The Repricing Algorithm

price-discount-repricing-amazonIn the last section we spoke about how important qualifying for the Buy Box is. In this topic, we will build a bridge from that very topic to this one. A repricer will give you a leg up on the competition. I’ll talk about that in a second.

But, first, I want to make sure we are on the same page when it comes to just HOW important your seller ratings are. Let’s review what a tremendous impact certain variables can have on them.

(Remember: these ratings are instrumental in helping Amazon’s powers-that-be decide whether to award YOU the coveted Buy Box.)

Take a look at how five different variables can HIGHLY impact your seller ratings:

Amazon Order Issue Points
Order Fulfilled Without Issue 100
Late Order 0
Delayed Shipping 0
Order Cancelation -100
Negative Feedback -500

 

Do you see why it’s important to keep your seller performance at an all-time-high? Those negative 100 and negative 500 points figures really set the stage for you, didn’t they? Customer satisfaction is (almost) everything to Amazon.  (Of course, we business folks should be tuned into meeting the needs of those we deal with, regardless of whether our actions are monitored or not.  It just so happens that Amazon does us the favor of emphasizing a truism.)

I’m about to hammer home the point that the Buy Box placement on your Details Page is an awesome seller achievement.  And that’s because…

Drumroll, please.

It guarantees that countless shoppers searching for your specific listing will see it!

What more could you ask for?  Well, you’re probably thinking, I’d like them to do more than see it: I’d l like them to buy! Ah! Therein lays the beauty of the Buy Box. Because of its uniquely prime placement on the Product or Details Page, the shopper’s eyes are automatically drawn to it.  AND the Buy Box facilitates purchases by offering a one-click “Add to Cart” button.  As if that weren’t enough, sellers sporting the Buy Box get the thumbs-up from customers for trustworthiness.  They know your listing is backed by Amazon.

As previously mentioned, winning the Buy Box is dependent on being eligible, and on competing effectively against other SIMILARLY eligible listings. Now that you’ve grasped the nuts and bolts of Buy Box eligibility and competition, it’s time to evaluate where you stand.

Flex Your Seller Muscles!

You might already be in the habit of monitoring the Amazon marketplace in order to adhere to performance standards. If that’s the case, good for you!  Taking a closer look at what needs to be done in order to attain Fulfillment by Amazon (FBA) or Featured Merchant (FM) status shouldn’t be too daunting. Just keep flexing your exemplary seller muscles! Don’t forget to keep a close eye on Order Defect Rates (ODRs), competitor pricing and listing inventory.  That will get you and KEEP you in the running for the best position for Buy Box eligibility and competition.

In this section:

  1. Winning the Buy Box Consistently: The Lowest Price Isn’t The Ticket
  2. A Leg Up On The Competition: Run It By Me Again. What, Exactly, is Repricing?
  3. Repricing Software: Which Features?
  4. Amazon Sellers Need To Know Their Costs
  5. Rules-Based vs. Algorithms: And Why I Recommend The Latter
  6. Two Examples of Popular Algorithms: Google and Amazon’s Buy Box
  7. Repricing Tools: Give Me Some Brand Names!

Winning the Buy Box Consistently: The Lowest Price Isn’t The Ticket

Alright, my friend, we have established beyond a reasonable doubt that winning the Buy Box is the primary objective of all would-be TRULY SUCCESFUL Amazon sellers. And we now also know what you must do to take the lead.

But stop a moment. Have you given a thought to what your strategy will be for more than a one-time win? You’ve got to aim for continuity…consistent wins. By now you are aware that lowering the price is NOT the only road leading to the Emerald City. Amazon’s algorithm of selective scoring is way more complex than that. Amazon gives a score to every seller competing for the Buy Box, but this score is calculated by examining various metrics, such as the seller’s offer and performance, ratings, reviews, the fulfillment channel, returns, refunds and sales volume–among other even more selective metrics.

Given this rather complex formula, a seller with a higher price can STILL keep the Buy Box…leaving some competitive sellers who underprice and engage in price wars with their mouths wide open in astonishment.

This is good news for merchants who price reasonably but have taken the time and hard work necessary to build their reputation on Amazon. If that’s you, congratulations! What you need to do now is find the optimal price for your merchandise, so that you may win the Buy Box at the highest possible profit margin.

A Leg Up On The Competition: Run It By Me Again. What, Exactly, is Repricing?

I tell you this with complete confidence that you will soon realize the value of these tools: You will have to find a reliable repricer solution. Period.

amazon-pricingWith repricers, you set your pricing structure on autopilot. By way of a broader explanation, these are app programs; third-party interface tools that come to your aid approximately every 5 to 15 minutes. The manufacturer/distributor charges depending on the number of products you have listed or that you will be repricing. A ballpark figure is $25 a month to manage about 100 products.

