This article is part of our Tradeswell Research series. We’re sharing findings from our data and research and turning them into actionable insights that ecommerce brands can use to make better business decisions that drive profit and enhance the customer experience.
For some people, Amazon Prime Day is an opportunity to snag a great deal on bulk laundry detergent or a new pair of headphones. But for Amazon sellers, it’s a time to capitalize on the massive influx of traffic to generate brand awareness and top-line growth via Amazon Prime Day deals.
But just how effective is Amazon Prime Day? And what’s the ideal amount that retailers should set for an Amazon Prime Day discount?
The Tradeswell Research team analyzed the 2020 and 2021 Amazon Prime Days to determine if the sales event is an effective driver in improving gross margin. By understanding the effectiveness of coupons on gross margin, ecommerce businesses can optimize their discount strategy.
Note: We used data from the Tradeswell platform to measure gross margin on Amazon Prime Day 2020 (October 13-14) and Amazon Prime Day 2021 (June 21-22).
Is Amazon Prime Day effective in driving gross margin?
We used gross margin to measure the effectiveness of Prime Day to determine how well the event drives top-line growth, not just the number of sales.
In the first chart, we compared two things:
- How much the average gross margin dollar amount increased from the week before Prime Day to the week of Prime Day.
- How much more did gross margin increase for discounted versus non-discounted products on Prime Day.
Our analysis found that discounted items on Prime Day saw a significantly higher gross margin increase than non-discounted items (72% increase versus a 9% increase). The year-over-year (YoY) increase in gross margin shows that Prime Day improved its effectiveness in driving top-line growth from 2020 to 2021.
How much does the discount amount affect gross margin on Prime Day?
The last chart shows the average change in gross margin from the week before Prime Day to Prime Day 2021 — broken down by discount range. We found that discount rates in the 10% to 30% range are the most effective in driving increases in gross margin dollars.
Discounts below 10% or higher than 30% resulted in a decrease in gross margin dollars. This is likely for two reasons:
- Discounts below 10% don’t drive enough sales to impact gross margin.
- Discounts above 30% likely drive more sales but deteriorate margins.
How to plan your discounts for Amazon Prime Day
You can approach Amazon Prime Day discounts a couple of different ways to capitalize on the influx of traffic. One approach focuses on driving gross margin, while the other focuses on generating brand awareness.
- Focus on discounting products with healthy margins and high conversion rates. This ensures you’re putting ad spend behind products that historically convert well and will produce a higher gross margin. If your primary Prime Day goal is to drive gross margin, we recommend discounting these products in the 10% to 30% range.
- Focus on products with high conversion rates, regardless of margins. This is an aggressive approach to Amazon Prime Day that we recommend if your primary goal is to generate brand awareness. Deep discounts (think 30% to 50%) will drive demand, increase your rankings in search results, and likely land your product on the coveted Deals page, but will likely do so at the expense of gross margins.
For more best practices and tips, read our Amazon Prime Day guide. We outline FAQs, proven advertising and discount strategies, and what metrics to track to measure success.