There have been many complaints in the press regarding price gouging on marketplaces, many times justified but in some cases during the Coronavirus crisis prices have risen simply because the cost of goods and transport has risen. In this guest post from SellerSnap we discuss ethical Amazon selling and how to avoid accidentally price gouging.
Ethical Amazon Selling: How to Avoid Price Gouging
Amazon sellers thrive or fail depending on their profit margins and prices—when products are in very high demand, it’s not surprising that some merchants take advantage. If masks, hand sanitizers, or disinfectant wipes sell out in minutes, there’s a strong incentive to raise prices as much as possible.
Amazon is a customer-centric company and requires that its third-party sellers follow strict rules to maximize the customer experience, and this is even more important in times of crisis. Simply put, charging high prices for products is price gouging—taking advantage of scarcity to force people to pay more. Not only is it unethical, it’s also specifically against Amazon guidelines. Pricing items above a sensible price is likely to result in repercussions, including your seller account being suspended. That can even happen accidentally if you’re using a repricer and don’t set the pricing rules properly.
Reasonable, ethical pricing doesn’t just help to keep your merchant account in good standing, it can help to build trust with your buyers and encourage more repeat business. There are plenty of ways to avoid price gouging and still be a successful third-party Amazon seller.
The Coronavirus Crisis, Amazon Selling, and Ethical Pricing
As we write this in April 2020, we are in the midst of the coronavirus pandemic. The significant disruption to business and daily life is impacting how we shop and sell, especially online. As a result of COVID-19, Amazon is focusing on essential products and increasing its efforts to ensure ethical pricing. The seller that charged $220 for a can of Lysol can probably expect a call from state law enforcement in addition to account suspension.
Of course, price gouging isn’t just limited to coronavirus-related products like masks and other PPE. Although the current crisis is making ethical pricing front-of-mind, the information we’re sharing is important throughout your selling career.
Price Gouging and Why Amazon Sellers Should Avoid It
We all know price gouging when we see it, but just why is it a problem for sellers?
- Price gouging may be illegal
Charging too much, especially in times of crisis, is illegal in more than 30 states in the US and many countries have national laws that prevent it.
- Price gouging penalties can be severe
Fines for price gouging can be substantial, and during times of emergency, price gougers can even be jailed.
- What is considered price gouging varies widely
There is no generally agreed standard on what constitutes price gouging, so some areas may consider a 10 percent rise in prices to be excessive, whereas other areas will use different amounts or interpret it on a case-by-case basis.
- Price gouging destroys a seller’s reputation
Taking advantage of anxious buyers in urgent need of essential products isn’t just unethical, it’s bad business practice. Merchants both on and off Amazon need to build a trusted brand and use referrals and advocacy from customers to drive more sales. Price gouging does the opposite.
- Price gougers may be “Named and Shamed”
Individuals, groups, and even some government entities may highlight and publicly name unethical businesses.
- Amazon takes action against price gougers
Amazon has a fair pricing policy, and charging excessive amounts can result in significant penalties. We’ll cover those below.
Intentional vs. Accidental Price Gouging
You might think that price gouging is limited to merchants that unfairly charge high prices on in-demand products, but there’s also something else at play: Accidental pricing. This can happen in a couple of different ways:
- Manual repricing
If an Amazon seller sets prices manually, they may not be aware of price gouging rules. They gradually increase their prices, but fall foul because they are unintentionally overpricing against the Manufacturer’s Suggested Retail Price (MSRP) and what other sellers are charging.
- Automatic repricing
Many sellers sensibly take advantage of automated repricing softwares to stay competitive. The issue with this approach is that if you use rules or algorithms that increase what you charge and don’t set a reasonable maximum price, the repricer could keep raising the product price. This could easily set off an escalating war between repricers as proces move upwards in line with what other merchants are doing. This can easily result in high prices that trigger price gouging investigations.
Amazon Penalties Against Unethical Pricing
Amazon’s pricing policy explicitly warns against setting unreasonable prices and has warned sellers against taking part in such practices. Violating these rules can easily result in Amazon taking actions against a seller, including:
- Removal of the Buy Box for the product (suppressing the Buy Box).
- Removal of the product listing from sale.
- Suspension of shipping privileges.
- Suspension or termination of a seller’s account.
The Benefits of Ethical Pricing on Amazon
Now that we’ve explored why price gouging is a bad idea, it’s worth shifting the focus a little and considering how good, ethical pricing can benefit your Amazon business. Ethical pricing really just means:
- Charging fairly, equitably, and responsibly for what you sell.
- Looking at manufacturer’s recommended selling prices.
- Pricing fairly according to your profit margins.
- Understanding how much reasonably priced competitors are charging.
Ethical pricing can help you sell on Amazon by:
- Giving you a greater share of Buy Box impressions because your products provide better value to customers.
- Building trust in your business, brand, and products for having responsible pricing practices.
- Creating better word-of-mouth and customer advocacy, especially at a time when others may be trying to take advantage.
- Generating repeat sales as customers order similar consumable items from you.
