How to Profit More By Pricing Below Competition With a Repricing Tool
The article is part of our in-depth series on repricing strategies for eCommerce sellers. It explores the counter-intuitive principle of pricing below competitors to boost profits with the help of automated repricing software.
When it comes to repricing, there are three main directions you can go if you’re facing heavy competition:
• Price above competitors
• Price match competitors
• Price below competitors
We’ve already covered reasons for pricing above competition, focusing on charging a premium price when your main competitors have inferior sellers metrics. The idea is that customers might be willing to pay more for the same product when there’s an option to:
• Get faster shipping
• Buy from a more reputable seller (with a higher Seller Rating or lower Order Defect Rate, for example)
Every extra penny of profit adds up to make your business stronger in the long-run, which is why many sellers with great metrics and a cost-effective sourcing structure choose to strategically price above specific competition types. Whether it’s using exclusion settings to narrow down your competitive focus to sellers with a certain number of handling days or within a specific range of Seller Ratings, pricing above competition can help pad your profits when executed to a reasonable degree.
So, the questions then become:
Why would a seller ever sacrifice profit margins by pricing below competition?
And, how can a strategy of under pricing competitors actually drive profits?
The answers largely depend upon whether you’re selling on Amazon or Walmart Marketplace, and we’ll discuss how pricing below competition can help you profit more on both of these major eCommerce platforms below.
Price below competitors on Amazon when their seller metrics are stronger than yours
It seems counter-intuitive to think you could boost your profits by pricing below competitors and cutting into your per-unit profit margins, but in the world of eCommerce, there’s a time and place for every kind of repricing strategy.
Consider a listing landscape on Amazon where your metrics seem blatantly inferior to your competition. Let’s pretend you’re Seller #1 in the following scenario:
As Seller #1, you’re faced with a tough decision with your pricing. There’s no chance of winning the Buy Box if you price above any of the other four sellers on this listing, since they have superior Seller Ratings and equal or better fulfillment methods and shipping times.
While Amazon’s Buy Box algorithm takes into account approximately a dozen additional factors, these three — Fulfillment Method, Seller Rating, and Shipping Time — represent the most heavily-weighted, along with your price.
You’d also get nowhere by price-matching these sellers, since they’d always beat you into the Buy Box (and into customers’ shopping carts, if shoppers even make it to the “More Buying Choices” page) with their other metrics being better.
That means you’re going to have to price aggressively against these competitors (read: below them) if you want any chance of winning the Buy Box on Amazon.
Important: Always consider your min price when pricing below competition
Depending on how low you can set your min price based on a detailed analysis of your costs, you can attempt to win at least a share of time in the Amazon Buy Box by setting a repricing strategy to price below the current Buy Box owner or the lowest-priced seller on a listing.
Just make sure you account for every cost/fee you incur, including:
• Cost of goods sold
• Shipping and handling
• Marketplace fees, such as FBA, short- and long-term storage, handling, etc.
• Cost of returns (or at least an estimate)
• Cost of marketing (if applicable)
• Cost of labor (if applicable)
• Any additional overhead expenses
If you wanted to, you could set your repricer up to price below the lowest FBA seller or the lowest MFN seller, instead of simply targeting the lowest seller regardless of fulfillment method.
There are a lot of factors at play that you need to consider, and if you have superior seller metrics compared to most of your competitors, then you’d rarely have to consider using this strategy. But, if you’ve been bogged down by poor reviews and feedback and have a relatively low Seller Rating, you may want to start pricing below these sellers to stimulate demand and, in turn, drive sales.
One thing that can be a major help when considering a price-below strategy is that if you use Informed.co as your repricer, then you can have all your costs feed into our platform using a hosted file upload, and then we’ll automatically calculate your min prices based on a target profit that you decide on.
Just set your target profit, either as a percentage or fixed amount per sale, and Informed.co will apply the calculation to every listing to which you attach to the strategy. If any of your costs change on your hosted file, our software will update it every day to reflect the most recent cost structure, ensuring you’ll never miss a beat when it comes to driving profitable sales.
