What Does Amazon’s Pricing Policy Change Mean for Sellers?
This week, Amazon confirmed that they will be eliminating their pricing regulations on sellers. There is speculation on whether this change is to assuage the growing concerns of politicians like Senators Richard Blumenthal and Elizabeth Warren, but that’s not what we’re interested in today.
We’re taking a look at what these changes mean for online retailers.
Previously, Amazon required that sellers on the platform could not offer lower pricing through any other online channel including their own websites. With the freedom to set their own pricing, brands now have several opportunities and challenges to consider.
More Control Over Margins
For those driving sales through Sponsored Products or any other Amazon advertising strategy, retailers had little control over managing their margins. Traditionally, businesses have two options when attempting to balance driving new sales and maintaining profitability ad spend and new sales: cut spending or raise the price. However, Amazon’s previous policy reduced sellers to the former.
Now that sellers have the agency to control both ends of the equation, this may be the time for marketing departments to ramp up their ad spend, capture a share of those more expensive search terms, and drive more demand for their products.
Since their hands are no longer tied, this will allow companies to gain more brand exposure without risking substantial profit loss.
Encourage More Website Sales
In today’s digital marketplace, not being on Amazon isn’t an option for many retailers. The platform has built a loyal shopping base through their Amazon Prime services, and not advertising to those consumers would put businesses at a severe disadvantage.
With that said, businesses have a lot to gain when shoppers buy directly through their website — and it’s not just more of the profits.
If I were to buy a replacement sleeping bag from Marmot and chose to purchase through their ecommerce site, Marmot would capture a lot of user data on me that they could then use to craft a customized brand experience. Though I entered the site for a new sleeping bag, they could use remarketing to promote other camping accessories and encourage me to make another purchase.
This data is key to building brand loyalty. If Marmot were to lose that online sale to their Amazon account, they would have no way of fostering a long-term customer relationship with me.
If companies were to start having higher prices on Amazon compared to their website, price-checking shoppers may discover the brand through their advertising and high ratings on Amazon but decide to purchase directly from the company to get the sale. And if the shoppers who worship two-day shipping still decide to buy from Amazon, the company would still see higher margins due to the price increase.
The Downside of Raising Prices on Amazon
It’s a shame that things don’t take place in a bubble. If they did, all of these suggestions would seem like a no-brainer. Unfortunately, competition on Amazon still is a very real issue. With tight competitor intimacy, brands are displayed right alongside their competition, and the truth of the matter is, your competition may not adjust their prices.
While you chase after higher margins and shopper data, your top competition may be satisfied with the returns they are seeing from their ecommerce strategy and decide to position themselves as the cheaper option on Amazon. Their lower pricing will definitely pull some of your potential shoppers who wish to purchase through their Prime membership.
What’s a Seller to Do?
There is no simple answer for how retailers should respond to Amazon’s change in policy because every market is different and a lot of your decision weighs on your risk tolerance. But for a quick overview of your options, we’ve laid them out below:
Have higher pricing on Amazon than on website
Incentivizes shoppers to buy from your website where you retain the relationship and earn a higher margin. Check your Amazon competition before choosing this strategy, though! Pricing too high on Amazon can cause you to lose a sale altogether.
Keep pricing consistent
Gives your shoppers a consistent shopping experience. However if pricing is the same, more customers will choose to order your product through Amazon’s free, two-day shipping rather than on your website, causing your brand to pull in less profit due to Amazon’s fees.
Have higher pricing on website than on Amazon
Commonly used when a brand is attempting to claim Amazon market share away from competitors. Sellers should be wary of this strategy as no savvy shopper will be incentivized to buy your product on your own website with lower prices and Prime shipping on Amazon.
Whenever Amazon rolls out a new policy change, it is always best to conduct a self audit of your account and re-evaluate your competitive edge. Whether you make a big move or stay the course, keep an eye on how your competition is responding to the change.