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.