It’s no secret that Amazon is great at changing prices. Its algorithms adjust prices thousands of times a day, often in response to changes at other online retailers. But what’s less known is how and why Amazon price changes so frequently.
But why? It may seem like an unusual strategy, but it actually makes sense given the way that Amazon operates as a company.
For sellers, this is both a challenge and an opportunity. The challenge: competition. As more sellers set up shop on Amazon, it’s harder for new sellers to stand out. The opportunity: scale. When you sell on Amazon, you can reach a ton of people with a simple click of your mouse.
The Reason Behind Amazon Price Changes
Maybe you too have noticed that Amazon.com changes its prices a lot. A price you see in the morning may be gone by the afternoon, and then back again tomorrow.
To better understand amazon price changes, it helps to know how the e-commerce industry works. Amazon is essentially a very large retailer, one that sells just about everything from books and diapers to food and furniture and even a baler wire to various industrial products — nearly 6 million items. It also sells services like cloud computing storage and handles shipping for other retailers’ products.
What you may not know is that Amazon has a separate business providing e-commerce technology to other companies — including those of offline retailers like Staples and Macy’s, as well as online ones like Diapers.com, which it acquired in 2010 for $540 million, according to The Wall Street Journal.
In short: Amazon sells lots of things, but it also helps others sell lots of things online.
This means that all those prices you’re seeing aren’t necessarily set by Amazon itself. Sometimes they’re set by other companies selling through its marketplace. Often they’re set by automated computer programs called bots that scan competitors’ sites and update prices on their own — sometimes every few hours or even minutes, depending on how often competitors change their prices.
How Can Amazon Do It?
The short answer is that Amazon has a complex system that can automatically adjust prices based on a variety of factors.
Amazon’s price-setting algorithm is called “dynamic pricing.” A typical online retailer changes their prices manually. Amazon, on the other hand, does this automatically. The company’s pricing strategy is to offer low prices consistently and without much effort from the customer. This gives customers an incentive to keep shopping with Amazon instead of going elsewhere.
The algorithm tracks the price of every item on the site, and when it identifies a lower price elsewhere, it adjusts the price on Amazon accordingly. It monitors pricing from Amazon’s competitors, as well as its own vendors, who often sell directly to customers through the site.
Amazon’s algorithm can also set prices based on which items are selling well or poorly. If there are too many unsold items in a particular category or if sales for an item have been slow for a period of time, the algorithm will automatically lower the price until demand improves.
While all of this happens behind the scene, customers can see these changes in real time as they shop on Amazon. A quick check shows that over the course of just one hour prices for many popular items fluctuated by more than 20%. In some cases, this means big savings for shoppers who are willing to be patient and keep checking back to see if their desired items go on sale again.
Amazon Pricing Strategy
If you’re selling on Amazon, the inability to manage pricing changes can be a significant issue. The platform doesn’t have any option for bulk price change management, so sellers will have to go through each product one by one, which is very time-consuming and easy to overlook.
Amazon has set things up so that shoppers don’t have to go through the hassle of comparing prices page by page to find the best deal on a product. It’s all done for them thanks to Amazon’s algorithm which automatically displays the lowest price at the top of search results.
The result is that sellers must constantly monitor their competitors’ prices and adjust their own accordingly if they want to stay in the game. This is where Amazon price changes come into play — they’re the result of repricing software or manual repricing efforts.
Here’s how amazon pricing strategy can help you as a seller:
Analyze the current pricing landscape
Amazon’s search results are a competitive marketplace in and of themselves. The first thing you need to do is find out how your competitors are pricing and how that compares to your current strategy.
Create a baseline for your product
When you know what competitors are charging, you can set your baseline price. We recommend using the average of the lowest three prices as a starting point. This will give you a good idea of the lowest price you can charge while still maintaining enough profit to make Amazon worth it.
Set your minimum price
It’s important to set a minimum price so that you don’t drop below what it costs to break even or make a profit on each sale. You can do this by adding an appropriate amount of profit margin to the cost of goods sold (COGS) for each item. If you sell multiple products in the same category, use your highest cost item as a guide. Then, it’s time to put those numbers into action.
Optimize for sales velocity
This is essentially what I was talking about above but with a more sales volume focus. Lower prices will generate more sales, which will allow you to be more aggressive on the buy box and ultimately increase your ranking.
The Amazon price is constantly changing, and if you want to stay ahead of the competition, or even just ensure that your products aren’t being under-priced, then the best way is to monitor the prices yourself or hire someone to do it for you. By working with Amazon Experts, they can easily set up automatic notifications when the price for a product changes, which means that you can efficiently adjust your own pricing strategy as well.