By Martin Heubel, Founder and Director of Consulterce, a strategy consultancy for B2C Household & CPG brands.
Amazon is known for selling items under £1. So how do they make a profit?
They don’t!
Instead, Amazon takes a data-driven approach. They know that low-priced products serve as bait to attract new customers to a category.
This is mainly the case with Grocery, Pets, Health & Personal Care and other consumer products.
Given the wealth of data Amazon collects, it can quantify the $ value of any low-price purchase, by measuring the:
- Profitability of follow-up purchases
- Number of Subscribe and Save sign-ups
- Likelihood of customers opting into Prime
Or in other words: The customer’s lifetime value
As it turns out, selling low-priced items is highly profitable.
Yes, Amazon loses money on the sale of a £1 product.
But the average customer will return to buy a TV, watch or other high-margin item that adds to Amazon’s bottom line.
So next time your Vendor Manager asks you to list low ASP products, ensure you don’t discount your margins.
For further insight and support, contact Martin Heubel here
