prices would be for you to be profitable on Amazon with those costs included. You need to calculate your floor price.
Second, your price must be competitive related to your most important search terms to get your product on page one of Amazon search results. More than 70% of sales on Amazon happen on page one of organic search.
No one will find and order your overpriced product on page 23.
Calculate Your Floor Price
To operate in the green, you need to know all your costs, take all of them into account, and then determine your price floor.
You can find below the list of costs which you have to take into your equation.
Product Acquisition Cost
- Payment wiring
- Amazon Commission
- Amazon FBA Fees
- Customer Return Fees
- On all returns, Amazon keeps 20% of the original commission as a return fee
- Your own returns-related fees (return shipping, disposal, and product write-offs fees)
- Variable overhead allocation costs
There are also category-specific costs which you need to consider. For example, if you sell clothing, Amazon will charge you FBA fees related to customer return shipping costs.
Find Your Upper Price Floor
Forget about overpricing your product! Amazon will tell you your upper price floor.
Always remember, your ultimate goal is to have your products ranked on page one of Amazon search results. This is where the magic happens, and you can really sell volume.
However, it is one thing to get your products to page one with deep marketing pockets (e.g. deep launch discounts, giveaways or a big Amazon Sponsored Products budget), but you want your product to stay on page one and generate sustainable, profitable organic sales.
To get your products to stick on page one, you must consider the competition around you.
This is easy to evaluate. Just search your top three keywords for your product and review the pricing of the search results on page one.
Now, answer this question: are your prices within a reasonable range of the prices you find there?
From our experience, you can be 20% more expensive than the highest price on page one of search results. For example, the highest price you can find on page one is $40. Your upper price floor thus should be $48. If your price is higher, you will most likely never make it to the top of Amazon search results.
Keep Your Prices Stable, With Exceptions
To build customer trust and a sustainable long-term brand on Amazon, keep your prices stable.
There are, of course, exceptions.
The number one reason for price deviations is to increase your sales rank, which results in more organic sales later. The second reason for price cuts is cross-selling your products, which in the end also results in better sales rank for all products included in the cross-selling promotion.
Usually, this means cutting your prices close to break-even or below profitability. This is most often done during new product launches.
My company deviates from our standard prices mainly in the following contexts:
- New Product Launches
- We offer 15% launch discount for all customers
- We offer up to 50% price cuts for repeat customers on our email list
- Cross Selling
- We offer up to 40% discount for bundles sales. e.g. If a customer buys an iPad case, he will get a 40% discount for an Apple pencil case
- Black Friday or Other Holidays
- Stock Clearance
- In case you have overstock, this can help get rid of your overstock. It can also revive a dead product.
Finally, before you even think about cutting prices below profitability, always keep in mind that you will only have fun (i.e. be successful) selling on Amazon once you can generate organic sales with a decent profit margin.
Drive Traffic to your Amazon Products
Without traffic, there are no sales. Just listing your product on Amazon and hoping for traffic and sales is not enough to be successful.
Today, you need not only the organic traffic on Amazon, but you need to drive traffic from external sources to your Amazon product page.
Paris, here we come…
Not long after leaving Amazon to start my own company, my team and I had a brilliant marketing idea. We were so convinced that it would work that we boarded a plane from Germany to France.
Before we left, we printed off thousands of flyers and planned on handing them out in front of the Apple store in Paris. We knew that tons of people would be standing in front of the store waiting to get their new device, and we knew that we would have a captive audience.
We gave away every single flyer that we brought.
People genuinely seemed interested in our product. They liked the design; they liked meeting us as the creators, and we had several promising conversations that we believed would turn into sales.
When we got home to Germany, we were eager to check our dashboard for sales. We logged in and were totally shocked. We had sold just one case.
We immediately knew we had to change our strategy to drive traffic to our products.
Here are our the three key strategies we are using today to drive most of our traffic to our Amazon product pages.
Build an Email List
An email list is a great way to boost your sales at product launch. We use our list to send our customers directly to our new product pages on Amazon. We also give them a discount code for the purchase of the products and often see a good jump start on sales from that.
As a seller on Amazon, you might be wondering how you can build a list since you don't get the real email addresses from customers and also are not allowed to write them for marketing reasons.
Begin with these three, easy-to-implement ways to start building your own list:
- Add a signup field on your website, like a newsletter sign up, an ebook download, or the like.
- Communicate your newsletter sign-up option on your social media channels and on your packaging.
- After your sale at Amazon, you can send one email to your customer. Point them to your newsletter sign up page in this email.
