Amazon price optimization – 5 reasons why an Repricer is indispensable
Anyone who sells on Amazon knows what a hyper-competitive environment the marketplace represents. There is not only competition between individual products on Amazon but also between sellers of the same product. In the latter case, the right price often determines which merchant ultimately sells the product. The same applies to pricing on Amazon as it does, for example, on eBay. And this is exactly where the automated price optimization of an Amazon Repricer like that of SELLERLOGIC comes into play.
Anyone who wants to refresh their basic knowledge at this point will find everything on the topic: “What is repricing and what are the 14 biggest mistakes?”
Pure competition …
Before we delve deeper into why price optimization is indispensable for Amazon sellers like you, we need to take a closer look at the competitive situation on Amazon.
… between different products of the same category
Whether you sell gaming mice, fidget spinners, decorative items, or garden furniture, in the rarest cases will you be the only provider of a product group. This means your garden chairs compete with the garden chairs of another seller.
This competition is fought on every search results page. There, many different products stand against each other, all aiming to solve the same problem. Which product appears at the top is determined by Amazon using a complicated algorithm that simply calculates the purchase probability for the corresponding search query. The product with the highest purchase probability ranks first.
Of course, price also plays a role in this. This does not mean that the cheapest product is always at the top, but rather the one that best matches the search query and displays an attractive price. For this reason alone, it is important not to neglect price optimization on Amazon.
… to win the Buy Box
Not only on the overview page do you face relentless competition, but also on the individual product.
The reason is as follows: Amazon wants to have a clean product catalog and therefore prohibits listing the same product multiple times in the catalog. The marketplace recognizes whether the product is already in the catalog based on EAN and brand. If this is the case, you as the seller of the same product will be “attached” to the existing product listing. What we mean by “attached” will become clear shortly.
So that the customer is not overwhelmed by the selection of possible providers, Amazon has the so-called shopping cart field, in English Buy Box. This field is the area at the top right, which contains the yellow button “Add to Cart” – and it plays a crucial role in terms of price adjustment and price optimization on Amazon.
Behind this button lies the offer from exactly ONE seller. All other sellers offering the same product are summarized in an inconspicuous list.
It is therefore no wonder that the Buy Box is considered the holy grail – 90% OF ALL sales of a product occur in the Buy Box.
How Amazon decides which seller wins the Buy Box is again a closely guarded secret. However, it is considered certain that seller performance, shipping speed, availability, AND price play crucial roles. This brings us back to the topic of “price optimization on Amazon.”
But how do you stand out in such a competitive environment?
The simple answer: Be better than your competitors.
The detailed answer: Meet the selection criteria that Amazon uses to calculate the Buy Box, and do so better than your competitors.
What criteria are these? Here are the most important criteria for the Buy Box:
These values are the minimum requirements to even be able to get the Buy Box. If these criteria are not met, you will not receive the Buy Box even as the sole provider of the product. Therefore, the rule is: the better your values are, the greater your chances of winning the Buy Box.
We have not yet discussed two extremely important criteria: shipping method and total price.
Shipping method
When we talk about shipping method, it is about who ships the product under what conditions. Amazon fundamentally distinguishes between two options for product shipping: Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM).
Comparison of FBA and FBM
| Fulfillment by Amazon | Fulfillment by Merchant |
|---|---|
| Storage and shipping by Amazon | Storage and shipping by seller |
| Customer service by Amazon | Customer service by seller |
| Customer service by Amazon | Returns processing by seller |
| Through the three previous points always good seller performance | Significantly more difficult to maintain seller performance |
| Participation in the Prime program included | Participation in the Prime program only through Prime by seller |
| Fixed fees per item | Costs for storage space, whether filled or not |
| No influence on shipping service providers | Self-determination with shipping service providers (except for Prime by seller) |
| No visibility as a seller to the buyer | Through package visibility as a seller |
| Ideal for handy, fast-selling items | Ideal for bulky and slow-selling items |
The background of the shipping method is the Prime label. Offers that are shipped by Amazon automatically receive the Prime label. But FBM sellers also have the opportunity to qualify for the Prime label through the “Prime by Seller” program.
Total price
Among all criteria, the price is the point you have the most immediate influence on. Thus, you can independently and immediately improve your chances of winning the Buy Box. However, please note: When Amazon talks about price, it does not refer solely to the product price. Instead, the total costs for product and shipping are used for the calculation of the Buy Box. Thus, manipulations by reducing the product price while simultaneously increasing the shipping costs are excluded.
Through price optimization into the Amazon Buy Box
We know how sensitive the topic of price is. No seller wants to sell with a negative margin. No seller wants to get involved in a price war that only has losers. And yet, the lever of price must not be neglected. Because your competitors are not sleeping either: By now, it is standard to optimize prices on Amazon.
Because Amazon wants to present its customers with the best offer at the best price. A non-competitive price is the surest way to disappear into the no man’s land of the “Other Sellers” list.
To use price as an effective lever, you would have to constantly monitor the Buy Box and always adjust the price whenever you lose it. The time investment would be far too great. For this reason, it is advisable to automate Amazon price optimization. That is exactly the task of a repricing software like the one from SELLERLOGIC.
This is how the automatic price optimization of an Amazon Repricer works
Repricer continuously monitors your products and those of your competitors. If the price of one of the competitor’s products changes and thus wins the Buy Box, the software automatically adjusts. However, to prevent price dumping, a minimum price can be set in the tools, below which the price must not be adjusted.