How do they work?

Repricing is the automated process of price adjustments. It’s the simple act of adjusting your offer’s price, based on an intelligent analysis of the situation. Most of these apps are built to help you optimize your Buy Box potential.

“I can lower prices myself,” you might be saying. “I don’t need repricers for that…do I?”

Repricers don’t just lower prices. That’s a common misconception. According to sellerengine.com, you can boost your profits by “lowering prices a few pennies and then raising prices again, as the competitive landscape evolves.”

“But I just want to offer a good product at great savings,” you are thinking. “Why do I have to concern myself with what competitors are offering?” Good question.

In a nutshell, if you’re out to win the Buy Box, you would do well to manage competition with repricers. (We’ll talk about which kind you’ll need in a minute.) To be successful, sellers need to stand head and shoulders above the crowd. The volume of activity on marketplaces like Amazon is enormous. And, guess what? The scale of repricing is huge, too.

Repricing isn’t limited to sellers. Did you know that even online marketplace sites reprice? For example, Amazon.com implements more than 2.5 million automated price changes every single day…and they do this simply to stay afloat, or competitive. They’re vying not only with other sites but also with merchants selling on their own third-party marketplace.

“Whew!” you’re saying. “I’ll bet you brick-and-mortar stores don’t have to worry about repricing, ‘though. Their prices are set by customer demand.” Not necessarily. Retailers like Walmart and Best Buy also reprice. They change their prices constantly, to stay competitive. These big guys shift their prices around about 50,000 times each month.

Perhaps you remember the days pre-internet where major retailers would “spy”, or take notes, on each other right out in the open. For decades, they’d send staff to competitors’ stores to manually jot down prices and other store features. (Perhaps they even snap some shots.) The stores would act on this information; adjusting prices accordingly. (The store being visited would, in turn, become the visitor of the other store before long, too.)

With the dawning of E-commerce and automatic repricing, however, price comparisons became easier for the retail establishment…and for sellers of any size, in any marketplace. And that includes marketplaces like Amazon.

“How do I, or how does repricer software, for that matter,” know” what the prices are?” you may ask. Good question! On internet marketplaces, different sellers’ offers are customarily shown side-by-side so buyers can compare prices very easily. This is one way in which uncompetitive prices (too “out there” to possibly win) disappear into the background noise of the trading.

Of course, you can reprice items yourself. “I already understand that the key to an effective repricing strategy is to continuously sample and properly analyze the competitive environment,” you’re saying. “I can handle this.”

Great—if you’re a small seller! However, unless you have only a few Stock Keeping Units (SKU’s)—more about that later—it won’t take you long to realize that it’s practically impossible to reprice each and every product manually.

Bottom line: if your intent is to reprice, you need a little computerized help. To be exact, We’ll discuss the different types there are in a moment.

Repricing Software: Which Features?

You won’t find a lack of options in the repricing software market. It’s a wide-open, competitive and rapidly developing field. Repricing tools are available as standalone services, or as part of integrated marketplace management tools. Now remember…successful marketplace repricing is not just about price. We’ve already touched on Amazon’s sophisticated algorithms which determine sellers’ ranks.

Let me ask you something: How many SKU’s do you have to keep track of?

SKU’s or Stock Keeping Units are unique identifiers for each of your product lines, often portrayed as a bar code, for each store or catalog product. It’s usually not a requirement to place SKU’s on inventory…just on items that will be sold. As mentioned earlier, if you’ve only got a few SKU’s to keep track of and so little competition that you can monitor your competitors and update prices manually, that’s terrific. Of course, that’s not the reality for most sellers. In fact, merchants who have built successful businesses have had many SKUs, and have usually found themselves selling alongside tough competitors…who themselves are repricers! Most sellers need automation to do serious repricing.

Repricers vary in accordance with their features and methodology. What’s your budget like? What are the features you need? Read the listings offered and see what resonates—and what doesn’t. For instance, you may have a strong desire to take total control of your price structure to increase profits and boost sales. Find that solution. Perhaps what would really turn your head is knowing you won’t be selling the same product twice! Software that keeps track of your sales and inventory would be right up your alley. And since you’re competing for the Buy Box, check to see if the software you’re considering buying specifically mentions helping you attain that goal. (You’ll find that many companies do mention helping you win the Buy Box.)

Other questions to ask yourself:

  1. How many products are in your inventory? A larger product count will mean more powerful software.
  2. How much time can you spare for initial setup and ongoing configuration? Keep in mind that your data may not be repricing-ready…or it may be inaccurate. Just as a system is only as good as the people who program it, repricing software is only as effective as the merchants who feed it the data it will need to do its job. Since repricers analyze your data AND the marketplace in order to arrive at relevant pricing decisions, mistakes can be made if your data is incomplete or inaccurate.
  3. Have you calculated your own operating costs accurately? This is particularly important when expecting repricers to make “informed” decisions for you. If you configure a repricer to go too low, you can lose money. If it doesn’t go low enough, you won’t make any sales. It’s a fine balancing art…one you’ve walked before, if you’ve ever pitted your product or service alongside worthy competitors.

