Last updated on September 29th, 2023
Written by Mohamed Aden
Setting prices manually can take up a lot of your time, and there's no guarantee it will match up competitively with prices from other sellers. This is where Amazon dynamic pricing strategy enters the picture. This strategy involves Amazon changing the prices of products multiple times to offer the best deals for its shoppers.
But as a seller, is it worth it to follow this strategy? In this article, we will explore this Amazon pricing model in-depth and provide a complete guide on implementing it in your store.
Amazon’s dynamic pricing technique adjusts prices based on factors like demand and supply volume and competition. It enables sellers to remain competitive, optimize product prices, boost conversion rates, and generate more profit. This strategy uses algorithms and can be done through Amazon’s built-in Automate Pricing tool on Amazon Seller Central.
Amazon keeps the dynamic pricing strategy system confidential. Nowadays, experts even conduct Amazon pricing strategy analysis to know how the pricing model works. But despite keeping it a secret, it is evident that some parameters play a crucial role in implementing this pricing model.
Here are some of the factors that Amazon considers:
If a product is in high demand and inventories run low, Amazon may raise the price to maximize profits. Meanwhile, if the demand is low, Amazon might lower the price to attract more potential customers.
Another factor that Amazon considers is the stock volume. When stock is low, Amazon may increase the price to prevent stockouts. Conversely, if there are too many stocks, Amazon may lower the price to clear inventory.
Amazon looks at how frequently customers visit a product through internet cookies. Cookies are little pieces of text a website sends to browsers to record each visit. They enable the website to collect details and utilize this information for marketing purposes.
If a product is frequently visited but not purchased, Amazon may lower the price to entice customers to purchase. If a product is rarely visited, Amazon may increase the price to compensate for lower demand.
Amazon also considers the day and time of purchase. Amazon identifies the specific days of the week and certain times of the day when customers have more time to browse and purchase products.
For example, Amazon may offer lower prices during off-peak hours to bring in more sales. Additionally, Amazon may offer more special deals and discounts on specific occasions like Cyber Monday or Black Friday.
Now you know the factors behind Amazon’s pricing strategy. Next, let’s talk about how it benefits sellers like yourself on the platform. Here are the key advantages of dynamic pricing:
Dynamic pricing helps you increase sales by offering customers the most competitive product prices.
6 out of 10 customers prefer lower prices over the shopping experience.
This means offering low prices attracts more potential buyers, which can ultimately help you drive higher sales volume.
Amazon's pricing model gives you an edge by adjusting prices to stay competitive in pricing wars. It helps you win over price-sensitive customers searching for the best deal.
However, note that competitive pricing also puts pressure on your competitors, which might force them to reduce their prices as well.
The dynamic pricing strategy uses customer data to offer tailored prices based on a customer’s purchase history, location, and other factors. Offering tailored prices and products enhances the customer’s shopping experience by providing options that align with their preferences and needs. This raises their possibility of making a purchase.
The technique also lessens the time and effort buyers spend to find the best products and prices.
Dynamic pricing has its benefits, but it also comes with some drawbacks. Here are some of its disadvantages:
While dynamic pricing strategies can help increase sales of Amazon sellers, they can also lead to lower profit margins. As other sellers adjust their prices, you may often find yourself in a constant battle to match or undercut those prices, affecting profitability.
Additionally, the pressure to offer competitive prices limits the ability of Amazon sellers to recover higher costs or achieve their desired profit margins.
Amazon’s dynamic pricing strategy is highly data-driven. The online marketplace analyzes customer behavior data to calculate a product’s optimal price. However, it raises privacy concerns among customers who do not prefer their data being used in this manner.
If you’re using dynamic pricing algorithms, you must be cautious not to engage in unfair or unethical actions that could break anti-discrimination laws or compromise your customers’ privacy.
Customers may feel they are being taken advantage of if they see frequent price fluctuations for the same product. When prices are inconsistent, customers might believe they are not getting a fair deal or that your brand lacks transparency.
If customers find your pricing strategy unfair, it can negatively impact their trust in your store and decrease brand loyalty.
Automate Pricing is Amazon’s built-in dynamic pricing tool on Amazon Seller Central. It’s free for sellers with a Professional selling plan on the platform. In Amazon’s Automate Pricing tool, you can control the prices by defining the rules, setting the price ranges, and automating pricing for selected product listings.
Here are two ways to set a pricing rule with this tool:
Amazon offers a pre-defined automated pricing rule that can be used to adjust your prices based on specific criteria. It involves matching the Buy Box price or setting it lower or higher by a certain amount.
|💡 The Buy Box refers to the box located on the product detail page, which enables customers to add products to their carts easily.|
Amazon also allows sellers to use the "Create a Customized Pricing Rule" in addition to the Competitive Price Match Rule. You can choose from four sub-repricing rules:
If you want to keep an edge in the Buy Box spot, you may personalize your pricing tactic using this option. It lets you connect your price to the Buy Box, so whenever the Buy Box price changes, your price will change automatically.
This repricing method runs similarly to the Buy Box technique. But instead of using the Buy Box price, it searches Amazon for the lowest price for a single product. Sellers can decide whether to set their price below, equal to, or above this pricing.
This rule considers prices on other online marketplace platforms like Walmart and Target. Sellers can either limit their prices to match competitor prices or match prices on other platforms, allowing them to compete beyond the Amazon marketplace.
If you’re launching a new product and aren’t sure about the best price, use this option to figure out how much to sell your private-label items for. With this repricing rule, you may define a price drop if you don't meet a set amount of sales within a certain timeframe. Likewise, you can automatically increase the price if you reach your sales goal quickly.
Here are the steps to start using Automated Pricing:
Access your Amazon Seller Central account. Then, navigate to the "Pricing" tab and click "Automate Pricing."
Pick the type of pricing rule you wish to create. You’ll find it in the drop-down menu.
Select the pricing rule you want to establish in selected marketplaces.
Click “Proceed to SKU selection” to choose the products you want to enroll in and the rules that apply to each of them.
After checking your rules, click "Start Repricing" to begin using the automated pricing rule.
While Amazon’s dynamic pricing strategy can be powerful compared to manual pricing, it’s just one piece of the puzzle. Successful selling on Amazon involves managing various aspects beyond pricing, from optimizing listings to handling inventory.
Are you looking for expert support in navigating the complexities of Amazon selling? Seller Interactive can help. We offer full account management services to help sellers like you, from setting up Seller Central accounts to prep and logistics. Ready to increase sales and scale your Amazon brand? Book a call with us today to learn more about what we can offer!
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