Why is market price so important when selling on amazon?

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Quick definition on price: Price is both the money someone charges for a good or service and what the consumer is willing to give up to receive a good or service.

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The price a business charges for its product or service is one of the most important business decisions management make. For example, unlike the other elements of the marketing mix (product, place & promotion), pricing decisions affect revenues rather than costs. Pricing also has an important role as a competitive weapon to help a business exploit market opportunities.

Pricing also has to be consistent with the other elements of the marketing mix, since it contributes to the perception of a product or service by customers.

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Setting a price that is too high or too low will – at best – limit the business growth. At worst, it could cause serious problems for sales and cash flow. The logic should be: if sales are high then the prices get raised, if sales are low then the prices get lowered. Unfortunately, things are not as simple as that. Though what you want to avoid is a race-to-the-bottom which is the concept whereby you price your products less than anything your competitors are offering to dominate the market.

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Amazon’s algorithm is very complex and cutting your margins through price reductions doesn’t always improve your position on Amazon. That is why it is paramount to understand the various differences in pricing and the various pricing strategies. There are two types of prices on Amazon, that any seller must be familiar with:

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Item price – this is the cost of a product only. This is the price customers will see minus shipping costs and any other factors that may affect the total price.

Total price or landed price is the price with everything included – this is what the customer, should they buy, pays. The following are included in the total price:

  • Shipping and handling charges;
  • Discounts, rebates, or special sales/promotions you offer/make with respect to purchases;
  • Shipping method;
  • Programs or any other services involved in checking the market, prices and sales.
  • Low-price guarantees.

Note: If you find your product is in the ‘Other Sellers on Amazon’ section (where you don’t have the Buy Box yourself) you ought to bear in mind Amazon lists products based on product price AND shipping price.

So why exactly is market price important again? to be put simply, it is because you don’t want to go over the price of your competitors, you don’t want to go too cheap or it will affect you negatively but to find the right balance in prices to get optimum positioning on the search page on amazon as well as among other competitors in the ” see other sellers” sections

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