- Staying in Amazon’s good favor as you ensure prices are fair.
How to Use an Automatic Amazon Repricer for Ethical Pricing
At Seller Snap, we know a thing or two about pricing Amazon products in a competitive and ethical way. Whether you use Seller Snap or another automatic repricing software, it’s very important to take the proper actions and avoid price gouging.
Set a Minimum Price Based on Full Costs and Profit Margins
Repricers take into account the minimum and maximum prices you set for each product you sell. Your maximum price can help you avoid accidentally price gouging. Setting your minimum price according to your profit margin ensures you sell all your products without a loss. That means you need a deep understanding of all the costs that go into bringing an item onto the Amazon marketplace:
- Your per-product costs such as the cost of raw materials and manufacturing or wholesale/supplier pricing.
- Logistics costs to both receive items from a supplier and ship them to customers.
- Operational costs in your business such as; staff salaries, utilities, marketing, hardware, and software expenses.
- FBA and other Amazon costs for storing, handling, and shipping items.
- Any other costs your business incurs.
The best way to do this is to calculate your “Cost of Goods Sold (COGS)” Once you know your COGS, you can use that plus a small percentage as your absolute minimum price. This means even if a repricer reduces your product to the minimum, you will still make a small profit.
Set a Maximum Price Based on Certain Factors
Avoiding accidental price gouging means setting a limit to the maximum a repricer will charge for your products. Although there’s no magical formula for determining a maximum price, here are some good starting points:
- Use the manufacturer’s recommended price
Look at the MSRP for the item as that will give you a good idea of what the manufacturer expects the product to sell for on the open market.
- Learn what competitors are charging
Explore how your competitors are pricing products on Amazon. Be careful not to include competitors that are clearly price gouging.
- Look at what you’ve charged historically
Examine the trends in your own pricing—how much your product has previously sold for and the number of units you shipped.
Examining all of these areas can give you a good idea of the fair maximum price, and that’s what you should set in your repricer. Because some laws say that price gouging happens when prices are 10 percent or higher than pre-disaster prices, we recommend keeping your maximum price below the MSRP plus a small percentage, or setting prices according to your average selling prices prior to a crisis. This may not be foolproof, so err on the side of caution.
Audit Your Minimum and Maximum Prices
Once you have a new, clear range of prices for listing on Amazon, it’s important to audit the prices of all your existing products in your repricer to make sure they’re meeting your minimums and maximums.
Review Your Repricer Rules
Repricing softwares use algorithms and rules to list your products in a competitive way. If you are using a rule-based repricer and you have set up customizable rules for each listing, it’s definitely worth going through them and making sure they are aligned with your ethical pricing strategy.
Continue to Monitor Prices and Demand
Depending on the repricing software that you use, once you’ve set everything up, it’s important to keep a close eye on how your products are selling. Review pricing changes, sales trends, supply, and demand to ensure everything is working as it should. You can continue to refine and tweak your repricing rules to make sure you’re charging ethically.
One area to be aware of is if you’re comparing prices to a competitor that was pricing fairly before, but that starts price gouging.
How Seller Snap Can Help With Sensible and Ethical Repricing
We designed Seller Snap to be fast, accurate, and easy-to-use, which means it’s ideal for ensuring you price ethically.
- Seller Snap only needs your minimum and maximum prices to start repricing. We will reprice within your min and max prices and use them to find the ideal price point for each of your products.
- Our smart AI algorithmic repricer does the work for you. You don’t need to create complex rules or conditions.
- Seller Snap optimizes your chances of winning the Buy Box by scanning competitor behavior and ensuring your products are priced more competitively. It always tries to get you the best price for each listing.
- There are various built in strategies for a suppressed Buy Box. Our repricer will use pricing history to identify the last time the Buy Box was unsuppressed and set product prices based on that.
- The minimum price safeguards your listings from losing money.
- You can set the maximum price to a small percentage above your average selling price or historical Buy Box price.
- Our min/max calculator lets you set your minimum and maximum prices based on your costs and markup. The calculator will take into account all of your COGS and any additional costs and Amazon fees.
- Seller Snap automatically analyzes price change notifications from Amazon and uses that data to set fair prices for your listings, balancing your profits, demand, and what your competitors are doing.
- Our “Game Theory” AI is at its most powerful when there are competitors also offering your product. Seller Snap uses the Amazon Standard Identification Number (ASIN) and other data as a guide for repricing. You can follow a closely related ASIN or multiple ASINs for each of your products.
- Seller Snap has repricing strategies and built in algorithms for multiple scenarios, including how aggressively it adjusts prices against competitors, what to do when there are multiple competitors, and how to deal with Amazon selling similar own-brand products.
- You can also use our powerful analytics and insights to understand exactly how your store and products are performing. This will further allow you to set realistic max prices.
Avoiding price gouging will help you to build and maintain a successful Amazon selling business without breaking Amazon rules or other laws. Ethical pricing will create trust in your brand, attract customers, and ensure repeat business. Seller Snap can help, and if you want to try our repricer, we offer a 15-day free trial.