Dynamic Pricing on Amazon: A Brief and Easy Explainer

Do you remember the experience of booking airline tickets long before online shopping was a thing? 

If you asked the agent for the airfare of the same flight for two different times on the same day, there was a strong chance that they would quote you different prices. 

This is one of the most significant examples of a dynamic pricing strategy from the pre-internet era. 

Today, dynamic pricing is one of the critical elements of selling online, including on Amazon.

What is dynamic pricing on Amazon? How does it work, and what are its benefits and downsides? 

We will cover everything related to the dynamic pricing strategy for Amazon sellers in this post. 

What Does Dynamic Pricing Mean?

Dynamic pricing is a concept where a seller/business changes the item’s price based on different factors. It is entirely in contrast with the fixed pricing model, where price tags remain the same in any case. Dynamic pricing primarily depends on these factors. 

• Demand 
• Seasonality
• Price changes by competitors
• Time of the day (morning, afternoon, evening, etc.)
• Market trends

Using dynamic pricing to optimize product prices and generate business is very common in e-commerce. Since online consumers have it easy to compare two similar products for their prices, the correct use of dynamic pricing can give one seller an edge over the other. 

Does Amazon Have a Pricing Policy?

Before we jump to discuss how dynamic pricing works on Amazon, it is imperative to have a quick overview of Amazon's pricing policy for sellers. Even though sellers are independent in setting their prices on Amazon marketplaces, the e-commerce giant oversees the prices through the lens of its fair pricing policy. The crux of this pricing policy is to protect customers’ trust in Amazon marketplaces. 

How Dynamic Pricing Works Out with Amazon's Fair Pricing Policy?

You can go with a dynamic pricing strategy, given that you steer clear from the following tactics. 

• Selling a product at a price considerably higher than its current prices on Amazon and other online shopping platforms.
• Setting a price that misleads consumers.
• Setting an excessive shipping fee that doesn’t reflect current public carrier rates and customers’ perceptions. 
• Setting a higher price for bundle products as compared to the price of individual units of the same product.

Amazon ensures the implementation of a fair pricing policy by actively monitoring its marketplaces and carrying out on and off-Amazon price comparisons. The violation of Amazon's fair pricing policy by a seller can lead to their removal from the Featured Offer, suspension of the shipping option, or the removal of the offer altogether. If a seller is found violating the policy repeatedly, Amazon also suspends their selling privilege on the platform. 

How Does Amazon Dynamic Pricing Work?

Before looking into how dynamic pricing works on Amazon, it is imperative to understand why sellers want to fiddle with pricing in the first place. 

Sellers want to keep the pricing of an item dynamic to get a competitive edge over other sellers selling the same item. They also want to keep prices flexible and leverage higher demand spikes to increase profit. Dynamic pricing on Amazon caters to these aims and objectives of sellers. 

Therefore, listing prices on Amazon play a significant role in how a seller is featured for the given product among all the sellers selling the same item. This is where keeping the price dynamic becomes more critical. 

Similarly, adjusting the prices based on demand also streamlines and improves the sale for private label sellers not in the race to win the Buy Box. 

In short, dynamic pricing or repricing (as commonly known among sellers) is an essential part of selling on Amazon. 

Given this significance, Amazon offers sellers an in-built repricing tool called Automate Pricing. 

What Is Amazon Automated Pricing Tool?

Automate Pricing is the repricing feature given in the Pricing drop-down menu of Seller Central. It is free for all sellers with a Professional selling account. This in-built feature allows sellers to peg their listing prices to different events (e.g. change in Buy Box prices) within the set minimum and maximum limits. In addition, you can use Automate Pricing for individual SKUs as well as the entire product portfolio. 

The minimum and maximum price limits at which you want Amazon Automate Pricing to change price can be either in percentage (of the product) or the exact amount. However, the minimum limits can't be lower than 1% or $0.10. Meanwhile, you can only stay within the maximum limit of less than 90%.

Once you link the price of an SKU to an event via Automate Pricing, your pricing becomes dynamic. Now whenever the threshold for the given event reaches, your offered price will be changed accordingly within the prescribed limits. 

How to Use Amazon Automate Pricing Tool for Dynamic Pricing?

Amazon Automate Pricing primarily offers two options to keep the prices dynamic. 

You can either choose the Pre-Defined Automated Pricing Rule set by Amazon or customize the repricing strategy through the Create a Customized Pricing Rule option. 

Let’s discuss both of these repricing options one by one.

Pre-Defined Automated Pricing Rule 

As the name suggests, this is a repricing already sought out and set by Amazon that you can use for any of your SKUs. This rule is also called the Competitive Price Rule by Amazon (under the main section of the Pre-Defined Automate Pricing Rule in Seller Central). This preset repricing entails matching the Buy Box price for the given ASIN, comparing prices from outside Amazon, and updating prices if other sellers of the same ASIN change their prices. 

Create a Customized Pricing Rule

You’re not bound to use Amazon's pre-defined repricing rule only. The platform also allows you to create your own repricing threshold using the Create a Customized Pricing Rule tab on the Amazon Automate page. You can use four fundamental principles to create your own dynamic pricing rule on Amazon. 

