If you make a product, selling it on Amazon.com is a double edged sword. Sure, Amazon offers amazing exposure and great sales volume … but their relentless discounting takes sales away from other (higher margin) re-sellers.
Worse, Amazon can steal sales from your own website.
Too many business owners are stuck with a no-win decision: take Amazon’s volume at a price that you can’t afford, or give Amazon the boot and make do on your own (smaller) sales volume.
But there’s a third choice: The best answer is a great pricing strategy to help in you increase sales and margin.
A great pricing strategy is not just about maximizing profit… it’s actually about making every sales outlet unique. Even if you sell only one product, you must find a way to make sales on Amazon different from sales on a reseller’s website (or your own).
Like all discounters, Amazon has its place. You can maximize their value by playing their low cost game. How? By selling your simplest, lowest cost products on Amazon, while keeping higher cost (and higher margin) items for yourself and your distribution channel partners.
Look, pricing is as much a marketing function as it is a finance function. And pricing strategies tend to blur the lines between marketing and finance. Remember the “P’s of Marketing“? Product, price, promotion, place… that’s marketing. Deciding how to market profitably… that’s finance. You need both marketing and finance to win the pricing game.
If the products, package and promotion are exactly the same on every website, 9 times in 10 the customer will go for the lowest price at the “place” they know & trust — and Amazon will win.
If you want to take back some of those sales (and profits) from Amazon, here’s the 3 steps you need to follow:
Step 1: Define Your Sales Channels
Start by putting your wholesale customers into groups. It’s likely you have some combination of consumers, offline retailers, online retailers, boutiques, discounters, re-sellers, wholesalers and distributors. Look for natural groupings. Don’t lump Amazon in the same group as a small specialty website. You can probably put all of your customers into one of 3 or 4 groups. Each group is a sales channel… a way of getting your products to market.
Step 2: Differentiate Each Channel
To minimize the competition between channels (and maximize your own sales), you’ve got to make each one as unique as possible. Try a combination of product and pricing strategies. Here’s 3 secrets to quick channel differentiation:
…Labeling… Sometimes making the products in each channel unique is as simple as giving them unique labels or names. Large manufacturers like Sony & Samsung do this all the time — they prevent competition between Target and Best Buy by simply giving each re-seller a different label. Often the difference is simply in the model number or SKU. Sometimes there is a small difference in the color or packaging. In any case, the consumer has a hard time comparing prices between stores because each retailer is selling something slightly different. Web searches are also unlikely to pull up competing prices if the SKU numbers are not identical. The result? Consumers do less comparison shopping and the site that found the customer keeps the sale.
…Bundling… Differentiate the products you sell through each channel by selling product bundles. Rather than sell the same widget to everyone, add something small to the mix. If you sell golf clubs, give your re-sellers a free sleeve of golf balls to sell with each club. The bundled product does not have to be high-cost, but it should have a high enough perceived value to convince a customer to pay more. But if the bundle seems completely different on your site, they may well make the effort to buy directly from you.
…Co-Marketing… Eliminate competition among channels by selling bundles that include goods from a third party. Team up with other manufacturers –even if you ship separately—to offer a 2-for-1 price that clearly sets you apart from an Amazon sale.
Step 3: Monitor, Measure & Test
Now you need to call your CFO. No strategy is ever complete without monitoring the results and making adjustments. For pricing, this is critical, since the wrong price can cost you real dollars. Sit down with your accountant or CFO and walk through the real costs of your strategy.
Be sure each channel outlet is profitable — and be sure you know which ones are the most (and least) profitable. With that, you can “right size” your operations to maximize your profits. Growth depends on managing profits and cash flow, so don’t let it get away from you.
Once you understand and differentiate your sales channels, I think you’ll find that there are some great ways to use “The Amazon Effect” to your advantage.
Dedicated to your (right priced) profits, David Worrell
PS: when you’re ready to analyze your sales performance, or just brainstorm some pricing options… I hope you’ll give me a call! (704-614-2701)