Mastering Dynamic Pricing on Amazon: A Complete Guide for 2024
Last updated March 6, 2023.
Repricing – it’s the one issue you simply can’t ignore if you want to stay ahead of the game on the world’s biggest online marketplace, Amazon. While automatic pricing adjustments have been standard practice for wholesalers for years, private label sellers are quickly catching on to this trend of Amazon dynamic pricing. And with buyers now used to seeing price fluctuations on Amazon, it’s no surprise that price trackers have become a must-have tool.
But here’s the kicker – dynamic pricing, while not as well-known as other repricing methods, has the potential to really set you apart from the competition. Imagine putting the pressure on your rivals and boosting your sales at the same time! So why should you choose a tool that allows for dynamic pricing, rather than relying on manual adjustments or Amazon’s free repricing tool?
Spoiler alert: those methods simply won’t cut it, and could even do more harm than good. The solution? Dynamic pricing on Amazon. In this blog post, we’ll dive into why it’s the way to go for sellers who want to thrive in the ever-evolving world of e-commerce. So buckle up, and let’s explore together!
Dynamic Pricing on Amazon: DefinitionOn Amazon, as in eCommerce in general, “dynamic pricing” refers to price adjustment using software based on the current market situation. In particular, the product prices of competitors play a major role, but factors such as the margin, the time of day with the highest purchasing power, or other factors are also taken into account.
What Is Amazon’s Pricing Model and How Does It Affect Sellers?
Amazon has a dynamic pricing model that, although being quite complex, can have a significant impact on … the success of a seller’s business. The model is based on a combination of factors, including product category, competition, and consumer demand. Amazon’s algorithmic pricing model analyzes these factors and determines the most competitive price for a given product. This means that prices can fluctuate rapidly and frequently, sometimes multiple times per day.
For sellers, understanding Amazon’s pricing model is essential for success on the platform. Pricing is a critical factor in the buying decision for consumers, and being competitive is crucial to winning sales. Amazon’s pricing algorithm also takes into account a seller’s past performance, meaning that consistent competitive pricing is essential to maintain good standing on the platform. Additionally, Amazon’s pricing model incentivizes sellers to offer competitive pricing by awarding the Buy Box to the seller with the most competitive price, resulting in increased visibility and sales.
However, pricing too low can also have negative consequences, such as reduced profit margins or a perception of low quality. Additionally, sellers should be aware of potential violations of Amazon’s pricing policies, such as price gouging or collusion with competitors.
How Does Winning The Buy Box Work On Amazon?
Before we dive deeper into the different pricing strategies, let’s take a look at what is generally important for winning the linchpin of Amazon – the Buy Box. Up to 90% of all deals are made via the yellow Add-To-Cart-Field located at the top right of the product page. Anyone who slips down the list of other sellers hardly gets any of the cake.
It is well-known that customer satisfaction is the top priority for the online giant, which is also reflected in the battle for the Buy Box. In general, a high seller performance increases the chance to win this battle, while poor performance can even disqualify you from it. Therefore, the Buy Box algorithm implies various seller metrics defining the overall seller performance.
The most important criteria in the Buy Box context are the shipping method and time as well as the final product price. In particular, Amazon’s algorithm is considered to favor FBA (Fulfillment by Amazon) and SFP (Seller Fulfilled Prime) products over FBM (Fulfillment by Merchant) products. Moreover, fast delivery times increase the chance to win the battle.
Regarding the final price, which includes both the item price and the shipping costs, it’s a little more complicated. First, the lowest price does not guarantee you winning the Buy Box. A Northeastern University Boston’s empirical study has shown that it is often not even necessary to set the lowest price, although the rumor persists that the Buy Box can only be won this way.
Secondly, many sellers change their prices frequently, making it difficult for you to remain competitive. According to the same study, sellers who use a repricer appear to be more successful compared to those who don’t.Apart from the above-mentioned criteria, there are further metrics contributing to the final algorithm’s outcome, such as “Order Defect Rate” and “Late Dispatch Rate”. To find out more about this topic, you can read our blog article ”How to Win the Amazon Buy Box in 13 Steps: All Important Metrics in One Blog Post!”.