Once you start winning the Buy Box (or at least generating some orders with your more competitive prices), you’ll have the chance to improve your other metrics by fulfilling perfect products on-time and delivering a customer experience that exceeds expectations.
The benefits of using a price-below strategy to boost demand cannot be understated, as you need to actually make sales in order to have chances to improve your Seller Rating, Feedback Score, On-Time Delivery Rate, and other vital seller metrics.
It will take time and effort, especially if you’re an MFN seller, but the more orders you receive, the more opportunities you’ll get to become a better seller, which can open up doors to incorporate higher-margin repricing strategies into your workflow down the line.
Price below competition on Walmart Marketplace to win the Buy Box
As we covered in our recent article comparing the Amazon Buy Box and Walmart Buy Box, Walmart considers price the most influential metric when determining who wins the Buy Box on a listing. That is, the lowest-priced seller on a listing wins the Walmart Buy Box.
While it’s also crucial for sellers to be in stock of an item in order to win the Buy Box, sellers can easily win the Walmart Buy Box by simply pricing below all other competitors on a listing when they’re in stock.
With the help of a Walmart repricer like Informed.co, sellers can automatically price below the Buy Box price on Walmart any time they aren’t already in it. And, you can even win the Walmart Buy Box by pricing just a penny below the next-lowest-priced seller.
While you might run into other sellers using the same price-below setting on their Walmart repricer (meaning that they’ll reprice a penny below you once you reprice a penny below them, and so on), you’ll still be able to drive profitable sales on Walmart with this strategy, as long as your min prices are set up to earn you a profit.
Once you hit your min price, you can set your repricer up to reset to your max price for any given listing, which will start the process of repricing downward to your min all over again.
One more noteworthy feature about Informed.co’s Walmart repricer is that it will always raise your price when you’re in the Buy Box to be a penny below the next-lowest-priced seller.
That means that if you win the Walmart Buy Box by pricing at $10.99 when your next-lowest-priced competitor is at $11.00, but then that $11.00 competitor leaves the listing or goes out-of-stock, your price will automatically raise to be one cent below the next-lowest-priced seller.
So, if the next-lowest-priced seller is listing the product at $15.00, you’ll then see your price increase from $10.99 to $14.99 automatically, keeping you in the Buy Box and increasing your profit margin for every sale you make at your new, higher price.
Related article: Why You Should Sell on Walmart Marketplace NOW
Reprice below competitors to drive volume sales and boost profits
While pricing below competition cuts into your profit per sale, there’s a chance it can boost your overall profit — if you’re able to drive enough sales to more than make up for the decrease in profit per sale.
This is best illustrated with an example. Imagine you’re selling a cell phone case with total costs equal to $2 per case in the following three scenarios:
That additional profit can be used to finance more purchases of these high-selling items; to expand your product line into other areas; or to add a variety of other business-building tools to your arsenal.
Of course, this is just a hypothetical example, and you need to conduct a detailed analysis of your costs while making reasonable sales projections when trying to determine exactly how low to price below competition when using this strategy. You should also ensure you have a steady supply of the items you plan on applying this strategy to, since you’ll want to be able to easily replenish goods when their sales velocity is likely to increase.
On a related note, if you sell private label products and face little to no competition on those listings, you can use a sales velocity repricer to automatically execute price changes to help you hit a target sales velocity.
This type of repricer will pilot your prices up or down depending upon the number of sales being driven at the current price, and these price movements will continue in an effort to achieve your target 30-day sales velocity. While it’s not exactly a price-below strategy, sales velocity repricing is one more indispensable eCommerce tool you should know about.
Bottom line: Never count out using a price-below strategy to boost overall profits, as a small drop in your sales prices could lead to an increase in sales volume that more than offsets the decrease in profit per sale you get when pricing below competition.
Short-term strategy: Price below competition to finish your Seller Fulfilled Prime trial faster
Now here’s an interesting strategy: Aggressively price below your competition when you’re in trial for Seller Fulfilled Prime in order to meet your trial sales requirements faster.