The way Repricer works internally varies. There are so-called rule-based repricing tools and dynamic Repricer like the one from SELLERLOGIC.
Rule-based price optimization on Amazon
In this approach, the competitor price is the focus. Depending on the predefined rule, your own price is adjusted based on the competitor price.
For example, it can be set that your own price should always be 3 cents below the cheapest one, in order to ensure the winning of the Buy Box.
However, aligning with the competitor price has some disadvantages. Since the Buy Box is not determined solely by price, sellers with better seller performance can achieve higher prices without losing the Buy Box. A rule-based Repricer cannot account for this fact. Thus, there is a risk of losing money when using such repricing tools. Not to mention price wars that are fueled precisely by this approach.
Dynamic price optimization on Amazon
The dynamic approach, which is also pursued by the SELLERLOGIC Repricer, does not rely solely on the competition. Rather, this approach considers as many criteria as possible that lead to winning the Buy Box and adjusts the price only to the extent necessary for winning the Buy Box.
Thus, you can achieve significantly higher prices in the Buy Box and thereby optimize both revenue and profit.
A study by Northeastern University from 2017 even found a significant correlation between the use of a dynamic Repricer and winning the Buy Box, and that even with higher profitability.
Thus, we also come to the 5 reasons why you should definitely use an Repricer.
5 reasons to use dynamic price optimization for Amazon
#1: Time savings
A manual review of the prices of all products is almost impossible. With a small product portfolio, it may still be feasible. With several thousand products, the time investment is simply too great.
Therefore, this process should definitely be automated. The time gained can be used for marketing or for product sourcing.
#2: More revenue
Your business success depends on winning the Buy Box. To put it somewhat bluntly: no Buy Box – no revenue.
Concerns about low margins are understandable. However, no sale also means no margin. Ultimately, it is not about a percentage figure, but about the absolute one. Price optimization can even help Amazon sellers increase their revenue on the e-commerce platform despite lower margins.
A SAMPLE CALCULATION:
| Without Repricer |
|---|
| Your cost price: 5 euros Your targeted selling price: 8 euros Your margin from the selling price: 37.5% |
| Possible sales for 8 euros: 10 pieces per month Revenue: 10 x 8 euros = 80 euros Contribution margin: 10 x (8 euros – 5 euros) = 30 euros |
| With Repricer |
|---|
| Your cost price: 5 euros Average selling price: 6.50 euros Your margin from the selling price: approximately 23% |
| Possible sales for 6.50: 100 pieces per month Revenue: 100 x 6.50 EUR = 650 euros Contribution margin: 100 x (6.50 euros – 5 euros) = 150 euros |
Even though the Repricer reduces the percentage margin, it leads to higher revenue and thus a higher contribution margin.
#3: Profitability
The previous point has already hinted that an Repricer increases your revenue through the more frequent win of the Buy Box
Dynamic tools like the Repricer for Amazon by SELLERLOGIC not only ensure significantly more revenue but also achieve a significantly better profitability through winning the Buy Box at the highest possible price. Our example calculation with and without price optimization on Amazon illustrates this:
TO REINSTATE THE EXAMPLE CALCULATION FROM ABOVE:
| With rule-based Repricer |
|---|
| Your cost price: 5 Euro Average selling price: 6.50 Euro Your margin from the selling price: approx 23% |
| Possible sales for 6.50: 100 pieces per month Revenue: 100 x 6.50 EUR = 650 Euro Contribution margin: 100 x (6.50 Euro – 5 Euro) = 150 Euro |
| With dynamic Repricer |
|---|
| Your cost price: 5 Euro Due to better seller performance average selling price: 7.50 Euro Your margin from the selling price: approx 33% |
| Possible sales for 7.50: 100 pieces per month Revenue: 100 x 7.50 = 750 Euro Contribution margin: 100 x (7.50 Euro – 5 Euro) = 250 Euro |
#4: Calculation security
We cannot cite this reason for all Repricer, but definitely for our SELLERLOGIC Repricer for Amazon. With our tool, you have the option to enter your purchase price and have the minimum price calculated automatically.
This means that the SELLERLOGIC tool calculates:
The minimum price is then derived from your specified purchase price, the minimum margin, and the fees calculated by the tool. This way, you can be sure that you are always selling at a profitable price. Even during price optimization on Amazon, this price floor will never be undercut.
#5: Strategies
Of course, winning the Buy Box is the most important goal. However, it may be that another goal is being pursued or that the competition for the Buy Box is not that high at all.
A good Repricer provides you with the right strategy according to your goal. Thus, you can optimize your Amazon price depending on the business situation. These strategies include, for example:
Conclusion: Active pricing pays off!
Amazon does not always make it easy for sellers to sell successfully. Therefore, sellers on marketplaces like Amazon or eBay must equip themselves with the right tools.
To be able to compete against the competition in the Buy Box, dynamic price optimization for Amazon is essential. The SELLERLOGIC Repricer not only saves significant time and increases revenue but also achieves significantly better profitability with its dynamic, algorithm-driven approach.
Amazon sellers without such a tool have essentially already lost before they even started.
Image credits in the order of the images: © hxdyl – stock.adobe.com / Screenshot @ Amazon
