If you are constantly fighting an ever less profitable battle with your Amazon pricing strategy as you attempt to win or maintain visibility in the Buy Box, then this guest post from Tali Amar at SellerSnap is essential reading. Tali reveals what goes on behind the scenes to win the Buy Box and more important how to prevent an Amazon pricing strategy that spirals into ever lower prices until your margins are totally eroded away.Amazon Pricing to win the Buy Box
It is estimated that every year more than a million online sellers venture into the Amazon marketplace to either start or expand their ecommerce business. With the growing population of online entrepreneurs, Amazon sellers are motivated to implement strategies to outsmart their competition.
Pricing is one of the avenues through which Amazon sellers practice their optimization and marketing strategies. In particular, sellers who are competing for Buy Box make use of an Amazon repricer. It is a common practice to execute a dynamic pricing strategy to win more Amazon Buy Box.
Pricing: Critical Component for Your Amazon Business
In retail ecommerce, pricing defines the value of your item and serves as a reference point for consumers whether or not to purchase your product. In fact, price as compared to unit volume is the fastest and most effective way for an Amazon business to attain profit.
A simple calculation shows that a 1% increase in volume would only yield a 3.5% increase in profit. On the other hand, when you raise the price by 1%, this would result in a 10% increase in profit.
Therefore, reinforcing the fact that price adjustment is a crucial element for Amazon.
How much you price your inventory could make or break your Amazon business. This is especially true today with the emergence of price transparency, which makes your pricing visible for both online shoppers and your competitors.
Competitors having easy access to your listing price is one of the catalysts for a price war. In such a scenario, Amazon sellers could repeatedly lower their listing price to offer the least expensive price to Amazon shoppers.
This practice can lead to further depletion of profit margins, so it is important to avoid price wars and secure profit. To continue to refine your product pricing and optimize your pricing strategy, you can use an Amazon repricer.
The Amazon Price War
Generally speaking, a price war is simply an attempt by a market participant to undercut their competitor by continuously lowering product price to capture greater market share. When Amazon sellers consciously or unconsciously apply the aforementioned concept to their Amazon business, they are already engaging in the so-called Amazon price war.
Amazon Seller Forums: A screenshot (cropped) of Amazon seller’s query on price war; Retrieved: Feb. 9, 2020, from sellercentral.amazon.com/forums/t/price-war/398138
Apart from making their listing price appealing to Amazon shoppers, some sellers believe that lowering their price to undercut competitors contributes to winning the coveted Amazon Buy Box, ultimately increasing sales.
However, engaging in an Amazon price war can be a double-edged sword, especially if you intend to race your competitor to the lowest price point. If inevitable, price wars should be entered cautiously, especially since a “1% price drop can slash profits by more than 10%.”
How Should You Respond to an Amazon Price War?
With the goal of thwarting competitors’ Buy Box dominance, Amazon sellers resort to weaponizing prices. Hence, resulting in a price war. This form of emotionally driven retaliatory slashing of the product price, one after the other, inevitably leads to a precipitous decline of profit margin.
On a positive note, price wars can be avoided. There is no need for you to intentionally engage in an Amazon price war and risk your profit margin in the process. Through strategic price management and with the help of a reliable Amazon repricer, you can maximize your profitability without having to intentionally engage in a price war.
Here are some tips on how you should respond to price wars on Amazon and/or other online selling platforms:
Apply Marketing Tactics
You can entice consumers by offering quantity discounts, bundled offers, exclusive deals, loyalty programs, and other unique promotions that do not necessarily equate to debilitating price slashing.
This was the case in the 1990s when McDonald’s responded to Taco Bell’s 59-cent taco strategy. In response, McDonald’s offered burgers, fries, and drinks in Extra Value Meals. Such a marketing scheme drove up McDonald’s sales by 6% in the first year of introducing the Extra Value Meal.
When it comes to Amazon, sellers can create product bundles composed of different items. These carefully thought of item bundles deliver both convenience and value to shoppers.
Purchase a Repricer
When it comes to repricing and for the purpose of comparison, you have three main options: (1) manual repricing; (2) rule-based repricing; (3) automatic repricing.
- Manual Repricing
Manual Repricing pertains to manually setting up the listing price in response to the competitor’s price. This type of repricing method is ideal to use when you have few inventory items.
For this repricing method to be more effective, you should also have a good grasp of the marketplace interplay, superb price management skills, and ample time for price monitoring. With manual repricing, constant monitoring of the price changes of your competitors is essential.
- Rule-Based Repricing
On the other hand, the Rule-Based Repricing method is best used when you have a specific repricing goal in mind and you do not have enough time to constantly monitor the market for price changes.
In contrast to a manual repricer, a rule-based Amazon repricer provides predefined rules for you to choose from and set-up, which means the seller has to think about scenarios and solutions for those scenarios should they occur.
Much like manual repricing, this type of repricing can lead to price wars since these repricers dont have the capability to go beyond one price change or predict future price changes based on competitor behavior. Some of these repricing rules include, but are not limited to, match min/max price, follow related ASIN, and follow competitors, depending on which third-party repricer you use.