Our current tool of choice is ConvertKit, which has a very easy-to-use interface and allows us to easily tag our customers and build individual newsletter campaigns.
Place Targeted Facebook Ads
In 2014 we shifted a big part of our external ads budget from Google to Facebook. Today, FaceBook Ads are our most important external paid traffic source.
On Facebook, you have multiple advertising options, and you don't need an existing fan base for that. The great thing about Facebook Ads is that you can define your target audience and create a post which will show up directly in a user's Facebook feed.
For example, for our new iPhone 6 cases, we created a target audience for women between 30 and 35 with kids younger than 3 years AND an interest in photography. We generated awesome results from these ads.
We only had one issue with our Facebook Ads: we could not tell if the ads were profitable.
We spent one-and-a-half years developing analytics with quantified markets. Today, it is impossible for us to imagine doing business without analytics –– and now you have the opportunity to use it as well!
Working with this Amazon conversion tracking tool catapulted our Facebook marketing performance into entirely new dimensions. The bottom line is that with analytics, you finally know whether:
- Your Facebook advertising is worthwhile
- You are really addressing the target groups that buy your products on Amazon
- Your advertising is actually generating revenue
Use Amazon Sponsored Product Placements
Amazon Sponsored Products is by far the fastest way to get your product on the first page of Amazon search results.
Amazon Sponsored Products work similar to Google AdWords, where you bid on search terms. If a person is searching on Amazon for your product, you can buy an ad relative to those search terms, and your offer will appear next to the best results.
The great thing about Amazon Sponsored Products is that it is very easy to setup. You can do it in a matter of minutes.
We did realize pretty early in the process, though, that even in a simple interface, you have to manage your account carefully and regularly to avoid an exploding marketing budget.
There are two main reasons for this.
- First, Amazon is continually improving the algorithm, meaning your successful campaign today will lose money tomorrow.
- Second, the competition on your ads is getting tougher as more sellers enter the marketplace. Amazon has also opened the sponsored products program to Amazon Retail clients.
I recommend either having someone in-house watching your campaigns very closely or working with MarketPlaceClicks, who is managing our account for us.
Point all product links on your website and social media channels to Amazon.
You might ask: “Why should I send my customers over to Amazon if I already have my own website?”
The number one reason is that your ultimate goal is to be on the first page of the search results and, if possible, in the top three listing. This is where the big money is made, not by a single sale on your site.
Apart from our website, we point every link on Facebook, Twitter, YouTube, Instagram, our blog posts and our email newsletter to one specific Amazon product page.
You can build high search engine ranking for your own online store through content marketing and influencer outreach work to gain backlinks from relevant, high-quality sites.
Get your products in the hands of bloggers and YouTubers.
YouTube is the second biggest search engine in the world. It’s really good to have a ton of reviews about your products on there so that you show up first in search no matter where they search for you. Remember, Google owns YouTube.
Choose the YouTubers and bloggers who fit best with your product and brand, and offer them free review samples. Be sure to word your outreach genuinely, and help solve a problem for their audience. Know that they receive tons of these emails regularly. Keep a running list of who you are reaching out to and who responds. Use this to build yourself an influencer list.
If you give your products away for review, only give them your top selling product. Put all your eggs in one basket. Remember, you want to have this product in the top three of the first page of search results, so you have to ensure that all the traffic is going to that one product.
Maximize your product packaging.
Every case we ship includes a small booklet and two business card sized inserts with 10% discount codes for customers to give their friends or use on their next Amazon order of a KAVAJ product. Customers are telling their friends about us and they’re buying more cases for themselves.
We also use our best customer testimonials to build trust. We put our best quote on the outside packaging and, for our most important products, we include a customer case study inside a small booklet.
Create effective Google Ad campaigns.
We spent a lot of money on Google in our early days. However, Facebook Ads and Amazon Sponsored Products totally changed the game.
Today, you should use Google AdWords as follows:
- Focus on brand name: Focus your efforts on your brand name and the most specific keywords in the long tail. We get most of the traffic from Google from people searching for our brand “KAVAJ.”
- Focus on long-tail keywords: In the long tail, we only create very specific campaigns for our products, which must include the device name, the material, and the color. For example, those words that are keywords to our product, phrases like "iPad Air 2 case leather black."
Get Real Product Reviews
Without product reviews, you won’t sell anything on Amazon.
The amount and the quality of reviews are the most important aspects of your reviews to increase your conversion rate.
Unfortunately, only 1 out of 100 customers writes a review.
Here are a few ways to increase your number of authentic product reviews.
