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Price optimization in Amazon: 5 reasons why the use of a dynamic Repricer is a must!

Why is it so important to include dynamic price optimization or adjustment in your Amazon strategy? All sellers who are selling on Amazon are aware of the Marketplace's extremely competitive environment. At Amazon, there is competition not only between products but also between suppliers of the same product. In the second case, the ideal price or a correctly stated price often determines which seller sells the product in the end. This is exactly where an automatic Repricer optimization comes into play.

Pure competition...

Before we go into more detail as to why price optimization is crucial for all Amazon sellers, we need to take a closer look at the competitive situation in the Marketplace.

...competition between different products in the same category

Whether you sell gaming mice, books, decorative items, or outdoor furniture, you will rarely be the only supplier of a product group. This means that your garden chairs will certainly compete with those of another supplier.

This competition takes place on every search result page. This is where different products are confronted with each other to solve the same problem. The product that takes the lead is decided by Amazon using a complicated algorithm that does nothing more than calculating the probability of purchase for the corresponding search query. The product with the highest probability of purchase is the one in the first place.

Of course, the price also plays an important role. This does not mean, however, that the cheapest product is always at the top, but rather that which 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 the the Buy Box

Not only on the overview page you are exposed to tough competition, but also in the individual search for a product.

The explanation is the following: Amazon wants to have a flawless product catalogue and therefore refuses the same product to be placed in the catalogue more than once. The Marketplace uses the EAN and the brand to determine if the product already exists in the catalogue. If this is the case, you as the seller of the same product will be "added" to the existing product list. What we mean by "added" speaks for itself.

To ensure that the buyer is not overwhelmed by the choice of possible suppliers, Amazon has the so-called shopping cart field, or Buy Box. This field is the area in the top right-hand corner where the yellow button "Add to cart" is included - and it plays a decisive role in terms of price adjustment and price optimization on Amazon.

The Amazon Buy Box is important. Use a repricer in Amazon!

Behind this button lies the offer of ONE single seller. All other sellers who offer the same product are summarised in an unremarkable list.

Buy Box: Other sellers appear on Amazon below.

So it is not surprising that the Buy Box is considered the holy grail – 90% of all sales of a product take place 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 the seller's performance, shipping speed, availability AND price play a decisive part in determining which seller wins the Buy Box. Which brings us back to the topic of price optimization in Amazon.

But how can you succeed in such a competitive scenario?

The answer is simple: Be better than your competitors.

The accurate answer: Meet the selection criteria that Amazon uses to calculate the Buy Box, and do it better than your competitors.

What are these criteria? The following are the most important criteria for the Buy Box:

5 Reasons why Price Optimization is crucial in Amazon.

Overall, these metrics are the minimum requirements for winning the Buy Box. If these criteria are not met, you will be the only seller of the product that will not get the Buy Box. Therefore, the better your results are, the greater your chances of winning the Buy Box.

We have not yet discussed two very important criteria: shipping method and total price.

Shipping method

When we talk about shipping methods, it is about who is shipping the product and under what conditions. Amazon basically distinguishes between two ways of shipping goods: shipping by Amazon (FBA = Fulfillment by Amazon) or shipping by merchants (FBM = Fulfillment by Merchant).

Comparison of FBA and FBM

Fulfillment by Amazon

Fulfillment by Merchant

Storage and shipping by Amazon

Storage and shipping by merchant

Customer service by Amazon

Customer service by merchant

Returns handling by Amazon

Returns handling by merchant

Always high level of sales performance

Significantly more difficult to maintain sales performance

included participation in the Prime program

Participation in the Prime program only via Prime by Merchant

Fixed FBA fees per article

Costs for storage space, whether filled or not

No influence on shipping service providers

Self-determination with shipping service provider (except for Prime by Merchant)

No visibility as seller to the buyer

Visibility as seller possible through package

Ideal for handy, fast selling items

Ideal for bulky, slow selling items

The key factor to the shipping method is the "Prime" logo or label. Offers that are sent via Amazon automatically receive the Prime label. But FBM sellers also have the possibility to qualify for the Prime label through the "Prime by seller" program.

The total Price

Of all the criteria, price is the point on which you have the most direct influence. Therefore, with this is the parameter you can independently and immediately improve in order to increase your chances of winning the Buy Box. However, please note: When Amazon talks about price, it does not only mean the product price. Instead, the total costs for product and shipping are also taken into consideration when calculating the Buy Box. This prevents any 

 bad manipulation by reducing the product price while increasing the shipping costs at the same time.

Through price optimization into the Amazon Buy Box

We know how delicate the subject of price is. No seller wants to sell with a negative margin. No seller wants to be involved in a price war that only knows losers. And yet the price leverage must not be neglected. Because your competitors are not sleeping either: In the meantime, price optimization in Amazon is a standard practice.

Because Amazon wants to make its customers the best offer with the best price. A non-competitive price is the safest way to disappear in the no man's land of the “other sellers“ list.

To use price as effective leverage, however, you would have to constantly monitor the Buy Box and adjust the price whenever you lose it. The time required would be far too great. For this reason, it is recommended to automate Amazon price optimization. This is exactly the task of a repricing tool like SellerLogic's Repricer.

