The study “An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace” from Northeastern University Boston* has determined how online retailers use Repricer, their pricing strategies, and how widespread Repricer is on Amazon. The research team chose Amazon because the online giant has become the world’s largest marketplace for online retailers from the USA, Europe, and Asia.
Over a period of four months, the research team collected public data from nearly 1,700 bestselling products on Amazon. This allowed for the identification of 500 online retailers who are very likely using an Repricer. Subsequently, methods were developed for the study to recognize and analyze the pricing algorithms as well as the behavior of Repricer on the marketplace. The study team investigated the characteristics of the online retailers and characterized the effects of the repricing strategies on marketplace dynamics.
The theoretical buyer is browsing without a Prime account
Although the US company Amazon has worldwide 150 million Prime users, the researchers from Northeastern University Boston chose a non-Prime user account for data collection. FBA shipping has a significant impact on the allocation of Buy Box shares. From the scientists’ perspective, the offers of online retailers that do not provide Prime shipping would likely have been excluded by the Amazon algorithm. This would significantly change the study results.
What immediately catches the research team’s eye?
During the study, the scientists observed that online retailers using an Repricer seem to be more successful than sellers who do not have one in use. The first group of sellers offers fewer products but receives significantly more customer feedback. This suggests that a much higher sales volume is achieved as a result.
Furthermore, online retailers with an Repricer more frequently win the Buy Box, even though they do not offer the lowest price. However, the researchers also noticed that the attempt to win the Buy Box with the lowest price leads to significant price fluctuations in the respective offers. This, in turn, confuses buyers and leads to customer dissatisfaction.
Summary of the study results
During the observations, only 13% of the offers had a static price in the Buy Box.However, 50% of the products recorded more than 14 changes per day.
The seller who wins the Buy Box remains consistent for 31% of the bestselling items. For the rest of the offerings on Amazon, the Buy Box winners and their prices are very dynamic. Some products undergo several hundred price adjustments per day.
Only 60% of the top sellers win the Buy Box. In summary, the results of the study show that NOT ONLY the price is decisive in the allocation of the Buy Box.
For meaningful results, the research team considered price, seller feedback, and the number of feedbacks – these also have an effect on the allocation of Buy Box shares. According to Amazon and based on the observations of many online retailers, however, additional factors such as sales volume, response time, timely delivery, etc. are decisive in the allocation of Buy Box. These factors could not be measured within the scope of the study and are therefore not part of the study results.
During the observation period, researchers tested the theory that the lowest price wins the Buy Box 100% of the time. This occurs only in 50-60% of the cases.
In weighing the factors that were responsible for winning the Buy Box during the observation period, “Price Difference to the Lowest” and “Price Ratio to the Lowest” received the highest values – 0.36 and 0.33. The use of FBA was considered with a value of only 0.02. This weighting is solely due to the fact that for the selected non-Prime user account, FBA offers do not play a significant role.
The most commonly used pricing strategies are: the lowest or the second-lowest price compared to Amazon.
The role of Amazon as a seller: Amazon continues to dominate the market on its own platform, offering around 75% of all bestselling products during the observation period. When competing with “non-Repricer-retailers,” the online giant occupies the top positions in 96% of cases. However, when the Buy Box is held by “_Repricer-sellers” for certain items, Amazon appears in the top 5 sellers in 88% of cases.
Normally, the price difference between Amazon and the next lowest price is about 15-30%. According to the researchers, this is due to the fees that retailers must pay to Amazon.
During the study, it became clear once again that online retailers using an Repricer focus on a relatively small number of products that they can purchase in large quantities at low retailer prices.
Online retailers using an Repricer receive significantly more feedback than “non-Repricer-retailers.” There may be two reasons for this: First, these sellers have a much higher sales volume than “non-Repricer-retailers.” Second, successful sellers take a more active approach when it comes to gathering customer feedback.
Lastly: Are Repricer sellers more successful in winning the Buy Box? The investigation has shown that this is indeed the case: Sellers with an Repricer are significantly more likely to win the Buy Box. The study also demonstrated that Repricer sellers are more likely to compete for the Buy Box with a higher or equal price than retailers who only focus on the lowest price. However, even though Repricer sellers do not offer the lowest prices, they manage to win the Buy Box and generate more revenue thanks to their sales history, customer feedback, and sales volume.
Conclusion
As we have already reported, the lowest price on Amazon is no guarantee for winning the Buy Box – it is more about the strategy. The study from Northeastern University Boston confirms that only sellers who engage with the key metrics of Amazon, know the marketplace inside and out, and position their products correctly are successful on Amazon. The use of Repricer is part of the strategies of successful sellers. Especially when the goal is not only to win the Buy Box but to sell at the best possible price. When competing directly with Amazon, the use of Repricer is essential.
When selecting an Repricer, the Amazon retailer must not only consider the advantages and disadvantages of each provider but also engage with the respective technology. A distinction is made between rule-based and dynamic Repricers. If you want to maintain full control over your repricing strategy, a rule-based Repricer is the right product – but it requires a lot of time. A dynamic Repricer collects data, analyzes it, and continuously adjusts the repricing strategy.
Dynamic Repricers are often more profitable – rules can contradict each other and often lead to prices being adjusted only downward. In dynamic pricing, the rules are determined and adjusted by the Repricer itself – depending on the market situation.
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