Before getting into the details, this subject requires a quick warning, as Amazon is currently cracking down on sellers buying fake reviews.
Never mess with Amazon.
Avoid review clubs and excessive giveaways, which do not comply with Amazon’s Terms of Services (ToS). Don’t give away a free product in exchange for an Amazon review. Your goal should be to build trust with your customers and a long-term brand on Amazon. Even if the customer is leaving a disclaimer that he got the product for free, it will hurt your product and there is a high chance that Amazon will either delete all those reviews or even suspend your seller account.
This is what you should do instead.
Email your customers after purchase and ask for reviews.
You can use tools like Feedback Genius to automate this process. Send the email a few days after the purchase. Ask in a neutral way and don’t force them to leave a positive review. Provide a direct link to the review page, as a lot of your customers have probably never written a review before. You can also use this opportunity to make sure the product was delivered correctly and give the customer a chance to tell you about their experience (good or bad) so you can make the most of the interaction and build lifetime brand loyalty.
Use "wrong" positive seller feedback to get product reviews.
People often confuse seller feedback with product reviews. Unfortunately, the often really good product feedback is not very visible for other customers.
Review your seller feedback regularly for people who actually provide positive product feedback and ask them via email to also write a product review.
Comment on reviews.
Everything on the Amazon product page is public. In particular, the reviews and comments sections will be read by almost all future customers. This is your chance to stand out. Be sure to comment on any negative product reviews or on reviews where a customer has a question. This is your opportunity to build trust and increase your conversion. Further, many customers who initially gave your product a negative review might even change it for a positive one because they are grateful that you cared about their issue.
Ask customers who email you for feedback.
The easiest way to get product reviews on Amazon is by simply asking customers who tell you how much they love your product. Whenever you receive an email, a customer service call or positive feedback on your social media channels, just ask them politely if they are willing to share their experience with other customers on Amazon.
Provide Outstanding Customer Service
You can't do anything wrong if your Amazon customer benefits. Amazon itself is the most customer-centric company in the world. They expect the same standard from you as a seller.
Your best marketing tool on Amazon today will be outstanding customer service. Your goal should be to create a “wow” experience which will help spread word of mouth. To explain, what I mean by “wow” experience, I want to share a success email we received:
We not only exceeded his expectation but we "surpassed anything that I could have expected!" In the end, he helped us fix the issue by sending us images and he will recommend our iPad Pro cases to his management team. This how you turn a negative into a positive.
Start your customer service on your Amazon product page.
This is the place where all your customers start their customer journey, read reviews, ask questions, check out your seller feedback and finally click the "Add to Cart" button.
I recommend implementing a daily routine for your product pages including the following actions:
- Comment on negative product reviews and offer instant help
- Answer questions in the Q&A section
- Manage your seller feedback actively
Answer your customers fast and be generous.
The 2nd pillar of your customer service is email. You must answer all emails within 24 hours or faster and strive to resolve every customer service issue in a single communication.
I recommend to apply the following four principles:
- Answer all emails within 24 hours
- Provide a solution in your first reply
- Make it simple for your customer
- Be generous
Be responsive on your social media channels.
Your customers will talk about or to you and they expect you to engage with them on their favorite social media channel. We recommend using Facebook and Twitter as your first customer service channels. You can exceed expectations here and “wow” your customers if you reply to all questions within an hour.
We also recommend creating a FAQ section on your website that answers common questions. Finally, offer an easy-to-use contact form on your website.
One final note on your Amazon strategy: this entire process works the same worldwide and the potential is huge.
More than 300 million active customers are waiting for you. As a German company, we started out in Germany, which is still our biggest market. With Fulfilment by Amazon, it has never been easier to sell your products worldwide. You can see screenshots below of one of our iPad cases, which we sell in the U.S., U.K., Germany, and Japan.
Amazon.de: KAVAJ iPad Air 2 Case Berlin cognac
Amazon.com: KAVAJ iPad Air 2 Case Berlin cognac
Amazon.co.jp: KAVAJ iPad Air 2 Case Berlin cognac
What are you waiting for?
Selling on Amazon worldwide has never been easier. Apply the Amazon pricing strategies mentioned in this guide and get started.
For the final time, always remember that your ultimate goal on Amazon is to get your product on page one of Amazon search results to benefit from the organic sales of the massive Amazon customer base.
From our eight years experience, the best way to achieve this is to focus on generating sales, getting authentic product reviews and providing outstanding customer service.
Most importantly, GET STARTED TODAY and TAKE ACTION NOW!