An Amazon Seller’s Method to Repricing Madness
The following in-depth analysis of automated repricing comes from an Amazon seller who asked to remain anonymous. We hope you find it as interesting and informative as we did.
How Amazon Sellers Should Optimize Repricing Strategies
A penny here and a penny there could mean the difference between one conversion a month and 10 a day.
That’s the beauty of repricing.
It takes some experimentation — and time — to get it right; however, it’s usually time well spent to find your product’s price “sweet spot”.
The sweet spot is that tiny window of pricing that both entices the most buyers and produces the maximum profit.
It’s a tedious balancing act: lower the price to attract more buyers, raise the price to earn a higher profit.
It is easier said than done to set a price high enough to make a good profit, then gradually drop the price by small increments and see what effect it has on sales quantities over time while monitoring the effect on overall profit margin.
Setup Parameters Within the Repricing Software According to Your Business Strategy
First, determine the immediate goals of the repricing strategy.
• Is your primary goal to win the Buy Box?
• Do you want to focus on having the lowest price?
• Do you want to match the competition’s low price?
Or, how about just holding out for a more profitable price point after the main competitors run out of stock?
My Primary Goals and the Parameters I Set in My Repricer
Whichever repricer you select should let you:
• Set minimum and maximum prices
• Raise prices as well as lower them
• Factor in profitability when lowering prices. (Don’t be caught selling at a loss.)
• Include shipping in cost and retail calculations
• Allow competing against selected sellers and seller types, i.e.., only other FBA sellers, sellers with higher feedback ratings, etc.
Additionally, your repricer should allow you to make winning the Buy Box a specific parameter.
Lowest price is not the only requirement for earning the Buy Box. Amazon will rotate featured merchants through the box even if their price is up to 5 percent higher than others. Set the minimum price to be lower than the Buy Box price rather than the low competitor’s price. Amazon’s algorithm for determining the winner also includes seller rating and fulfillment channel.
It’s also vital that your repricing software has specific rules for when Amazon.com is a competitor.
Amazon will almost always have an advantage over sellers, but there are a couple of things to do to level the field somewhat. Like pricing slightly below Amazon, so other sellers listings will be referenced in the Buy Box and searchers may click yours if the price is lower. Or hold a reasonably higher price and wait for Amazon to sell out of the item.
This works best on fast moving products. And, you should be able to exclude Amazon from your competition entirely.
You should also consider whether you’re repricer can factor “demand” into the min-max calculations. A slow moving, low demand product probably won’t benefit from a lower price. It’s better to hold higher prices and wait until competitors sell out.
The repricing strategies I use
My immediate goal is to try to win the Buy Box, even when Amazon is a competitor. To that effect I have my repricer set with these parameters:
• Strategy Type: Custom algorithmic
• Strategy: Get the Buy Box
Get the Buy Box Settings:
• If there is no Buy Box competition: Do not reprice
• When the Buy Box competition is below your min price: Use the min price
• When the Buy Box competition matches your min price: Do not reprice
• Price protection (all strategies): Min-max formula
• Minimum price formula: 10 percent to 25 percent over cost, which includes shipping from my wholesaler through to FBA. (Cost for each item must be set manually.)
• Maximum price formula: 100 percent to 400 percent over cost
These represent the backbone of my automated repricing strategy.
I don’t write these settings in stone and can change them at any time, depending on market conditions, the makeup of my inventory or changes in my goals. They’re not meant to be the optimum settings for everybody, they just work for my store.
Sellers need to determine their goals and experiment with various combinations in order to find what’s right for their stores.
The Bigger Picture: Do Your Strategies Fit in with Your Life Goals?
First, determine your top five to 10 overarching business goals for your online store and your top three to five personal goals in life.
Make a list of each, print them out and pin them on a wall where you will see them every day. Divide each goal into smaller, interim goals you can check off when achieved.
Life goals, both business and personal, are unique to the individual, but here is a list of some of my goals and how I plan to attain them that might help others define their own:
• A fixed or percentage increase in sales by a specific date. Currently, this goal is set at 100 percent within 12 months. Interim goals are 25 percent per quarter.
• A fixed or percentage increase in listings by a certain date. Currently set at doubling within 12 months. Interim goals are 25 percent each quarter. (This goes hand in hand with increased sales. I have learned that if you double your listings, sales will also roughly double.)
• Own all my inventory, debt free, by a fixed date. I’ve given myself 18 months on this one with interim goals of 17 percent per quarter. I included a payment toward debt reduction of 10 percent added to my cost in the repricer.
• Reduce inventory items that do not comply with ideal size/weight/price ideals. I want 95 percent of my items to fit into 12" X 12" X 6" boxes, weigh no more than five lbs. and retail for between $30.00 and $80.00. Any products outside these ranges are more aggressively priced than others. I did not set a timeline for this goal.
A Couple of My Personal Life Goals
• Stop doing manual labor myself, implement my formula for growth in previous businesses: Organize, deputize and supervise. This will get underway as soon as my sales double the first time. Then my deadline is two years hence.
• Make this online store the foundation of my retirement from retail. Glean enough income to support my family in comfort indefinitely or increase the value of the business to make it more profitable to sell out and invest the proceeds. I hope to accomplish this within 10 years.
One Last Thought to Share: Avoid Getting Into a “Race to the Bottom”
The race-to-the-bottom refers to automatic (or manual, for that matter) repricing programs seeking the lowest price against competitors by continuously lowering the price, whether by a penny or a dollar, until the price is so low nobody makes any money.
Don’t necessarily go for the lowest price. Try matching the price or even pricing somewhat above the lowest.
The item will still be eligible for the Buy Box — remember the alleged five percent rotation policy with Amazon — and the lowest prices might even start back upward.
Or try bundling your product with a less expensive accessory and list it as a separate product, maybe a different category.
Bottom line: Carefully think out your best repricing strategy, write down your life goals and stick to them, and above all be smart about it.
Generously provided by an anonymous Amazon seller.