What Is The Second Buy Box And How Will It Impact Pricing?
The introduction of Amazon’s second Buy Box in June 2023 has the potential to significantly impact online retailers, giving them a second chance to showcase their products and gain visibility. However, the exact criteria for selecting the winner of the second Buy Box have not been determined, leaving some uncertainty around how sellers can optimize their products to win the Buy Box.
One area of uncertainty is whether the second offer will only be placed with Fulfilled by Merchant (FBM) or if bundled products will also be eligible. This lack of clarity may create a disadvantage for some sellers who are unable to bundle their products or utilize FBM. Nonetheless, one thing remains clear and consistent with Amazon’s existing Buy Box algorithm – pricing is a crucial factor in Buy Box allocation.
In fact, sellers who optimize their pricing are more likely to be at the top of the list and win visibility and sales. With the introduction of the second Buy Box, there is now an opportunity for sellers to gain similar visibility and sales with a higher price, making repricing tools more important than ever. Repricing tools, such as SellerLogic, provide a way for sellers to take full control of their product pricing and optimize their chances of winning either the No. 1 or No. 2 Buy Box.
Through repricing tools, sellers can constantly adjust their prices to stay competitive, taking into account the competition, consumer demand, and other factors that Amazon’s algorithmic pricing model considers. By doing so, they can maintain their competitiveness and increase their chances of winning the Buy Box, whether it’s the first or the second one.
Why Is Dynamic Pricing Important For Amazon Sellers?
On Amazon, price variations are common, but dynamic pricing in the broader meaning has yet to be identified. Rigid rules dictate what the Amazon pricing tool should do under what circumstances. The “dynamic” here usually only exists in one direction, namely downwards.
This has brought rule-based or static repricers and thus repricing on Amazon in general into disrepute, even though a good dynamic Amazon pricing strategy looks quite different. Because if everyone always just lowers their prices, it leads nowhere except to the limits of what is still a margin – or even below. Such Amazon price wars have always existed and still exist in online marketplaces, but selling without profit or even at a loss should never be an option for a business.
Is Manual Pricing a Solution?
At the same time, it is immensely important for Amazon sellers to place as many of their offers as possible in the Buy Box. As said before, the final price has a great influence on this. If static repricers only result in price erosion and negative margins, should product prices be manually adjusted? Actually, that’s a viable way to go – if you have a maximum of five products and at least 24 hours in a day, or if you’re a cyborg. Because that would require companies to keep track of all their competitors, know their daily buy box metrics, monitor price differences and adjust their prices accordingly several times a day, and test out which one will hold the shopping cart field.
Not only does it sound unrealistic, it is.
The bad news is that a human can’t possibly weigh all the factors that influence the algorithmic decision-making mechanisms which determine the offer in the shopping cart field. The good news is that no one has to, because there is intelligent dynamic pricing software for eCommerce.
How Do Amazon Tools With Dynamic Pricing Technology Stand Out From The Rest?
So the question now is why dynamic pricing helps Amazon sellers not only prevent a price war but can even ensure that the price of a product increases in the long run. Yes, you read that right, the price range of a product can shift upwards on Amazon through Dynamic Pricing. But more on that later.
First of all, it’s important to know how an intelligent dynamic repricer works. In the Buy Box-targeted strategy, it continuously analyzes the market situation and registers every Amazon price change or shift in the structure of competitors on a product. Based on this mass of data, it then adjusts the user’s prices – not according to the same set of rules, as static tools do, but adapted to the requirements of the market and the user’s own market share.
If Amazon now reports back to the software that the user has won the Buy Box with a certain price, the work of a rule-based repricer like Amazon’s would be done. Dynamic pricing tools such as the SellerLogic Repricer, on the other hand, raise the user’s product price again until the optimal price, i.e. not the lowest but the highest possible price with which the Buy Box can still be held, has been set.Because, as said before, it is not necessarily the lowest fighting price that gets the Add-To-Cart-Field, but also the shipping time, the shipping method, and many other factors play a big role. In this way, SellerLogic Repricer not only gets the Buy Box but also the highest possible price for the user, increasing sales and margin at the same time.