1. Competitive Buy Box

If you want to keep your pricing dynamic to win the Buy Box, you need to use this option to customize your repricing rule. You can tie your price with the Buy Box. So, whenever there is a change in the Buy Box price, your offer will be adjusted accordingly. Similarly, you can go further and keep your price lower than the Buy Box price by a specific amount to ensure you always get the Featured Offer. 

2. Competitive Lowest Price

If you want to offer the lowest price to your customers at any given time among all the available offers and listings, you can choose this repricing option. 

3. Competitive External Price

This option lets you peg your pricing with the retailers outside of Amazon selling the same product. Amazon also factors in the competitive prices (outside of its marketplaces) as well to award the Buy Box to a particular offer. Therefore, this repricing principle can also help you win the Buy Box. 

You can choose from two options under the heading of Competitive External Price. 

Match External Competitive Price: Your price will match the competitive price offered by external retailers. For instance, if your price is $10 and the competitive external price is, say, $12, your price will be raised to $12. Similarly, if the competitive external price is $8, your price will also be moved down to $8.

Stay below the External Competitive Price: By setting this condition, you will keep your prices always below the price tags of external retailers. Your price will only update if the external competitive prices go below your current price.  

4. Based on Sales Units

Are you testing a new product and unsure about the right market price? You can use this customized repricing option to determine the price you want to sell your private label items. Through this repricing option, you can set a specific price drop if a certain number of sales don’t come about in a certain time period. Similarly, you can automate the price to be raised if the targeted number of sales happens in a very short time window.

Steps to Create and Implement a Repricing Rule through Amazon Automate Pricing

Click Get Started on the Automate Pricing homepage if you’re creating the dynamic pricing rule for the first time. 

1. Select the type of rule (among the four discussed above) that you want to create from the drop-down list.
2. Next, you need to name the rule you’re creating. Make sure you choose a name that helps you remember why you have assigned a particular SKU to it afterward, e.g., Christmas lowest price adjustment. 
3. After that, click Proceed to marketplace(s) selection and select the marketplaces where you want to implement that dynamic pricing. Then, click Save and Continue. Subsequently, you will need to choose the price parameters you want to set for that particular rule. 
4. First, you will need to choose the primary price action. For instance, if you select Competitive Buy Box from the four principles, you will need to choose “match”, “beat”, or “stay above”. 
5. Second, state the price margin in percentage or amount by which you want to automate the price e.g. beat the Buy Box price by 2%. 
6. Third, apply the filters to fine-tune your pricing changes to only relevant offers. For instance, you can set if your price should only be compared to other FBA offers. 
7. Finally, review how the rule and its details have come about by reading the Rule Summary. Then, click the Save this rule button to make this rule part of your repricing chessboard. 

If you have selected more than one marketplace in step 3, you will need to define every marketplace's pricing parameters (from steps 4 to 6). 

After outlining the customized pricing rule, you can select any of your SKUs from the catalog and apply your customized repricing rule to it.

Third-Party Repricing Tools: An Alternative to Amazon Automate Pricing

Amazon launched its built-in repricing tool in 2016 to counter the growing popularity of third-party repricing tools. However, Amazon has yet to succeed in making third-party tools irrelevant. Therefore, if you want to set dynamic pricing of your offers on Amazon, you have options other than Amazon’s built-in price automation tool. 

But why use a third-party repricing tool when there is a free built-in tool for the same purpose? 

There are multiple reasons why many sellers still prefer third-party repricing tools over Amazon Automate Pricing features. 

• Amazon’s built-in repricing feature primarily caters to customers. Therefore, the repricing it carries out is mostly about lowering sellers' offer prices. In contrast, independent repricer tools mainly cater to sellers and ensure they don't always have to compromise on their profits to win the Buy Box. 
• If two sellers are using Amazon Automate Pricing for the same ASIN, the price for both sellers will be dictated by the combination of the repricing rules set by them. Many sellers consider it a flawed repricing arrangement where one seller may get unjust favor over the other. 
• All the top third-party repricing tools offer more features and better user experience than Amazon’s built-in tool. For instance, price history, competitor analysis, and repricing while in Buy Box are some standard features in third-party repricers. However, they are missing from the Amazon Automate Pricing tool. 

How Do Third-Party Amazon Repricer Tools Work?

First, you need to sync your Seller Central account to a third-party repricer tool, usually through Amazon API Gateway. Then, just like Amazon’s built-in repricer, a third-party repricer tool allows you to set the rules and price parameters to trigger the price changes. Usually, you get more rules and features to play with in third-party Amazon repricers. 

Benefits of Dynamic Pricing on Amazon 

As evident by the above discussion, there are multiple benefits of using a dynamic pricing strategy for an Amazon business. 

Improve Sales Volume and Revenue

For Amazon sellers who opted for the wholesale and arbitrage model, winning the Buy Box is the only way to generate sales. And the dynamic pricing strategy plays a vital role in improving their chances of winning the Buy Box. Even private label sellers can leverage dynamic pricing to improve sales volume and revenue by offering lower prices at the right time and higher prices during demand peaks. 

