Amazon Price Optimization – 5 Reasons Why a Repricer is Essential
Anyone who sells on Amazon knows what a hyper-competitive environment the marketplace represents. There is not only competition between individual products but also among sellers of the same product. In the latter case, the right price often determines which seller ultimately sells the product. Pricing on Amazon is no different than on platforms like eBay. This is precisely where the automated price optimization of an Amazon repricer, such as the one from SELLERLOGIC, comes into play.
Anyone looking to refresh their basic knowledge at this point can 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 essential for Amazon sellers like you, we need to take a closer look at the competitive situation on Amazon.
… between different products in the same category.
Whether you sell gaming mice, fidget spinners, decorative items, or garden furniture, in very rare cases will you be the only seller 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. Many different products are lined up against each other, all aiming to solve the same problem. Which product appears at the top is determined by Amazon through a complex algorithm that calculates the likelihood of purchase 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 always ranks 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 page.
The reason is as follows: Amazon wants to maintain a clean product catalog and therefore prohibits listing the same product multiple times. The marketplace recognizes whether the product is already in the catalog based on the EAN and brand. If that 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.
To prevent customers from being overwhelmed by the selection of available sellers, Amazon has the so-called shopping cart field, known in English as the Buy Box. This field is the area at the top right that contains the yellow button “Add to Cart” – and it plays a crucial role in 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 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 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 are these criteria? Here are the most important criteria for the Buy Box summarized again:
These values are the minimum requirements to even be eligible for the Buy Box. If these criteria are not met, you will not receive the Buy Box even as the sole seller of the product. Therefore, the better your metrics 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, we are referring to who ships the product under what conditions. Amazon fundamentally distinguishes between two shipping options: 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 Management by Seller |
| Consistently Good Seller Performance Through the Three Key Points | Significantly More Challenging 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 in Shipping Service Providers (Except for Prime by Seller) |
| No Visibility as a Seller to the Buyer | Visibility as a Seller Through Package |
| 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. However, FBM sellers also have the opportunity to qualify for the Prime label through the “Prime by Seller” program.
Total Price
Among all the criteria, price is the one you have the most immediate influence over. Thus, you can independently and immediately improve your chances of winning the Buy Box with this lever. However, keep in mind: when Amazon talks about price, it does not refer solely to the product price. Instead, the total costs for the product and shipping are considered for calculating the Buy Box. Therefore, manipulations by lowering the product price while simultaneously increasing shipping costs are excluded.
Achieving the Amazon Buy Box Through Price Optimization
We understand how sensitive the topic of price is. No seller wants to sell at a negative margin. No seller wants to get involved in a price war that only has losers. Yet, the price lever cannot be neglected. Your competitors are not idle either: optimizing prices on Amazon has become the standard.
Amazon wants to present its customers with the best offer at the best price. An uncompetitive price is the surest way to disappear into the no-man’s-land of the “Other Sellers” list.
To effectively use price as a lever, you would need to constantly monitor the Buy Box and adjust your pricing whenever you lose it. The time investment would be far too great. For this reason, it is advisable to automate Amazon price optimization. This is precisely the role of repricing software like that of SELLERLOGIC.
How the Automatic Price Optimization of an Amazon Repricer Works
Repricers continuously monitor 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 the price. To prevent price dumping, a minimum price can be set in the tools, below which the price cannot be adjusted.
The internal workings of repricers can vary. There are so-called rule-based repricing tools and dynamic repricers like the one from SELLERLOGIC.
Rule-Based Price Optimization on Amazon
In this approach, the competitor’s price is the focus. Depending on the predefined rule, your own price is adjusted based on the competitor’s price.
For example, it can be set that your price should always be 3 cents lower than the cheapest one to ensure winning the Buy Box.
However, aligning with the competitor’s 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, using such repricing tools poses the risk of losing money. Not to mention the price wars that are fueled by this approach.
Dynamic Price Optimization on Amazon
The dynamic approach, which is also followed by the SELLERLOGIC Repricer, does not rely solely on the competition. Instead, this approach considers as many criteria as possible that lead to winning the Buy Box and adjusts the price only to the extent necessary to secure the Buy Box.
This allows you to achieve significantly higher prices in the Buy Box, thereby optimizing 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, even with higher profitability.
This leads us to the 5 reasons why you should definitely use a repricer.
5 Reasons to Use Dynamic Price Optimization for Amazon
#1: Time Savings
Manually checking the prices of all products is nearly impossible. While it may be feasible for a small product portfolio, the time required for several thousand products is simply too great.
Therefore, this process should definitely be automated. The time gained can be used for marketing or product sourcing.
#2: Increased 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 sales also mean no margin. Ultimately, it’s not about a percentage figure, but about the absolute amount. 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 Target Selling Price: 8 Euros Your Margin from Selling Price: 37.5% |
| Possible Sales at 8 Euros: 10 units 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 Selling Price: approximately 23% |
| Possible Sales at 6.50 Euros: 100 units 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 a repricer increases your revenue by more frequently winning the Buy Box.
Dynamic tools like the Repricer for Amazon by SELLERLOGIC not only lead to significantly higher revenue but also achieve much better profitability by winning the Buy Box at the highest possible price. Our example calculation with and without price optimization on Amazon illustrates this:
TO REVISIT THE EXAMPLE CALCULATION ABOVE:
| With Rule-Based Repricer |
|---|
| Your Cost Price: 5 Euros Average Selling Price: 6.50 Euros Your Margin from Selling Price: approximately 23% |
| Possible Sales at 6.50 Euros: 100 units per month Revenue: 100 x 6.50 EUR = 650 Euros Contribution Margin: 100 x (6.50 Euros – 5 Euros) = 150 Euros |
| With Dynamic Repricer |
|---|
| Your Cost Price: 5 Euros Due to better seller performance, Average Selling Price: 7.50 Euros Your Margin from Selling Price: approximately 33% |
| Possible Sales at 7.50 Euros: 100 units per month Revenue: 100 x 7.50 = 750 Euros Contribution Margin: 100 x (7.50 Euros – 5 Euros) = 250 Euros |
#4: Calculation Security
We cannot cite this reason for all repricers, but definitely for our SELLERLOGIC Repricer for Amazon. With our tool, you have the option to enter your cost price and have the minimum price calculated automatically.
This means that the SELLERLOGIC tool calculates:
The minimum price is then derived from your specified cost price, the minimum margin, and the fees calculated by the tool. This ensures 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 the case that a different goal is being pursued or that the competition for the Buy Box is not as high.
A good repricer provides you with the right strategy according to your goal. This way, you can optimize your Amazon price based on your business situation. These strategies include:
Conclusion: Active Pricing is Worth It!
Amazon does not always make it easy for sellers to succeed. Therefore, sellers on marketplaces like Amazon or eBay need to equip themselves with the right tools.
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 much better profitability with its dynamic, algorithm-driven approach.
Amazon sellers without such a tool are essentially already at a disadvantage before they even start.
Image credits in the order of the images: © hxdyl – stock.adobe.com / Screenshot @ Amazon
