The Perils of Amazon Re-Pricing Software - or Beware Amazon Being Helpful
When Amazon first opened their market place to third party sellers, it was mainly books. These sellers had catalogues of tens of thousands of titles, sometimes hundreds of thousands. The competition was fierce and very much price driven. Sellers had little or no chance of competitively maintaining their prices across all their listings. It simply took too long to go through them all and re-price in order to match or even beat the competition. So automatic re-price programs and services were born. These ran through your listings and compared your price to a competitor and if you were too much it reduced your price to below the competitor. The idea was sold on the basis that if some of your titles were too cheap, then it would increase your price to a cent below the next cheapest.
Amazon used to frown on these programs. Not least because they used bandwidth and resources. Also because at first Amazon too was sold on the idea that these programs mainly increased prices.
Now many years on, Amazon has released new interfaces and developer aids. They have provided much more information for re-pricer software and seem to be actively encouraging them. You have to wonder why.
Clearly they think they are good for business. That means good for Amazon. This does not mean good for the sellers.
Now if you are a bookseller I can see the need for pricing software. But don't for a second imagine that it is going to result in you increasing your prices overall. What tends to happen is that when two sellers sell the same book, both using re-pricing software, they will reduce their price in turn undercutting each other until one gives up when the price meets the minimum selling price set. This is called racing to the bottom. Overall it drives prices down. This helps Amazon look like a cheap, but quality marketplace. It reduces a seller's margin, but helps sell more books. Hence being good for Amazon.
This idea of automatic re-pricing software has moved into the other Amazon categories. Areas like toys, gifts, etc. This market is very different from books, but the re-pricers stay the same. Outside books and media, there is the buy now box. Any Amazon seller will say that if you do not get the buy now box, you do not get the sale. Thus there is competition for this box.
The fundamental problem is that the buy now box is not decided on price alone. Indeed Amazon closely guards the algorithm that decides who gets the box and why. Price is an important factor, but not the only one. The re-pricing programs change price alone, and thus cannot guarantee you the buy box, unless you are prepared to be significantly cheaper (by at least 2.5%) than your nearest competitor. This can severely damage your margins. It can also be incredibly stupid.
I have one competitor who uses a re-pricing program. I know this because whenever I change the price of a certain toy, within a few minutes their price drops to $0.50 below mine. They retain the buy now box. What is stupid about this is that this is a limited item. There is a finite number to sell. In a few weeks time they will run out of stock, and I am left free to price sensibly. There is nothing to stop me from reducing my price till they hit their minimum, let them burn through their stock at little or no margin, and then return my price to the RRP once they sell out. They are letting me, their competitor, set their prices.
The second problem is price matching. Amazon insist that all their sellers do not undercut their offerings on Amazon on their own web site. They would suspend you, if not close you down, if your price on Amazon was higher than on your own web site. Most re-pricing software does not change the price on you web site. So you have to either keep the price on your site HIGHER than on Amazon, or be very fast with your fingers changing your site prices trying to keep up with the automated software. Which defeats the object of having such software.
The third problem occurs when you are listing on multiple Amazon marketplaces. I see lots of US sellers now selling on the UK Amazon, likewise UK sellers on Amazon.com. Further if you sell on the UK Amazon, the doors open to sell on Amazon France, Germany, Spain and Italy. The re-pricing software has not caught up with this. It will happily reduce your price on one site, halving your margins, whilst you are still selling it on another site (in a different currency) at much higher margins. In reality you would probably want to not reduce the margin on one site whilst it remains a good seller on another.
Re-Pricing software is very much in Amazon's best interests. It keeps their site looking like the best value site. Unless it is used carefully, it may not be in the seller's best interest.
I understand that your article is specifically about Amazon repricing and perhaps my results are different being focused on eBay but what you say is not universally true for repricing. eBay is a very different marketplace but does have some similarities like the buy box in most cataloged categories.
"But don't for a second imagine that it is going to result in you increasing your prices overall"
We have subscribers who only use repricing to increase their prices and margins. They simply set their minimum selling price equal to their current price on eBay and use the software to handle the gap between their existing price and that of their competitors. Others in non-cataloged categories have claimed an overall increase in margins without even pursuing this strategy. Generally margins decrease but increased sales more than make up for it.
"Most re-pricing software does not change the price on you web site."
This is true from my experience. If you need an Amazon repricer that changes the prices of your other channels Channel Advisor should be able to do that for you. But if you are right about the software always reducing your prices and never raising them price parity really never becomes an issue anyway so why worry about it?
"It will happily reduce your price on one site, halving your margins, whilst you are still selling it on another site (in a different currency) at much higher margins. In reality you would probably want to not reduce the margin on one site whilst it remains a good seller on another."
I really see no problem with this but maybe I'm misunderstanding. It sounds like you are arguing that the hypothetical seller should forego sales on Amazon UK in order to keep their price the same as Amazon France. Why? Sales are sales and unless you have limited stock I see no reason to do this.
Richard Stubbings says:
To be honest, I have never thought of repricing software and Ebay.
On Amazon where there are multiple sellers on one listing, the competition for the buy now box can be fierce. Especially if more than one seller uses repricing. It only serves to drive prices down. Whilst I am sure that you are right some prices go up, what you have to watch for is the overall difference. Across your entire listings. If you look at the total value of your listings at the end of each run, have they gone up or down?
Regarding price matching, I never said that all prices on all items go down. On some items the prices will go up. These are the potential problem area.
As for "sales are sales" as a retailer I have to say that this is simply not true. I am in business to make money. To make a profit. Any operation has a finite level of resources. Whether this is man hours to fulfil orders, stock levels, or whatever. Would you rather pack 100 items a day with a profit margin of 5% or 100 items a day with a profit margin of 30%. Even this is a oversimplification. Whilst for some stock it may be perfectly fine to sell on one market at a small margin whilst selling on another for a high margin, for other stock it is not fine. Also you need to consider the intangibles, what would happen if a customer on one market who paid top price, saw your cut rate offering on another market?
Selling on Amazon should never be just about price.
Victor Rosenman says:
I happened to read your article today. Hope you are doing well!
Your article about Amazon repricing makes a lot of sense. Most of rule based repricers are exactly that and they are likely to cause more harm then benefit. Most of them not even capable to work with Amazon's new API.
I do encourage you to look at Feedvisor (http://feedvisor.com) - which is the first algorithmic repricer. It works similar to algo-trading in stock market and enables you to increase sales without driving prices low.
We gear toward professional (medium or large) sellers of non-media products and so far have shown exceptional results to our clients.
Great article Richard, thank you for sharing. Being fairly new to selling on Amazon, we have already experienced what you have described. Our issue now is trying to price our inventory to sell on our own site outside of Amazon as well, which is showing to be quite tricky so far. We've been trying to locate prices for multiple products being sold online (outside of Amazon). With 2000+ SKU's, searching each one individually seems a bit daunting. Do you have any recommendations on how to accomplish that? Have you had any luck yourself?