Saves Time

If you have multiple SKUs lined up across different product categories, manually adjusting your offers for all of them can take a lot of time. By moving to a dynamic pricing regimen via Amazon Automate Pricing or any third-party repricer, you can get around this time-consuming activity while reaping all the other benefits of repricing. 

Streamlines Inventory Management

Dynamic pricing can also help you improve your inventory management. A sound dynamic pricing strategy can provide a balanced supply chain environment with no shortages or overstocking. You can always set triggers where prices can drop for overstocked items. Similarly, out-of-stock situations can be avoided, with prices automatically going up for in-demand products. 

Helps Maximizing Profits

Usually, sellers are advised to lower their prices to win the Buy Box. It is true for most cases but not for all. There are many instances where the Buy Box price goes up due to demand spikes and how competitors have priced their offers. In such a scenario, you can jack up the price a bit and still win the Buy Box. 

Suppose you’ve manually set your offer price at, say, $15 when the Buy Box price is also the same. After two days, the Buy Box price goes up to $20. If you have fixed the price at $15, you’re likely to win the Buy Box but at the cost of additional profit. 

In contrast, if you use dynamic pricing and set the trigger “match the Buy Box”, your price will also go up to $20. So if all your seller metrics are excellent, you will still win the Buy Box while maximizing your profit. 

Downsides of Dynamic Pricing on Amazon

With all its benefits, dynamic pricing also has some cons that need to be discussed. 

Ignites Price War

The race to win the Buy Box can get fierce in any competitive category and marketplace. In such a scenario where sellers want to match the Buy Box by any means, the dynamic price can cause a price war where only customers come out as winners and sellers only have to bear the brunt of that war with slashed profits. 

Eats Into Profits

Dynamic pricing usually entails lowering pricing to make your offer more eligible for the Buy Box and attractive to customers. Especially if you're using Amazon’s built-in repricing tool, which is primarily designed to serve customers. Therefore, its pricing automation usually comes into play to lower the price tags. This continuous price dip eventually eats into profits and can affect the revenue you set as a target.  

Can Lead to Customer Attrition

For a private label seller with a brand, dynamic pricing can act as a deterrent against customer loyalty. When a consumer gets to know that a brand doesn’t offer fixed prices on its items and continuously change its price tags, they tend to look elsewhere for better and stable prices. 

Best Pricing Strategy for Amazon

No singular, universal pricing strategy works for all Amazon sellers. Instead, the effectiveness of a specific pricing strategy depends on the niche, the size of the brand/business, and the target consumer base. Here, we’re listing down some of the most practiced and effective pricing strategies on the world’s biggest e-commerce platform. 

• Offering the lowest FBA offer for a certain product helps sellers win the Buy Box. It also helps private label sellers undercut their competitors. However, this strategy is only profitable in the short run and is only suitable to gain traction if you’ve just entered a product category with your brand. 
• For wholesale and arbitrage sellers, pegging their offer with competitors’ prices can prove to be effective in getting the Featured Offer spot (given that their seller metrics are good). This is where dynamic pricing can come in quite handy. 
• The majority of consumers are not fans of price volatility. If you’re aiming to build brand loyalty and increase the count of your repeat customers, you can stick to the fixed pricing model. This is particularly crucial for brands that sell outside of Amazon and want to establish price uniformity. In contrast, the fixed price approach may not work for those who only sell on Amazon amid frequent price fluctuations.
• Season-based pricing is another prevalent trend among Amazon sellers. For example, the fourth quarter of the year is known for bumper sales among sellers and “out of stock” horror among buyers. In other words, the demand for many items goes through the roof during multiple holidays in the last quarter of the year. During this time, you can leverage the demand spike by increasing prices. Similarly, if you’re selling items that are related to weather (door draft stoppers, umbrellas, etc), you can increase the price during months when their demand rises. 

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FAQs

Before wrapping up the article, let's answer some frequently asked questions about Amazon pricing and repricing. 

Does Amazon Change Prices Based on User?

Amazon categorically states that it doesn’t charge consumers based on their personal data. Nonetheless, Amazon certainly makes shopping suggestions based on customers’ search history and cookies. 

Does Amazon Have a Built-in Repricer?

Yes. Amazon introduced its built-in repricer tool in 2016 called Amazon Automate Pricing. 

Are Amazon Repricers Worth It?

Third-party Amazon repricers have the edge over the platform’s built-in repricing tool because they usually offer more features and a better user experience. Also, they work in favor of sellers, whereas Amazon Automate Pricing tool primarily accommodates buyers.

Final Words

We hope the above discussion helps you understand the concept of dynamic pricing in the context of Amazon marketplaces. Dynamic pricing greatly helps Amazon sellers survive in the cutthroat Amazon selling environment. 

On the other hand, it is also obvious that dynamic pricing is not a universally effective pricing strategy. It can turn out to be counterproductive in some instances as well. 

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