Thinking of changing your Amazon product pricing in response to demand surges wrought by the COVID-19 pandemic?
If it involves a price increase, then you might want to re-think it.
You’ll usually hear advice from other Amazon sellers about increasing prices as a strategy to cope with increased sales velocity. At a glance, it makes sense. If you’re having way too much Amazon sales that your stock and fulfillment rates can barely keep up, then raising prices could discourage customers from buying it. That should allow you to better manage your Amazon inventory and keep your product from going out of stock.
However, going this route could have negative implications for your Amazon business and could even put your Amazon seller account in jeopardy. Here are the reasons:
1. Increased prices may not necessarily curb demand
Consumers will still buy your product even if it’s outrageously priced if they really need or want it enough. That’s exactly what happened with COVID-19 products: face masks, household sanitation items, and PPE products were snapped up by shoppers despite higher than usual prices. The shopping frenzy wasn’t limited to safety essentials, either, with people stocking up on food and grocery items.
If you’re selling in any of these categories, chances are good that using product pricing as a strategy to curb demand won’t work as well as expected. It would be better to implement a sound Amazon FBA inventory management strategy so you can keep your pricing more consistent. This would also help prepare your Amazon business for the long term impact of COVID-19 or the “New Normal,” with more people turning to online shopping to reduce the risk of exposure.
In fact, contrary to the bleak forecasts of a pandemic-induced slowdown in consumer spending, many sellers have actually seen an uptick in e-commerce activities. Amazon even had to temporarily shut down FBA operations for non-essential items and hire more employees to manage soaring demand.
2. Your Amazon seller account could get into trouble
Amazon regularly monitors sellers for compliance with the Amazon Marketplace Fair Pricing Policy.
In case you weren’t aware of it already, Amazon is extremely strict when it comes to its policies. Even seemingly minor violations can bring a lot of trouble your way. When Amazon notices that you’re breaking the rules on product pricing, they can penalize you with removal of the Buy Box or offer, suspension of the ship option, or even the suspension or termination of your seller account.
What exactly does Amazon consider as a bad pricing practice? These are the ones related to price increases:
- Setting a reference price on a product or service that misleads customers;
- Setting a price on a product or service that is significantly higher than recent prices offered on or off Amazon
With regards to the Covid-19 pandemic, Amazon has taken some very strict measures to effectively dissuade sellers who will take advantage of the crisis by jacking up prices. As early as March, the ecommerce giant has suspended at least 3,900 Amazon seller accounts due to violations of its fair pricing policies. Amazon has also restricted the listing of pandemic-related items. If you’re still able to sell on Amazon, you need to err on the side of caution. Be careful with anything that can be misinterpreted as price gouging, which Amazon doesn’t take lightly.
Amazon’s fair price policy against price gouging isn’t anything new. It’s been around since the beginning. However, due to this pandemic situation, Amazon is now aggressively upholding it. Any violation will result in suspension of the seller’s account.
3. Higher prices mean higher customer expectations
If losing your Amazon business isn’t a good enough reason to not increase prices, here’s another: your relationship with your most loyal customers could be at risk.
Remember that price is the value that customers are willing to exchange in order to enjoy a product or service. When shoppers buy something at a higher price, they expect to get what they paid for. Since you’re merely increasing prices without changing anything with your product, there’s a good chance that buyers will perceive the high price as unfair.
Take into account the shipping and logistical delays happening that are bound to negatively affect your customers. It’s not too hard to imagine the aftermath. They’ll never want to buy from you again or they’ll be leaving negative reviews on your Amazon product listing.
Also, consider that raising prices increases the risk of losing your market share to competitors. Other sellers will see your increased product pricing as an opportunity to poach your customers. They can now position themselves as a lower cost option. And they may not even have to spend a lot of effort. Your customers, after losing their trust in you and looking elsewhere, will naturally gravitate to them.
Now might be a very tempting time for you to increase prices so you can make as much profit as you possibly can as demand overtakes supply. But that’s taking a very short-term perspective that can be damaging to your business. Unless you have a really unique product or service that can’t be easily replaced by competitors or that customers have a strong need or loyalty for your product and won’t mind paying extra for it, you can expect to lose a lot of your sales.
On the other hand, you could use this extraordinary time to actually strengthen your relationship with your customers. Here’s how:
If you cannot sell through FBA for now, try doing through Amazon FBM or Fulfilled By Merchant. This way, you’ll avoid the supply-chain and delivery problems plaguing Amazon right now. You might also want to get your customers to place orders directly on your website, where you have better control over everything, from marketing down to shipping and post-sales customer service.
Keep the price as it was, or even lower it as long as it’s profitable. Instead of merely keeping your customers, you might even find new customers if you keep the prices lower than your competitors. Think of it as running a promotion, only this time, you’re not spending a dime on marketing but letting your pricing strategy and great customer service do it for you.
The bottom line is, you have the option to increase prices and keep your profit high in the short term, and you have the option to take a little loss (in the worst case), and not only keep your customers’ faith, but also attract more customers who would stick with you after this is over. And beware that the first option also comes with a high risk of getting suspended by Amazon.