How the automatic price optimization of an Amazon repricer works

A repricer continuously monitors your products and those of your competitors. If the price of one of the competitors' products changes and therefore wins the Buy Box, the tool takes care of an automatic readjustment. To avoid price dumping, repricing tools allow you to set a minimum price below which the price cannot be adjusted.

Now, the way a Repricer works it may vary internally. There are the so-called rule-based repricing tools and the dynamic repricers like the one from SellerLogic.

Rule-based price optimization on Amazon

This approach focuses on competitive pricing. Depending on the pre-defined rule, the own price is adjusted in accordance with the competitor's price.

For example, you can set that your own price should always be 3 cents below the cheapest price to ensure that you win the Buy Box.

However, there are a couple of disadvantages when aligning with competitive prices. Since the Buy Box is not determined by price alone, sellers with better seller performance can achieve higher prices without losing the Buy Box. A rule-based repricer cannot take this fact into account. Therefore, you run the risk of losing money when using such repricing tools. Not to mention price wars, which are fueled precisely by this approach.

Dynamic price optimization on Amazon

The dynamic approach, which SellerLogic Repricer pursues, is not only based 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 that it is absolutely necessary to win the Buy Box.

This allows you to achieve significantly higher prices in the Buy Box and thus optimise both turnover and profit.

A study conducted by Northeastern University in 2017 actually found a clear link between the use of a dynamic repricer and winning the Buy Box, even with higher profitability.

This brings us to the 5 reasons why you should definitely use a repricer.

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5 reasons to use dynamic price optimization for Amazon

#1 Time saving

A manual check of the prices of all products is almost impossible. With a small product portfolio, this may still be possible. With several thousand products, the time required is simply excessive.

Therefore, this process should definitely be automated. The time saved can be used for both, sales and product sourcing.

#2 More turnover

Your business success depends on the profit of the Buy Box. To put it a bit exaggerated: if there is no Buy Box -  there is no turnover.

Concerns about low margins are understandable. But no sale offers no margin. In the end, it is not a matter of a percentage figure, but of absolute figures. Price optimization can even help Amazon sellers to increase sales despite the lower margins on the e-commerce platform.

Example calculation:

Repricer vs. no repricer

Without Repricer

Your purchase price: 5 Euro
Your notified selling price: 8 Euro
Your margin: 37,5%

Possible sales for 8 Euro: 10 items/month
Turnover: 10 x 8 Euro = 80 Euro
Contribution margin: 10 x (8 Euro - 5 Euro) = 30 Euro

With Repricer

Your purchase price: 5 Euro
Average selling price: 6,50 Euro
Your margin: ca 23%

Possible sales for 6,50 Euro: 100 items/month
Turnover: 100 x 6,50 EUR = 650 Euro
Contribution margin: 100 x (6,50 Euro - 5 Euro) = 150 Euro

Even if the repricer reduces the percentage margin, it ensures higher sales and thus a higher contribution margin.

#3: Profitability

The previous point has already suggested that a repricer increases your sales by winning the Buy Box more often.

Dynamic tools such as SellerLogic's Repricer for Amazon not only generate significantly more sales, but also achieve significantly better profitability by winning the Buy Box at the highest possible price. Our example calculation with and without price optimization on Amazon illustrates the following:

Example calculation: 

rule-based vs. dynamic repricing

With rule-based repricer

Your purchase price: 5 Euro
average selling price: 6,50 Euro
Your margin: approx. 23%

Possible sales for 6,50 Euro: 100 pieces per month
Turnover: 100 x 6.50 EUR = 650 Euro
Contribution margin: 100 x (6,50 Euro - 5 Euro) = 150 Euro

With dynamic repricer

Your purchase price: 5 Euro
Average sales price due to better sales performance: 7,50 Euro
Your margin: approx. 33%

Possible sales for 7,50 Euro: 100 pieces per month
Turnover: 100 X 7,50 = 750 Euro
Contribution margin: 100 x (7,50 Euro - 5 Euro) = 250 Euro

#4: Calculation reliability

We cannot speak in the name of all repricers, but we can certainly do for our SellerLogic Repricer for Amazon. With our tool, you have the possibility to enter your purchase price and have the minimum price calculated automatically.

This means that the SellerLogic tool calculates:

  • the Amazon fees,
  • depending on the shipping option the FBA fees,
  • or the shipping costs
  • and VAT.

The minimum price then results from your stated purchase price, the minimum margin and the fees calculated by the tool. So you can be sure that you always sell at a profitable price. Even during price optimization on Amazon, this minimum price never drops.

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#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 so high.

A good repricer offers you the right strategy to match your goal. Thus you can have your Amazon price optimised depending on your business situation. These strategies are for example:

  • Control of product prices according to order numbers
  • The dynamic change in prices over the course of a day
  • Fully customised strategies according to your own specific requirements

Conclusion: Active pricing is worth it!

Amazon does not always make it easy for the seller to sell profitably. That's why sellers on marketplaces like Amazon have to arm themselves with the right tools.

In order to be able to stand up to the competition in the Buy Box, dynamic price optimization is essential for Amazon. The SellerLogic Repricer not only ensures significant time saving and increased sales but also achieves distinctly better profitability with its dynamic, algorithm-controlled approach.

Amazon sellers without such a tool have basically already lost before they even started.

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