- Automatic Repricing
Lastly, we have the Automatic Repricing method, some of which use AI (artificial intelligence). This method employs an advanced repricing strategy that mainly involves computer algorithms to respond to various market factors for changing the listing price.
One of the reasons why automatic or AI algorithmic repricers are becoming increasingly more popular among Amazon sellers is their capability to devise successful strategies and deliver optimal results. This can result in securing the Amazon Buy Box at a higher price point.
As well as this, the learning algorithm means that no set-up is required on the side of the seller – it is “set it and forget it”.
Repricing and the Amazon Buy Box
Both repricing and the Buy Box are interconnected, for repricing is the process, while the Buy Box is the goal.
The Amazon Buy Box is the coveted portion of the product detail page. It is considered prime real estate because it is where the “Add to Cart” and “Buy Now” buttons are located.
Once your listing meets specific Amazon metrics, including competitive pricing, your offer may appear in the Buy Box. Thus, resulting in increased store engagements and most importantly, improved sales conversion rate.
Since Amazon is known as one of the top online destinations for affordable and reliable consumer items, its algorithm only considers offers from sellers that are highly competitive, both in quality and pricing.
While some sellers opt to assess the marketplace condition and change the pricing manually, high volume Amazon sellers and/or more established sellers employ the service of algorithmic repricing technologies, like Seller Snap, to stay ahead of the competition.
How Does Seller Snap Work To Your Advantage?
As predominantly discussed in the article, competitive pricing is one of the major components for winning the Amazon Buy Box. However, pricing should not simply be based on the lowest price principle, but rather on a much-sophisticated repricing strategy.
Since Seller Snap operates under an advanced AI Game Theory repricing principle, it has the ability to seek the optimal repricing strategy for each individual listing. As an AI repricer, it automatically collects data directly from Amazon via API connectivity.
The retrieved data, including marketplace conditions, price notifications, and competitors’ behavior are continually analyzed to predict the pricing behaviour of relevant competitors. Hence, allowing Seller Snap to automatically apply the best strategy for specific situations.
The main goal of Seller Snap is not simply to help you win the Amazon Buy Box. Seller Snap’s advanced algorithm operates seamlessly to help you obtain the Buy Box share you are entitled to without having to sacrifice your profit margin by lowering the price to its lowest point for competition’s sake.
With years of experience in the repricing industry, Seller Snap has helped numerous Amazon sellers in dealing with multiple scenarios, including price adjustments against multiple competitors and even against Amazon itself.
Additionally, the repricing software comes with sophisticated Seller Analytics to give you better insight into your Amazon business. You also have an option to perform manual or rule-based repricing as needed with the flexible repricing settings.
Other Amazon Buy Box Factors
Amazon sellers compete for the Buy Box because 80% of sales conversion happens through the Buy Box. Winning the Amazon Buy Box is the quickest way to profit on Amazon.
However, there are other factors you should take into account when competing for the Amazon Buy Box. Apart from competitive pricing, the Amazon algorithm also assesses other metrics for evaluation, including the following:
- Buy Box Eligibility
Before sellers are entitled to the Amazon Buy Box, they need to be eligible to win it. In order to be eligible for the Buy Box, a seller must meet the following three conditions: Type of selling account must be professional, inventory and delivery metrics must be healthy, and the seller must have sufficient order volume.
- Fulfillment Method
Your chosen fulfillment method greatly affects your Buy Box winning rate and eligibility approval. For that matter, Amazon tends to award the Buy Box to sellers in the Fulfilled By Amazon or the FBA program. That doesn’t mean that FBM sellers aren’t eligible to win the Buy Box, but Amazon prioritizes FBA sellers who are on the same listing.
Based on sellers’ experiences, FBA is favoured by Amazon over the FBM program. Moreover, new sellers under the FBM program are not automatically eligible for the Buy Box. FBM sellers must first make sufficient sales volume, determined by Amazon and varying by category.
- Seller Metrics
Amazon is known in the ecommerce industry as a customer-centric company. That is why its Buy Box algorithm also considers specific customer service-related metrics when awarding the Buy Box.
Getting acquainted with important seller metrics will also help you increase your Buy Box win rate. Some of the highly evaluated metrics by Amazon include, Order Defect Rate, Cancellation Rate, Contact Response Time, and Customer Feedback Rating.
It would also be good to familiarize yourself with Amazon selling policies and code of conduct to avoid violations and penalties that could deter you from winning the Buy Box.
Pricing Strategy Matters
The profitability of your Amazon business is highly dependent on your pricing strategy. Avoiding price wars and winning more Buy Box can be done through strategic price optimization that is anchored on a non-aggressive pricing strategy.
The necessity of an Amazon repricer should not be overlooked to achieve Amazon business success. The use of a repricer, particularly an automatic repricer, will not only keep your pricing highly competitive, but it will also give you more time to check on other aspects of your Amazon business apart from pricing.
Other aspects of your Amazon business such as marketing, advertising, customer service, operations, and logistics should also be looked into. Similar to pricing, due diligence should be exercised for each aspect of your Amazon business to cultivate success.
