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Product Pricing for the Christmas Season

Now that we’re into the Christmas buying season, and you’ve probably built up your inventory, I wanted to talk a little bit about pricing your products to maximize profits.

If you sell on an online marketplace like Amazon, eBay, or Sears, you know that having the lowest price is a big factor in getting the most sales.  Price is one of the main factors in where your offer shows up in the search results, and (in the case of Amazon) winning the Buy Box.  I’ve mentioned before that price isn’t the only determinant, things like seller feedback ratings also factor into it.  But obviously buyers want the lowest price, so having the lowest price helps a lot in your offers getting good placement in product search results.

But you may not want the best placement for the entire Christmas season, especially if your inventory is only a small fraction of the total volume that will be sold on your marketplace.  E.g., suppose you have 100 widgets for sale on Sears, and over the entire Christmas season customers will buy 10,000 widgets on Sears.  You don’t have to worry about capturing a large percentage of the total sales to get your investment back because you don’t have enough inventory to meet all of the demand.  So you can instead focus on selling out your inventory at the highest price.

Rather than making sure you have the lowest price, you can set your price to something slightly higher than the lowest price, e.g. 10 or 25 cents higher.  This will accomplish a few things.

First, you will still get sales because not all buyers just go for the lowest price.  Some people prefer to buy from larger or smaller sellers, and are willing to skip slightly less expensive sellers.  Some people prefer to buy from sellers with the highest seller feedback rating, even if it costs a little more.  So you’ll still get sales, you just won’t sell out at the start of the Christmas season.

Second, you’ll make more profit.  Whatever amount you’re charging above the lowest price is extra profit, and if your margins are fairly thin the extra few cents make a meaningful difference.

Third, you’ll avoid (or at least minimize) price wars.  If you insist on having the lowest price, and another seller insists on having the lowest price, you’ll both just keep lowering your price until one of you reaches the minimum that you’re willing to accept.  That’s not good for you.

Fourth, you’ll get less negative feedback.  My experience has been that I get significantly less negative feedback when I don’t have the absolute lowest price.  Less negative feedback also gets your product listings better ranking in the marketplace search results, so this also helps your margins in the long term.

Fifth, I’ve often seen smaller sellers be most aggressive on pricing.  But smaller sellers typically don’t carry a lot of inventory.  So, if they have the lowest price they’ll sell out quickly, and you can raise your price even higher to the level of the next lowest seller.

However, if you still have a lot of inventory left by December 6th or so you probably want to become more aggressive in your pricing.  You don’t want to exit the Christmas season with too much inventory, and becoming more aggressive around December 6th leaves you with two weeks of solid sales.

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I’ve updated my list of 300 potential products for you to sell on Amazon.  Take a look!

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Reminder: Congress is working on bills to require online retailers to collect sales tax in all states, rather than just states where they have a physical presence. There are literally thousands of tax districts in the United States, the time and cost of collecting and remitting the correct sales tax could easily be prohibitive for a small retailer. Ask your Representative and Senators to ensure any online sales tax bill requires a simplified method for collecting and remitting the tax, such as a flat sales tax paid to the Federal government, which would distribute the funds to states proportional to their populations.

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