Amazon Price Optimization – 5 Reasons Why You Need it
Why is it so important to include Amazon price optimization into your business strategy? As you might have guessed, selling on Amazon is extremely competitive. There’s competition not only between different products but also between suppliers of the same product. Simply put, you’ll need all the help you can get. When it comes to suppliers of the same product, the price you set often determines if you’ll be the one to sell the product. This is where your Amazon pricing strategy comes into play.
Fierce Competition…
Before we go into more detail as to why as to why Amazon requires constant price optimization from sellers, let’s take a closer look at the competitive situation in the Marketplace.
… Between Different Products in the Same Category
Whether you sell gaming equipment, books, decorative items, or outdoor furniture, you will rarely be the only supplier of a product group. Yes, even if you sell handcrafted garden chairs, there is high probability that another supplier will be competing with you on the online marketplace.
This competition takes place on every search result page. This is where different products are compared with each other. Amazon uses an algorithm, which calculates the probability of purchase for the corresponding search query, to find out which item is best suited in the pool of available products. The product with the highest probability of purchase takes first place.
Of course, the price also plays an important role here. This does not mean, however, that the cheapest product is always at the top, it is much rather the product which matches best with the search query and displays an attractive price at the same time. Because of this factor alone, it is important not to neglect the crucial element of Amazon price optimization.
… and in the Buy Box
Why does every Amazon seller need price optimization strategies? You’re facing fierce competition not just on the overview page but also during individual product searches.
Here’s why: Amazon is known for a flawless product catalog and therefore does not allow duplicate listings. The platform uses the EAN and brand to check if a product already exists in the catalog. If it does, you’ll be added to the existing product list. The word “added” says it all.
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 optimisation on Amazon.
In almost all cases, the button contains the offer of one single seller. All other sellers who offer the same product are summarised in a second list which, if we’re being honest, most of the people with actual buying intention never visit.
So it is not surprising that the Buy Box is considered the holy grail of Amazon. After all, 90% of all sales take place in the Buy Box.
How Amazon decides which seller wins the Buy Box is, as we have already mentioned, a closely guarded secret. However, what is certain is that the seller’s performance, shipping speed, availability AND price play a decisive part in determining which seller wins the Buy Box.
But How Can You Succeed in Such a Competitive Setting?
The answer is simple: Meet the selection criteria that Amazon uses to calculate the Buy Box, and do it better than your competitors.
But what are these criteria? The image below contains the most important criteria you will need for the Buy Box:
Overall, these metrics are the minimum requirements for winning the Buy Box. If these criteria are not met, there is no chance of you winning the Buy Box from the outset.
Moving on, we have not yet discussed two very important criteria: shipping method and total price.
Shipping Method
What do we mean by shipping methods? Basically, it is about who is shipping your product and under what conditions. Amazon 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” programme.
The New Total Price
Of all the criteria, price is the factor on which you have the most direct influence. Therefore, on Amazon, dynamic pricing is the factor that 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 chances of winning Buy Box. This prevents manipulation by reducing the product price while increasing the shipping costs at the same time.
Win the Buy Box on Amazon With Solid Pricing Strategies
We know how delicate the subject of pricing is. No seller wants to sell with a negative margin and no seller wants to be involved in a price war that has no winner. In other words: If you sell on Amazon, a simple low price strategy will not cut it. And yet, the price leverage must not be neglected. Let’s face it, your competition is not sleeping either! Amazon price optimization has much rather become such a standard practice in the fight for the buy box that people who do not use it, lose it.
Keep in mind that Amazon has always aimed to provide its customers with the best offer and the the best prices. 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 optimisation. This is exactly what the SELLERLOGIC Repricer does for your business.
Amazon Price Optimization – How it Works With a Repricer
There are many things to consider when planning to automate your pricing strategy. You will need to find an Amazon pricing software that can adapt to your business needs. For example, if you sell to both direct consumers and business clients, you will have to look for a solution that can automate B2B as well as B2C pricing. If you sell wholesale and private label products, you will need a repricer with pricing strategies that cater to both.
