Today’s post will be about a topic that was suggested a little over a month ago in the comments of a past blog post. The question was “How do I determine how to price items that I am selling via FBA?”
This is a very good question, and probably something that I should have addressed sooner on the blog as it’s a very important aspect of being successful on amazon. I have many different pricing strategies depending on what the current “landscape” looks like for a given item, and won’t be able to cover all of these in today’s post. Today’s post will be specifically about how I price items when I am competing with amazon as a seller. It is important to note that these are my strategies for pricing FBA items versus merchant fulfilled items. This is an important distinction as my strategies for both methods are different.
We’ll be taking a look at 2 different items in today’s post. It’s important to note that the prices will almost certainly have changed by the time you are reading this (screenshots were taken on 5/12 between 7-8PM CT on 5/12/2014), so take a look at the screenshots I have included herein for the pricing information I am basing the pricing decisions on. In addition, none of these items are items that I am currently selling or have sold in the past, they are being used for illustrative purposes only. I might sell them in the future if the deal is right 🙂 Another item to note, this strategy discussion assumes I only have 5 or less of each item I am listing for sale, my strategies may change slightly if I have a large quantity available.
The first product will be a copy of Monopoly Nintendo that has amazon as a competitor. HERE is a link to the product page if you want to take a look, and below is the screenshot (click to enlarge):
The 3 main factors I look at when pricing an item are:
- Sales Rank
- Price history (using camelcamelcamel or the keepa chrome add in)
So for competition on this item, I am only looking at the prime offers as those are my most direct competition. As you can see amazon themselves is a seller of this item. I prefer not to compete with amazon when possible, but if the margins are right I will still be a buyer. So in this case there are 46 total offers, and amazon is one of them, so competition is relatively high. The sales rank is about 8K in toys and games which is a very good rank for this category. After taking a look at the price history for the past 3 months I see that $32.65 is the highest amazon has been priced at, and that 3rd party new offers tend to be a bit lower than the amazon price.
In this case, I would price my item for $32.65. I would exactly match amazon’s price for a few reasons. I find that I will still get placed in the buy box occasionally when I am priced the same as amazon, and that my item is likely to sell pretty quickly. I don’t want to price below amazon in this case as often amazon will lower their price to beat or match your price. Amazon can afford to be much more aggressive than me when pricing items, and I don’t want to get in pricing wars with amazon. Just matching allows me a good chance of my item selling quickly without a significant risk of amazon lowering their price as a result of the way I priced my item. If the rank was a little bit better, say under 2,500 in toys & games, I would likely price differently. Let’s take a look at another item to illustrate.
The item is a VTech walker toy, HERE is a link if you want to take a look and here is the screenshot (click to enlarge):
There are 67 total sellers, the sales rank is 1,458 in toys & games, and the low price appears to be pretty consistent with the current amazon offering. This item may look very similar competition wise to the item above, but I would price it a bit differently. In this case the sales rank of the item is a bit better and appears to consistently stay with a rank around 1,000 in toys. There are a few FBA sellers of this item, but they are all a good amount above the current amazon offering. There are some merchant fulfilled sellers as well, but I am usually not concerned with them when listing an item that I will be selling via FBA.
Ranks with this low of a number tend to have a lot more items selling on a daily basis and dramatically increase the odds of amazon selling out of a product. When this happens, prime customers will usually turn to items sold by FBA sellers as opposed to buying from a merchant fulfilled seller or waiting for amazon to restock the product. This creates on opportunity to sell the product via FBA at a price a good amount higher than the listings that are currently available, amazon’s current price in particular.
In this case, I would price my item for sale at $44.19. The reason for pricing at this level is to take advantage of amazon selling out of their stock of this product. I would be pricing at $44.19 as I can see that the seller selling at $37.49 via FBA only has 4 in stock, and if I am banking on an amazon selling out I am assuming this seller’s would be the next 4 to sell. This would leave me and the other FBA sellers at 44.19 with the low FBA price and quite likely to get sales. $44.19 is the level at which I am starting to see some “resistance” in price as there are several sellers grouped in the $44-$45 range. It’s also important to note that I would match the $44.19 as opposed to pricing below them, so as not to encourage the other seller to lower their price to beat mine. I will very rarely price my item below that of another FBA seller or amazon. I prefer to match or price slightly above to avoid a never ending price lowering war (often called “the race to the bottom”).
I like to price this way as it gives my item a chance to sell at a significantly higher price compared to just matching the current low amazon price. Getting sales when pricing this way when amazon is a seller is far from a sure thing, but I do find that amazon will sell out fairly often on some products opening up a window to sell at a higher price. When using this strategy I will normally hold my price (in this case at $44.19) for 1-2 months to see if amazon will sell out in this time. If I am still holding the item after 1-2 months, then I will likely price my item to match amazon’s offering, or slightly above amazon’s price.
An important note in regards to this strategy is that I am basing my purchasing decision off of the amazon price at the time of purchase. So, I would have to be ok with the margins selling at $28.49 when buying the item. So, if it sells at $28.49 then I will still have my desired profit, but if it sells at $44.19 then my return on investment is significantly increased.
That was 2 examples of how I would price an item for sale when competing against amazon. In a future post, I will address how I price items that have some different characteristics where I use different pricing strategies.
What are your strategies when competing with amazon? Would you have priced these items differently than I have recommended?
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