Amazon Price Optimization – 5 Reasons Why You Need it
Why is it so important to include dynamic price optimisation or adjustment on Amazon? Well, you might have already guessed it, but selling on Amazon is extremely competitive business! There is not only competition in regard to products but also between suppliers of the same product. In other words, you’re gonna need all the help you can get. When it comes to suppliers of the same product, the price you set often determines whether you will be the person to sell the product in the end or not. This is where automatic repricer optimisation comes into play.
Fierce Competition…
Before we go into more detail as to why price optimisation is vital for all Amazon 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 price optimisation on Amazon.
… and in the Buy Box
Why do you need price optimisation on Amazon? Because you are not only exposed to fierce competition on the overview page, but also during the individual search for a product.
Here’s why: Amazon wants to have a flawless product catalogue and therefore refuses the same product to be placed in the catalogue more than once. The online platform uses the EAN and the brand to determine if the product already exists in the respective catalogue. If this is the case, you as the seller of the same product will be added to the existing product list. The word “added” speaks for itself here.
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.
Behind this button lies 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. Which brings us back to the topic at hand: price optimisation on Amazon.
But How Can You Succeed in Such a Competitive Setting?
The answer is simple: Be better than your competitors… Who would have thought, right?! You’re welcome btw.
Here’s a more accurate answer: 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, 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 chances of winning Buy Box. This prevents manipulation by reducing the product price while increasing the shipping costs at the same time.
Into the Buy Box Through Price Optimisation on Amazon
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. And yet, the price leverage must not be neglected. Let’s face it, your competition is not sleeping either! Price optimisation on Amazon 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 the task of a repricing solution like the one we have at SELLERLOGIC.
How the Automatic Price Optimisation on Amazon Works with a Repricer
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, our solution undertakes 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 Optimisation 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 Optimisation on Amazon
The dynamic approach, which the SELLERLOGIC Repricer applies, 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.
5 Reasons to Use Dynamic Price Optimisation on Amazon
#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. Price optimisation on Amazon 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 price optimisation on Amazon 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 specifically? It means that you can be sure that you always sell at a profitable price! Even during price optimisation on Amazon, this minimum price never drops.
#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:
Conclusion: Active Pricing is Worth Every Penny!
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 optimisation 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.
As harsh as it seems, it is the truth: Amazon sellers that do not use our solution, or a similar one, have basically already lost from the outset to the ones that invest their money in a repricer.
Image credits in order of appearance: © ra2studio – de.depositphotos.com / Screenshot @ Amazon