SELLERLOGIC is the European leader in repricing, not only because our solution is infinitely scalable, but also because it can adapt to any business model and size. Here are the most effective strategies you can use with SELLERLOGIC:
Buy Box (Wholesale)
Capture the Amazon Buy Box for maximum sales potential. Our strategy places your products at the perfect price for top visibility and competitively optimized prices. Boosting your Buy Box share opens up more sales opportunities and drives record-breaking revenue growth.
Manual (Wholesale & Private Label)
Create tailored strategies that fit your business needs. The Manual Strategy offers numerous parameters, allowing you to craft and implement your techniques. This provides flexibility for optimization and simplifies management of unique scenarios like product launches or time-limited trends.
Push (Wholesale & Private Label)
Control your pricing with data-driven optimization based on sales performance. SELLERLOGIC automatically raises prices during sales surges and lowers them when sales dip, ensuring effective demand management even on a fixed budget.
Daily Push (Wholesale & Private Label)
Adjust prices dynamically throughout the day with the Daily Push Strategy. Start at 12:00 AM with a set price and establish flexible limits, allowing prices to automatically adjust based on buying behavior. This strategy helps optimize for revenue growth or increased visibility.This approach focuses on competitive pricing. Depending on the pre-defined rule, the own price is adjusted in accordance with the competitor’s price.
5 Reasons why Amazon Sellers Need Price Optimization Strategies
#1 Time
Manually checking 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. On Amazon, price optimization can even help sellers increase sales despite lower margins on the e-commerce platform
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 solutions 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 Amazon price optimization illustrates the following:
#4 Calculation Reliability
We cannot speak for the calculation reliability of repricers in general, but we certainly can for that of our SELLERLOGIC Repricer. With our solution, you have the possibility to enter your purchase price and have the minimum price calculated automatically.
This means that the SELLERLOGIC solution calculates the following:
The minimum price then results from your stated purchase price, the minimum margin and the fees calculated by our solution. What does this mean for you? It ensures that you always sell at a profitable price. With our solution, your Amazon pricing optimization is done correctly, meaning that your minimum price will never drop below this set point.
#5 Strategies
As already mentioned above, on Amazon, price optimization is more than just winning the Buy Box. It’s also about setting yourself up for success. The best way to do this is by having well-defined pricing strategies in place.
Whether these strategies are your own, or are provided to you by third-party software, doesn’t matter. What’s important is that these strategies respond correctly to competitor and consumer behavior. When done correctly, your Amazon price optimization strategy will attract more customers, increase sales volume, and maximize profitability.
Final Thoughts on Amazon and Your Dynamic Pricing Strategy
With all the positive aspects of selling on Amazon, with the biggest one being the chance of reaching millions of potential customers on one platform, there are a few drawbacks. Amazon is notoriously dynamic as a platform and in order to stay competitive, your pricing strategy has to match this dynamic.
While this can all be done manually, it becomes a tedious (if not impossible) task once your product catalog becomes larger. Once you are at that stage, it makes sense to invest into the SELLERLOGIC Repricer in order to automate your tasks and scale sustainably.
Happy selling!
FAQs
Amazon’s low-cost strategy focuses on offering a vast selection of products at competitive prices. By optimizing their supply chain and leveraging economies of scale, Amazon can keep prices low, which attracts a broad base of customers. Sellers can benefit from this strategy by using tools to optimize their pricing and remain competitive in the marketplace.
Amazon’s pricing algorithm is designed to automatically adjust prices based on various factors, including competitor prices, demand, and inventory levels. The goal is to ensure that Amazon’s prices remain competitive while maximizing sales and profitability. Sellers can use similar algorithm-driven repricing tools to stay in sync with these market dynamics.
Yes, Amazon does use dynamic pricing. This means that prices can change frequently based on current market conditions, such as competitor pricing, customer demand, and stock availability. Dynamic pricing helps Amazon remain competitive and responsive to market trends, ultimately providing the best deals for customers.
Amazon’s competitive price strategy involves continuously monitoring and adjusting prices to remain competitive in the market. This strategy relies heavily on sophisticated algorithms and real-time data to ensure that prices are attractive to customers while still being profitable for sellers. Leveraging tools that align with Amazon’s competitive pricing strategy can help sellers increase their chances of winning the Buy Box and boosting sales.
Image credits in order of appearance: © ra2studio – de.depositphotos.com / Screenshot @ Amazon
