Northeastern University Boston’s study, “An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace”*, was focused on identifying online sellers that use repricers, their pricing strategies, and how prevalent repricers are on Amazon. The research team chose Amazon because, as the world’s largest marketplace, the online giant has become a hub for online sellers from the U.S., Europe, and Asia.
Over four months, the research team collected public data on nearly 1,700 best-selling products on Amazon. This helped identify 500 online retailers who were very likely to use a repricer. Methods were developed for the study to identify and analyze the pricing algorithms as well as the behavior of repricers in the marketplace. Then the characteristics of online retailers were explored and the impact of repricing strategies on marketplace dynamics was defined.
A Potential Customer Doesn’t Have Prime Membership
Although U.S.- based Amazon boasts more than 200 million Prime users worldwide, the Northeastern University Boston researchers chose to use a non-Prime user account when collecting the data. FBA shipping has a big impact on Buy Box share allocation. Per the researchers, the Amazon algorithm would have likely concealed the listings of online sellers who do not provide Prime delivery. This would greatly change the study results. Sounds surprising, doesn’t it?
What Immediately Stood Out to the Research Team?
During the course of the study, the researchers observed that online sellers who use a repricer appear to be more successful than those who do not have one in place. The first group of sellers offers fewer products, but receives significantly more customer feedback. This suggests that it generates a significantly larger sales volume.
In addition, online sellers with a repricer are more likely to win the Buy Box, even though they don’t offer the lowest price. However, the researchers also noticed that trying to win the Buy Box with the lowest price leads to significant price fluctuations in the respective offers. This, in turn, confuses shoppers and leads to customer dissatisfaction.
Summary of the Study Results
During the observations, only 13% of the offers have a static price in the Buy Box. However, 50% of the products record more than 14 changes per day.
The seller winning the Buy Box is consistent for 31% of best-selling items. For the rest of the offerings on Amazon, the Buy Box winners and their prices are very dynamic. Some products go through several hundred price adjustments per day.
Only 60% of the top sellers win the Buy Box. So, the results of the study show that price is NOT the ONLY factor in winning the Buy Box.
For meaningful results, the research team pulled price, seller feedback, and feedback count – they also show impact in awarding Buy Box shares. But, according to Amazon and based on the observations of many online retailers, other factors such as sales volume, response time, on-time delivery, etc. are decisive in the winning of the Buy Box. However, these factors could not be measured during 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 50-60% of the time.
When weighting the factors responsible for winning the Buy Box during the observation period, “Price Difference to the Lowest” and “Price Ration to the Lowest” got the highest values – 0.36 and 0.33. The use of FBA was considered with a value of just 0.02. This weighting is solely due to the fact that for the selected non-Prime User account, FBA offer does not play a major role.
The most used pricing strategies are: the lowest or the second lowest price compared to Amazon.
The most commonly used pricing strategy is to be below the lowest price. Amazon, as an online store, was analyzed as part of the data collection process. The results clearly show that Amazon does not necessarily price below other sellers.If improving your pricing strategy is on your agenda, have a look at our article.
Amazon’s role as a seller: Amazon continues to dominate the market on its own platform, offering around 75% of all top-selling products over the course of the observation period. When Amazon competes with “non-repricer sellers”, the online giant occupies the top positions in 96% of cases. If, on the other hand, the buy box is occupied by “repricer sellers” for certain items, Amazon figures in the top 5 sellers in 88% of cases.
Normally, the price difference between Amazon and the next lowest price is around 15-30%. From the researchers’ point of view, this is due to the fees that sellers have to pay to Amazon.
During the study, it became clear once again that online retailers who use a repricer focus on a relatively small number of products that they can purchase in large quantities at low prices.
Online sellers who use a repricer receive significantly more feedback than “non-repricer merchants.” There may be two reasons for this: First, these sellers have a much higher sales volume than “non-repricer merchants.” Second, successful sellers are more active in gathering customer feedback. Is your company looking to engage customers more in that respect? We have infos on how to get more reviews on Amazon here.
Last but not least, are Repricer sellers more successful at winning the Buy Box? The research showed that this is indeed the case: sellers with a repricer are significantly more likely to win the Buy Box. Also, sellers are more likely to compete for the Buy Box with a higher or equal price than those who only compete on the lowest price. However, even though repricer sellers don’t offer the lowest prices, their sales history, customer feedback and sales volume enable them to win the Buy Box and generate more revenue.
Conclusion
As we’ve mentioned before, having the lowest price on Amazon is no guarantee of winning the Buy Box – it’s more a matter of strategy. The Northeastern University Boston study confirms that only sellers who understand Amazon’s key metrics, know the marketplace inside and out, and position themselves correctly with their products will be successful on Amazon. The use of repricers is one of the strategies of successful sellers. Especially if the goal is not only to win the buy box but to sell at the best possible price. If a seller is competing with Amazon itself, the use of repricers is essential.
When selecting a repricer, the Amazon seller must not only consider the advantages and disadvantages of the individual providers but must also get to grips with the respective technology. If you want to keep full control over your repricing strategy, a rule-based repricer is the right product – but takes a lot of time. A dynamic repricer collects data, evaluates it, and adjusts the repricing strategy on an ongoing basis.
Dynamic repricers are often more profitable – rules can contradict each other and often result in prices only being adjusted downward. With dynamic pricing, the rules are determined and adjusted by the repricer itself – depending on the market situation.
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