Amazon was one of the pioneers in the booming online marketplace model.
It’s a must to explore all options when looking for new sales channels, and one opportunity to simplify logistic processes is with Fulfillment by Amazon (FBA). With web traffic of more than 180 million visitors and a conversion rate that can exceed 7 percent, Amazon is almost a must for any eCommerce seller.
In Spain, 30 percent of consumers who make their first purchase online do it with Amazon, so this marketplace is also a good way to reach a new audience. Although, like everything, Amazon has its pros and cons—especially when it is time to create consistent pricing strategies.
Fixed and Variable Costs of Amazon FBA
The two main fixed costs when you set your prices on Amazon FBA are the referral fee and the logistics costs.
The referral fee for each sale on Amazon can vary between 8 percent and 15 percent of the final price. The product category determines what the commission percentage is, but most products are closer to 15 percent than 8 percent.
The average logistics costs for shipments in Spain are around 2.20€ per package. It goes without saying that this will vary depending on the size of the package and will change if the shipment is to another country. Amazon offers a tool that allows its sellers to forecast the costs to help them set their selling prices.
In addition to these two costs, we have to add the cost of the warehousing, a variable cost. The average cost is €20 per cubic foot, but it tends to increase during the Christmas season or other peak sales periods. Not to forget, if a product remains in Amazon’s warehouse for more than 365 days, it receives a long-stay surcharge.
What to Consider When Creating an Amazon Pricing Strategy
A great advantage of selling via FBA is that your product automatically becomes Prime.
This “simple” label exponentially improves visibility and conversion. Most Prime users only buy products in these categories because they have the shipping price included and have better delivery dates.
At this point, we agree that Amazon FBA has many advantages, but, regarding prices, there is an important detail: The arbitration.
Before selling on this platform, it is important to see if there are already similar products for sale. If so, make sure the differences are obvious. If Amazon detects that there is a product that is the same, or very similar, you will enter into arbitration and prices will be equalized, running the risk of losing margin.
The first thing that users look at when buying on Amazon is the price. As a result, many Amazon sellers position themselves 0.01€ below the competition to improve their visibility. This can lead to an endless wheel of price devaluation.
We have already seen how important it is to look at the prices of the competition and, in this case, it is also necessary to do a good job of keyword research so that the products do not get lost in the vastness of the Amazon catalog.
The Balance Between Pricing and Branding
Advantages can turn into problems if you don’t do your research beforehand. Whether your pricing strategy is by channel, collaborative, or omnichannel, you will have to study your costs and margins before taking advantage of FBA.
If your margins allow you to assume the costs of selling on Amazon, it can be a great opportunity to grow and attract new customers. Then, this is where branding comes in.
Even though you are selling on Amazon, you must maintain your branding and make your company’s personality visible on your seller’s page. Doing this well can help you gain loyal customers who come directly to your eCommerce site, not Amazon.
It may not happen at the beginning, but it would be the ideal scenario and that is why you have to set the right prices—to avoid disappointing these new customers and losing sales if they come across very different prices on Amazon and your own site.