Amazon Sellers Need To Know Their Costs

While it’s true that successful repricing isn’t just about price, pricing IS a key factor, and if everything else is equal, the lowest price will win the day. If you are going to compete seriously, you have got to roll up your shirtsleeves and get to work on lowering your prices. There’s no way around it. To do so will mean that your margins will shrink. In such a scenario, keeping on top of every single cost your business incurs is absolutely critical to remaining competitive…and to avoiding losses.

Sellers normally have a good picture of their direct costs – stock, shipping, packaging, etc. The problem arises with indirect costs – salaries, storage fees, currency exchange and so on. Here, sellers may find themselves on shakier ground. What you need to do is arrive at a reasonable and profitable (albeit by not such a high margin) unit or product cost figure.

Spend a little time putting all your direct and indirect costs together so you can factor them into your unit cost. Once you have an idea of what your unit cost is per SKU, you will be using this unit cost as your absolute floor or the minimum price that the repricer can price down to. That data will be entered into the repricer software.

If Accounting isn’t your strong point, hire a part-time bookkeeper who can keep tabs on your figures for you. You’ll find it’s worth a small investment of your time and money.

To recap, if you’re like most merchants, you are in need of an intelligent automatic repricing algorithm which will be fully automated. Why? Using an algorithmic repricer will avoid the price wars while optimizing sales and profit.

Bingo, you’re thinking. Price wars are time-consuming and distracting, alright. This sounds like it’s right on the money. But I thought rules-based repricers were more dependable. Don’t I want to map out a blueprint of my own rules with this repricer?

You may. But not necessarily. Let’s go a little in-depth here.

Rules-Based vs. Algorithms: And Why I Recommend The Latter

There are two types of repricers:  rules-based and algorithmic.  Although there are numerous repricers on the market, not all use a rule-based system. Let’s go into what a rule-based repricer depends on as its “brains”.  Basically, a rule-based system requires the seller to define a set of pricing rules.  This will help it “think”.  These rules can be very complicated and they often conflict with other merchants’ repricer rules, causing extreme price wars and price escalations that are nearly always detrimental to the seller.

Now let’s discuss an algorithm-based repricer. According to webretailer.com, you only need to provide an algorithmic repricer with the minimum price you are willing to accept for your products.  Since the rules aren’t input into the system, an algorithm repricer uses its own predefined set of rules, along with price experimentation/strategizing and competitor data. In the best of all worlds, an algorithmic repricer (completely automated) optimizes your price AND keeps it as high as possible.

For example:  let’s use something that’s sold very often on Amazon–books. We’ll say there are two primary sellers of the same classic novel. Seller A thinks somewhere in the ballpark of $14.00 per book would be a good unit price. However, he IS willing to accept $11.00—if it’s offered.  That’s the information he inputs into his algorithmic repricer.  The sale won’t be clinched if Seller B is also selling the same book for $10.00 because, if everything else is equal, in all likelihood the buyer will opt to go with Seller B.

The trade will be over before there are any time-consuming, distracting price wars.

Going forward, there will be plenty of other opportunities when the scales may NOT be so equal.  If Seller A works on polishing his selection and his marketing presentation, he may be the winning merchant next time!  To do that, he’s going to have to convince his would-be buyers that quality and delivery and perhaps other variables matter just as much, if not more than, price.

In the rules-based scenario, the price would have gone lower and lower until an actual price war between Seller A and Seller B broke out, and perhaps no profit margin would have been realized by either seller.

A Little More About Algorithms.

An algorithm is starting to look like the best deal, right?  I thought so. An algorithm is more than a simple calculating mechanism. In this age of so much data, what might have been a simple calculation in a previous technological time might today result in layers of information which take much more time to resolve.  This is true for the entire gamut of calculated data, whether the category is mathematics, online search results or Amazon repricing tools.

If one does a Google search, one comes up with this definition for algorithm: a process or set of rules to be followed in calculations or other problem-solving operations—especially by a computer. Yes, they use rules, but they are existent, universal and more benign; they are not to be “tinkered” with, once you’ve told the computer the baic “how”.  It does not require consistently shifting input which is then open-and-closed or rigid.

Howstuffworks explains that algorithms are techniques that tell the computer HOW to do what you want it to. Algorithms, unlike rules-based repricers, do not prescribe a result. A fully automated algorithmic Amazon repricing software determines the optimal pricing for your merchandise without the need for pricing rules.

