Outsmarting Amazon’s Pricing Algorithms With Data: A Consumer’s Guide to Data-Driven Shopping On Amazon.com
Do you like paying more than you have to for products on Amazon.com? Neither do I, but what can you do as an individual consumer to fight back? Use data, of course! Amazon (and every other e-commerce platform) uses price optimization algorithms to extract the “ideal” (aka highest) price from customers for a given product at a given time. It’s a powerful way to maximize revenues and one of the projects you will eventually work on if you’re a business analyst. In this article, I’ll share two of my favorite data-driven tools (both are free Chrome extensions). Once you implement them, you’ll realize how much money you can save by using data-driven shopping. Let’s turn the tables on Amazon, for once 😊
What is Price Optimization Analysis?
Price Optimization Analysis is a data-driven strategy that tries to determine the optimal price for a product that will generate as much revenue for the company as possible. It uses a mix of algorithms, machine learning, and historical data to forecast the potential impact of different pricing strategies on consumer purchases and then selects the best trade-off between sales volume and price that maximizes revenue.
How do E-commerce Stores Use Price Optimization Analysis?
E-commerce stores are awash with data so they are ideal candidates for using price optimization to gain a competitive edge. Here are a few ways they use it:
1. Dynamic Pricing: Adjust prices in real-time using price optimization to maximize profitability based on demand, competition, seasonality and customer behavior.
2. Competitor Analysis: Scan a competitors’ prices and adjust their own pricing strategies in real-time to reflect demand, product availability, etc.
3. Demand Forecasting: Use historical sales data and trend analysis to predict demand for a product and then adjust the prices of products to match anticipated demand while maximizing profits.
4. Price Elasticity Understanding: Adjust prices and measure the impact on sales to understand the price sensitivity of their products.
Why should I care as a consumer?
By accessing the historical pricing for a product, you can instantly see if the currently offered price is a good deal or price gouging. Take this pocketknife from Gerber, for example. I bought one a few years ago, love it, use it all the time. I paid about $14 for it a few years back but when I recently checked on Amazon it was selling for nearly $30. Is that a good price? Without historical data you can’t tell but thanks to Tool #1 below, you can access a rich history of pricing data and more importantly, set up instant price alerts based on this data so you never miss a discount again.
Tool #1 Keepa.com Chrome Extension
The Keepa.com Chrome extension is my go-to price tracker for Amazon.com. Here’s the link to their app on the Chrome store.
https://chrome.google.com/webstore/detail/keepa-amazon-price-tracke/neebplgakaahbhdphmkckjjcegoiijjo
Install the extension, visit any Amazon.com product page and instantly see a chart of the historical pricing for any product displayed. You can change the data range from Day-Week-Month-Quarter-Year-Max and select whether you want to see only New or Used product prices. Super powerful and insightful.
But back to my example with the pocketknife. I know the current price of $30 is too much so what can I do about it? The plugin also lets you easily setup email alerts by going to the “Track Product” tab. Here you can create a price alert for the product sold by Amazon, or sold by a 3rd party seller or sold used as well as designate the time until the alert expires.
Once you click in the box to set the alert, you’ll get a pop-up showing what price you should set for a given percentage discount as well as the average and lowest price over various time frames. All for free. Nice!
Keepa.com makes all of this info free to users in hopes that they’ll upgrade to access their API. There’s a ton of data available and customization options available in the free version, stick with that and you’ll be fine.
Tool #2 eReaderIQ
Keepa.com is great for any physical product but it doesn’t work for Kindle books. I buy a ridiculous amount of Kindle books so I needed another tool. Enter, eReaderIQ (also free).
You can get it on the Chrome store here:
https://chrome.google.com/webstore/detail/ereaderiq-integrator/epjfabiijflnfmjjhanhddglfhokheae
When you visit a Kindle book page, the extension will render a price history chart, just like the keepa.com extension. The circled numbers on the chart represent flash sales, some only last a few hours.
You can also select the time range by clicking along the top of the chart.
And if you click on the link at the bottom of the chart to the right of the words “See More”, you’ll go to the eReaderIQ page for that book with a summary of the price changes over time as well as their recommendation regarding whether you should buy now at the current price or Track It until it drops in price.
On the “Track It!” tab, you can also set the price alert for the book. A nice feature is being able to set either an absolute price or a percentage discount from the current price.
Unlike physical goods, the flash sales on Kindle books can be huge. In my experience over the past few years, it’s not uncommon to see a popular Kindle book drop 50%-80% for a few hours during an unannounced sale. I don’t know why this happens, but it does. For all the books on my Wishlist that I don’t need to buy right now, I’ll create price trackers for them and then wait for a bargain. For non-fiction books that usually sell for $25-$100 each, this can be a big money saver so put your passion for data to use and save some money on Amazon!
Take this excellent book on data visualization, Storytelling with Data, for example.
On December 9, 2022 the price dropped from $25 to $5 for a few hours. I’ll take that discount 😉
And here’s the tabular summary of the main price changes over time from the “See More” link. Here you can see the price of the book has changed 116 times in the past 2,749 days.
Final Thoughts
I hope you enjoyed this article and see a chance to apply data analysis to save some money on Amazon. Now, go download the extensions and start using data to fight back against the price maximization algorithms that are being used against you 😊
Disclaimer
I didn’t receive any compensation from Keepa.com or eReaderIQ for this article. I just want to share some of the tools I use to help you save a little money on Amazon.com and apply data-driven thinking in your daily life! Let me know in the comments if you have different or better tools!