Amazon’s Internal Price RangeBy the way, Amazon internally sets a certain price range for each product within which offers are qualified to win the Buy Box. By using Amazon repricers that support dynamic pricing, this price range can be shifted upwards so that the Buy Box can be held with ever-higher prices.
How Does Repricing Affect Private Label Products On Amazon?
Due to the focus of many Amazon repricer tools on the Buy Box, it is not surprising that dynamic repricing is widespread on Amazon, especially among sellers of merchandise. However, the really good tools can do even more and offer further optimization strategies in addition to the fully automatic price adjustment to the shopping cart field. This makes such tools also interesting for private label sellers, who usually automatically fill the Buy Box with their listing.
These include, for example, strategies based on time periods and sales volumes, which make it possible to set the price depending on the time of day or current demand on Amazon. Dynamic pricing in eCommerce using software is thus also able, for example, to improve the ranking of a listing in Amazon search or to boost demand.
So if you notice a lot of price fluctuations of a private label product on Amazon, it is probably also related to the use of a repricer. SellerLogic Repricer offers such Amazon pricing strategies as well. These include:
The “Push” strategy:
- This strategy is based on your sales numbers over a defined timeframe and adapts the price according to demand. More specifically, the repricer reduces the price of products that are selling poorly and at the same time increase prices when demand increases.
The “Daily Push” strategy:
- This strategy is based on the number of sold units on the current day. The seller defines a price at which the product starts every day from 0:00. One or more thresholds of the number of sold units are defined, at which the price will increase or decrease by an amount or percentage value. The orders are read and analyzed every two hours.
Using Tools For Dynamic Pricing On Amazon: Is It Legal?
It seems hard to believe that using a tool that automatically improves sales and visibility while knocking out your competition is legal on an e-commerce platform? Understandable, but the answer is: It is very legal. Amazon even has an interest in it, because dynamic price adjustment not only leads to merchants increasing their margins – it also generates more revenue for Amazon in the form of commission. The more attractive the marketplace becomes for new sellers, the more offers are posted, which in turn attracts new customers.
This is also reflected in the fact that dynamic pricing tools are available on Amazon via the AWS interface, and providers have to undergo extensive audits to accredit the security of their servers, for example.
Bottom Line: Dynamic Pricing Is on the Rise on Amazon
It’s difficult to envision Amazon operating without dynamic pricing. Going forward, the sellers who will thrive are the ones who utilize sophisticated Big Data software to manage their pricing. Research has demonstrated that over 50% of product listings modify their prices at least 14 times a day, and implementing Dynamic Amazon Repricing results in higher profits.
This study clearly shows that if you want to sell successfully on Amazon, you can’t avoid dealing with repricing in the long run. However, it is essential to make sure that it is a dynamic tool that can be adapted to the user’s needs.
In the ever-evolving world of e-commerce, staying ahead of the competition can be challenging. However, by implementing a dynamic pricing strategy, you can take control of your pricing and unlock your full potential on Amazon. Don’t let your competitors get the upper hand – arm yourself with the right tools and make your mark in the online marketplace. Remember, fortune favors the bold – so be bold, be dynamic, and use a tool to conquer Amazon!
Frequently Asked Questions
“Dynamic pricing” on Amazon, as well as in eCommerce in general, is defined as price adjustment by software depending on current market conditions. In particular, the product prices of competitors play a major role, but factors such as the margin, the time of day with the highest purchasing power, or other factors are also taken into account.
In contrast to rule-based repricers, dynamic pricing tools use Big Data to include many different factors in the price adjustment. This allows them to react much more effectively to shifts within the price structure of a market. In addition, the SellerLogic Repricer, for example, also raises the product price again after the Buy Box has been won, so that no price war arises. On the other hand, retailers have to give up some control and trust the tool.
Especially for wholesale, it is hardly possible to sell successfully on Amazon without a repricer. This is because there are far too many price changes per day to manually adjust prices. However, private label products can also benefit from the time period and sales volume-based strategies provided by the SellerLogic Repricer.
The most important factor is the prices and price changes of competitors as well as the general price development. But also the shipping method (FBA vs. FBM), the shipping time, the current demand, or the general performance of the seller can be important.
Yes, dynamic repricing is allowed in eCommerce in general and also on Amazon.
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