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The Price Is Right: Inflation Isn’t Denting Consumer Spend, so Price Accordingly…

Prices might be rising, but consumers are still spending. So what does that mean for how FBA brands should price their products this holiday season?

Online retail sales were up 4% in October after a difficult summer according to the latest data from the U.S. Department of Commerce.

Now, as any Amazon seller knows, Amazon is the ultimate pricing platform. If you’ve been here long enough, you’ll know that Amazon not only incentivizes lower prices, in some cases, it mandates them.

That said, FBA sellers still have a lot of pricing power, and pricing has become a much more dynamic process than it has been in the past. You can’t have a set-it-and-forget-it strategy these days. This is especially true during the holiday season, where demand spikes and customer price sensitivity will ebb and flow dramatically.

We’ve recently built out our own pricing Center of Excellence, headed up by John Dean, who spent over 6 years at Wayfair on their pricing & B2B profitability teams. Here are some of the insights that they’re using to accelerate the Perch portfolio:

1. Know what data matters: historical, competitor, and consumer behavior trends

Data is everything when it comes to pricing. You need to know what worked last year. What your margins are at different price points. How that interacts with your advertising strategies and promotions. What your competitors are doing. And how all of this will be impacted by seasonal trends and changing consumer behavior.

It’s a lot to manage. At Perch, we recently launched our own algorithmic pricing to help us respond to all these inputs more dynamically. The goal is to automate much of the pricing decision making process down the road, but the key inputs are things that most Amazon sellers should be thinking about when they’re designing their own pricing strategies:

  • Use historical brand data to gauge your customer’s price sensitivity, and test, test, test: you should be testing pricing throughout the year to understand how consumers react when pricing fluctuates. This is especially important when looking at the holiday season. People who buy earlier in the season are typically more likely to buy based on the competitiveness of deals, while those who are purchasing later are more likely to buy a more expensive item as they run up against Christmas.

  • Watch competitor pricing closely: pricing is going to fluctuate wildly from Thanksgiving to Christmas for everyone in your niche, and you’ll need to monitor it much more closely during this period than is typical. Yes, you need to have your own proactive pricing strategies, but you also need to be reactive and be ready to adjust them according to what your competitors are doing.

  • Consumers are doing holiday shopping earlier this year, how will it impact your niche? Our favorite stat this holiday season is that 50% of consumers plan to do their holiday shopping BEFORE Cyber Monday this year. The shopping season has been slowly creeping forward for years, but this is a massive acceleration (likely driven by the broad awareness of the supply chain issues this year). While historical data will give you general guidelines for this year’s pricing strategy, be prepared to shift things forward if you’re seeing spikes earlier than normal.

2. Build archetypes and price accordingly

As a part of our historical analysis of brand performance, we’ve defined several different consumer archetypes and built different pricing strategies that will appeal to each. So far, we’ve built archetypes based on purchase urgency, search tendencies, repeat purchasing behavior, etc.

At different times, you can employ pricing strategies that appeal to different archetypes. Below is a graph that shows how price sensitivity and purchase urgency evolve throughout the holiday season:

Historical Trend Analysis of Two Perch Brands

These archetypes drive promotion timing and how aggressive we are during peak-holiday. Once you have them figured out, you have a pre-built template for how to react to most, if not all pricing situations.

3. Integrated pricing is king - pricing should always be done in conjunction with other levers: advertising, promotions, merchandising, etc.

When defining your archetypes, you need to have a hypothesis for the WHY behind purchasing decisions and pull different growth levers in conjunction with your pricing. In the example above, PPC advertising was crucial in getting your product in front of late holiday shoppers specifically because you’re raising prices and won’t appear as competitively organically.

Our goal is to strategically unite our affiliate deals, promotions, advertising, and pricing together to maximize profitability and conversion. You can’t view any of these in a vacuum, they need to work together.

Another example comes with merchandising. For Prestee, one of our disposable party goods brands, we saw an opportunity to go after premium status. You wouldn’t think that this was possible with plastic cutlery, but our research into our customer demographics indicated that it was.

To win our key customer demographic, we refreshed our merchandising to appeal to their aesthetics and elevate the brand. We created a value proposition to customers: we get you, our aesthetic appeals to your own, and there’s a reason less expensive items are out there.

The crazy thing is that after we raised prices to go after premium status in conjunction with the merchandising refresh, we actually saw higher volume and conversion rates.

Perch’s Merchandising Refresh of Prestee

The Price is Right: pricing as an accelerator and as a decelerator

This is probably one of the more difficult holiday seasons in recent memory. For many sellers, pricing will also play a HUGE role in keeping their best-selling ASINs in stock, as they face the impact of a supply chain crisis that might leave them light on inventory.

Think of pricing as both an offensive and a defensive lever in this context. It’s something you can pull to help accelerate or decelerate velocity, depending on your inventory levels. If you’re low, increase prices, reduce ad spend, and demand will taper off.

Ultimately, the brands that use pricing as a dynamic data-centric lever in conjunction with several other growth levers will be the ones that dominate the holiday season. Despite the challenges we’ve all faced, the National Retail Association predicts this will be a record-setting year. Price effectively to make it even better.

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