Rules-based procedures are inflexible and are often of a straightforward nature, following an “if – then” logic. An algorithm, on the other hand, is a proper, fluid, flexible (within a set group, such as a “sort”) strategy of calculation and processing of large data sets. Examples of algorithms are prevalent in the world’s leading technologies.

Two Examples of Popular Algorithms: Google and Amazon’s Buy Box

One example of an algorithm that comes to mind is Google.  Their search engine results are based on secretive algorithms–which are said to change about 1,000 times a year. (But once they are changed, unlike rules-based “rules”, they do not fluctuate, until the next change.)

You may have noticed that your often-used websites appear more often, and higher up, than lesser-used sites.  That’s because Google’s algorithm evaluates and ranks websites and pages, ultimately determining the order in which they show on the search results page.

Amazon’s Buy Box is another example of an algorithm. Clearly, Amazon does not follow a single rule, or even several rules, for that matter. It does not pick a Buy Box winner based on an open-and-closed formula.  Instead, Amazon collects offers that are changing in real-time, not only in price but also in Stock availability, seller ratings, performance records, and other metrics, to determine the winner of the Buy Box.

“But doesn’t Amazon frown upon repricing tools?” you may wish to know.  “Millions of sellers constantly modifying their prices will put a heavy strain on their servers!”  At first glance, this strategy may seem a little unfair to those sellers who excel in other criteria such as shipping speed and customer service. While it’s true that, to some extent, sellers with the best repricing technology will have the most success, Amazon is all for healthy competition like this.  Their focus is all about providing customers with the best experience possible, and that includes low prices. By enabling third-party sellers to reprice automatically, they actually are helping to drive prices lower; thereby increasing the likelihood of having their target audience opt to buy through Amazon rather than through another website. In essence, Amazon’s sophisticated ranking algorithm means that sellers cannot hope to forge a successful profit margin based only on low prices.  The bottom line is this: if you sacrifice delivery speed and customer service to provide low prices, you won’t get by Amazon’s algorithm.

Repricing Tools: Give Me Some Brand Names!

So what are some of the more respectable repricing tools in the market? Try these. You’re going to have to do a little sleuthing to find out if these companies use rule-based or algorithmic formulas…or both. Use whatever feels best for you, and, if your first selection doesn’t work, try another.

Appeagle – This setup provides another intelligent rules-based repricer. Need to test the waters? Grab the free 14-day trial. There’s no long term contract once you decide to go onboard. Apparently, you can cancel at will. Appeagle claims to help you protect your product profits by letting you set a minimum price on your listings to avoid selling below your acceptable profit margin. In addition, they help your products reach their full potential by pricing upwards. Their reporting is pretty decent, as well.

RepriceIt – This company bills themselves as being able to provide “intelligent pricing”. One of the oldest repricing tools, the company: “[D]iscovered that most of our prices on Amazon became stale in less than 24 hours; some in less than an hour. It wasn’t long before we realized that automated repricing was the only way to effectively compete and increase our revenues.” When they were unable find a suitable tool, “we built our own repricing application from the ground up.” Here’s a clue as to whether they’re rules-based: “Fully configurable.” and “Our intuitive repricing engine will assess the competition and reprice your inventory based on the rules you set up.” (Garnered from the RepriceIt site listing.)

Feedvisor – Built for FBA sellers. Self-dubbed as the first fully algorithmic repricing platform, the best feature of this repricer is that it requires no pricing rules. This makes this repricer completely automated, allowing sellers to focus on delivering the best possible service to customers and procuring the best possible products at great prices. They also offer unlimited repricing for an unlimited amount of products – most repricers limit the number of products you can reprice at anyone time.

Sellery – The site claims that you can reduce pricing mistakes with Sellery’s automated, item-specific floor price calculation. For Sellery to come up with a “minimum price”, all it needs is your item’s cost. Sellery factors in everything else – Amazon fees, FBA and shipping costs, the margin or markup you want – to come up with what they term an individualized and accurate minimum price which keeps you flexible and profitable.

RepricerExpress – This company is one of the largest repricers in the market, with more than 1900 sellers as customers, and more than 75 million products being repriced at any one time. This repricer allows you to setup custom pricing strategies where you set pricing rules to maximize your sales and profit margins.

There you have it: a good starting lineup. If you’re going for a repricer, the rest is up to you. To review, repricing software helps you to maximize the value of each sale, and helps you procure sales that you didn’t even know you were missing. Just like every tool that you use to run your Amazon business—from a hand-held calculator to your laser printer—an automated repricer should make your life easier and should also add value. Remember that all automatic repricing software isn’t created equal. Repricing software is an investment of time and money and, as with any investment in your business, you’ll need to do your research. Again, find software that you’re comfortable with and commit the time needed to learn how to get the most out of it. You’ll be glad you did.

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