How Dynamic Pricing Works for Amazon Sellers
Dynamic pricing adjusts an offer’s price using rules or an optimisation strategy. For Amazon sellers, it can help respond to competing offers, availability and sales objectives. The result depends on the offer and the limits you set; a price change does not guarantee the Featured Offer or higher profit.
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. The Featured Offer is an important purchase option, but offer visibility and conversion depend on the product, marketplace and shopping experience. 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!”.
Featured and Alternative Offers
Amazon can display featured and alternative offers in different ways. Sellers should evaluate the visibility and performance of their own offers rather than plan around a guaranteed second Featured Offer position. Compare the total price, delivery promise, availability and contribution margin when changing a pricing strategy.
Why Is Dynamic Pricing Important For Amazon Sellers?
Rules-based pricing follows the rules and minimum and maximum prices configured by the seller. It can raise or lower a price when those rules permit. Set the minimum from product cost, fulfilment and selling fees, advertising and the contribution margin required. Review the strategy’s results by profit and sales, rather than assuming that the lowest price is always the best result.
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.
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.
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 increases 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.
Pricing Software, Account Access and Seller Responsibility
Pricing software connects to seller data through the access authorised by the seller and supported by the provider. The seller remains responsible for pricing decisions, account permissions and compliance with Amazon’s pricing policies and applicable law. Configure your own limits and strategy; an API connection is not a blanket guarantee of legal compliance.
Conclusion: Choose a Pricing Strategy Around Your Goals
Dynamic pricing is useful when it helps you manage the size and competitive conditions of your catalogue. Define the margin and sales objectives first, then compare the results with the time and cost of managing prices manually. Retain pricing limits and monitor profitability as part of the strategy.
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.
Image credits in order of appearance: ©stokkete– stock.adobe.com / ©RightFramePhotoVideo– stock.adobe.com
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