In order to be approved for Seller Fulfilled Prime, you must be a Professional seller who’s eligible for Amazon Premium Shipping. Then, you must fulfill a minimum of 200 Prime trial orders while maintaining:
• An on-time shipment rate of at least 99%
• Use of Buy Shipping Services for at least 95% of trial orders
• A cancellation rate of less than 1%, as outlined below
Because Seller Fulfilled Prime status is so desirable in that it helps boost your ability to win the Buy Box(due to it being a preferred fulfillment method) and lets you offer Prime 2-Day Shipping as an MFN seller without paying FBA fees, it may make sense for you to incorporate an aggressive price-below strategy while in trial for the program.
The idea is that you may cut into your profitability in the short-term, but you’ll get Seller Fulfilled Prime status faster, which will make your more profitable in the long-run.
So, you’ll fulfill your 200 Prime trial orders quicker by triggering more sales with your lower prices. And as long as you’re confident you can handle the fulfillment according to Prime standards to meet Amazon’s strict Seller Fulfilled Prime trial requirements, you’ll be able to complete the trial faster and then attain a better standing in the eyes of the Buy Box algorithm.
After you’re granted access to the Seller Fulfilled Prime program, you could then consider switching your strategy to pricing above competition because of the competitive advantage you’ll have gained.
Or, if it seems like maintaining a strategy of pricing below competition will make you more profitable overall by boosting your sales volume enough to compensate for your lower-margin sales, stick with that and see if your sales increase even more when you’re part of Seller Fulfilled Prime.
Price below competitors to liquidate poor-performing products
Sometimes you source a product that you have high hopes for, only to learn after a few months that it wasn’t the peak-performer you expected it to be. When you’re stuck with a poor-selling product like that, it doesn’t pay to keep it around.
In fact, keeping sluggish products in your inventory will literally cost you, as Amazon imposes FBA long-term storage fees every year on February 15th and August 15th — and that’s on top of monthly inventory storage fees you’d pay regardless.
Because of these storage fees, sellers must pay close attention to the sales velocity of their products to make sure they aren’t holding any immovable items that will continue to cut into their profits by sitting in inventory unsold.
Once you audit your inventory, you can assess whether it makes sense to adopt an aggressive pricing strategy of underpricing all your competitors in an effort to liquidate your underperforming products.
The rationale is that by selling your seemingly unsellable items for whatever cash you can get for them — even if it means selling for a loss — will enable you to reinvest any revenue generated into products with better sales potential. That might mean allocating the revenue from these sales to sourcing more of the most successful products you already sell, or, perhaps, expanding your product line to items you’ve never sold before.
Of course, it always pays to conduct product research before committing to new products, but the goal will always be the same when pricing below competitors to liquidate poor-selling products:
Use whatever funds you’re able to free up from your liquidation efforts to make your product offerings more profitable overall.
In the world of eCommerce, it never pays to get upset about products that didn’t meet their potential. Instead, always look for opportunities to cut your losses quickly so you can shift your financial weight toward different products with a better chance of being profitable.
Pricing below competition with a repricer to boost profits: the bottom line
As you can see, there’s more than one rationale for pricing below competition in an effort to drive profits. Some reasons for pricing below competitors include:
• To boost sales volume enough to increase total profits in spite of decreasing profits per individual sale
• To win more of a share of the Buy Box on Amazon when your non-price metrics are inferior to competitors
• To win the Walmart Buy Box by being the lowest-priced seller on a listing
• To liquidate poor-selling products to free up cash for other business objectives
• To finish your Seller Fulfilled Prime trial orders and attain SFP status faster
Whether you’re hoping that pricing below competitors will lead to a massive increase in sales volume or any of the other above-listed reasons, a powerful automated repricing tool can help make the process of continuously repricing below competition as easy and seamless as possible.
With the power to monitor your competitors’ prices and automatically make adjustments to your prices based on what your competitors do with theirs, a tool like Informed.co can simplify your pricing strategy by taking the manual work out of your hands and automating the process.
We hope you’ll consider signing up for a free 14-day trial of Informed.co to see just how much our repricing platform can do for your Amazon and Walmart business. Just click below to get started, and our team will be there to help you get set up for the ultimate success on both of these major online marketplaces.