The article is part of our in-depth series on repricing strategies for eCommerce sellers. It explores the principle of pricing above competitors with the help of an automated repricer in an effort to boost your bottom line.
We'll be covering more repricing strategies in the future, including pricing below and price matching competitors to drive sales and profits in different situations.
Pricing optimization is far from intuitive in many cases
Price wars. The “race to the bottom.” You hear these expressions constantly in eCommerce, and for good reason: there are many online sellers who simply don’t understand how to price their products optimally.
Combine that with the fact that many sellers are using automated repricing platforms improperly, causing not only themselves to lose out on potential sales, but also affecting the entire landscape of sellers listing the same items, and you’ve got a recipe for a marketplace-wide pricing disaster.
But it doesn’t have to be that way.
With the help of proper automated repricing, sellers have the power to control their prices more efficiently and effectively than ever before. The problem is, sellers don’t always know what the best practices are when it comes to using this powerful software.
Many make the massive mistake of believing that the best repricing strategy is to price below all of their competitors, giving them the “most attractive” listing of a given product.
The problem with that line of thinking is that other sellers are inevitably thinking the same thing.
That means when you price below one of your competitors, chances are that there’s at least one other competitor on the same listing who’s also using an automated repricer with similar strategy settings. So, she’ll reprice below you, causing you to again reprice below her, and on and on it goes, leading to the infamous race to the bottom.
Don’t make a rookie repricing mistake like that, which will cause you to eat away at your profitability.
Instead, consider using the opposite approach, where you strategically price above your competition in an effort to boost profit margins, hinder the race to the bottom, and establish yourself as a premium third-party merchant in a sea of average online sellers.
Below, we make the case for repricing above your competitors and explain the best situations for employing this strategy with the help of your automated repricing platform.
Why having the lowest price isn’t as important as you think
At first listen, it may not make a lot of sense to price above your competition. After all, price is a major factor in Amazon’s Buy Box algorithm, and the Walmart Marketplace Buy Box is currently awarded to the lowest-priced seller of a given listing.
While the case for pricing above competition on Walmart is somewhat weaker at this point due to its less sophisticated Buy Box algorithm and preference for pumping “everyday low prices,” Amazon’s algorithm is hyper-advanced by comparison and considers more than a dozen seller metrics when deciding who wins a share of the Buy Box.
That means you don’t need to list an item at the lowest price on Amazon to win the Buy Box. Instead, consider your other Amazon seller metrics for each listing, including:
• Fulfillment method (preference is given to FBA and Seller Fulfilled Prime listings)
• Shipping time
• Handling days
• Backordered status / amount in stock
• Seller rating
• Feedback score
• Order defect rate
• Pre-fulfillment cancellation rate
• Late shipment rate
If your non-price Amazon seller metrics are superior to the non-price seller metrics of your competitors’ on a listing, then you’re in the perfect position to use a repricing strategy to price above them and still win the Buy Box.
Amazon’s algorithm will analyze each seller’s metrics on a listing, with each metric given a different weight in how it affects which seller gets Buy Box placement. Amazon sellers with the best combination of metrics, including landed price (which equals listing price plus shipping price) along with all of the non-price metrics listed above and more, will win a share of the Buy Box.
If you use FBA or Seller Fulfilled Prime for fulfillment, you’ll have a huge advantage over your MFN/FBM competitors when it comes to winning the Buy Box. Same goes for having a higher seller rating and/or feedback score, as well as faster shipping time and handling days and lower order defect rate, pre-fulfillment cancellation rate, and late shipment rate.
Amazon will never intentionally award the Buy Box to sellers who are backordered, and it avoids giving Buy Box placement to sellers with low stock levels, so it’s also imperative to maintain your inventory count for your best-selling products if you want them to stay bestsellers.
With such a complex calculation determining who wins the Buy Box, it’s clear that you don’t have to offer the lowest price on Amazon — and sacrifice precious margins — to gain the invaluable exposure that Buy Box placement grants.
Seeing a pricing-above strategy in action against different competitors
Now that you understand the difference between Amazon and Walmart Marketplace in terms of how the Buy Box is awarded, let’s delve into some specific scenarios to show you when you’ll want to consider using a strategy of pricing above your competition.
Let’s say you and a group of five other sellers are all listing the same air fryer on Amazon and it’s just a couple of weeks before Mother’s Day (or, if you prefer, just before Father’s Day.)
Here’s a closer look at your five competitors (to keep things simple, we’ll only analyze how fulfillment type, shipping time, and seller rating play into your pricing strategy):
• Seller #1: MFN with standard U.S. shipping time of 4 to 14 days and seller rating of 93%
• Seller #2: MFN with expedited U.S. shipping time of 2 to 6 days and seller rating of 96%
• Seller #3: FBA with Prime 2-Day shipping and seller rating of 95%
• Seller #4: FBA with Prime 2-Day Shipping and seller rating of 96%
• Seller #5: FBA with Prime 2-Day Shipping and seller rating of 93%
Now, let’s say you’re also an FBA seller with Prime 2-Day shipping, and you’re in the fortunate position of having a 98% seller rating. Because your non-price seller metrics are the best out of all your competitors (FBA for fulfillment, 2-day shipping, and 98% seller rating), you can win the Buy Box without being the lowest priced seller in the group.
Some experimentation will be in order to find the sweet spot in this scenario that earns you the biggest profit based on your Buy Box ownership and sales, so you should tinker with the amount you price above competition when you’re the best seller on a listing in order to maximize your profitability.
On the other hand, if you’re an FBA seller who only has a seller rating of 91% with the same competition, your chances of winning the Buy Box would diminish greatly if you attempted to price above competitors with superior seller ratings and the same fulfillment type.
In this instance, it would make more sense to use a price-matching strategy against your lowest-priced FBA competition in order to win a share of the Buy Box on that particular listing. Still, your share of the Buy Box might not amount to very much time, so you’d probably be better off working on boosting your seller rating or researching products where the competition is made up of sellers with lower seller ratings than yours and then starting to source and list them.
Similarly, if you’re an MFN seller with a seller rating of 98%, you could strategically price above the other MFN sellers on your listing in order to win a higher share of sales on the More Buying Choices page. But even with a higher seller rating, you may still find it impossible to win the Buy Box against your FBA competition unless you price below them.
That’s because fulfillment method and price are both believed to be weighted more heavily than seller rating by Amazon’s Buy Box algorithm, so you’ll have to compensate for using an “inferior” fulfillment method (at least in how Amazon’s algorithm perceives it) by charging a lower price than FBA competitors, despite having a higher seller rating.
In this instance, manual repricing would be difficult, and you’d benefit from using a repricer that lets you set different rules for how you reprice against FBA and MFN competitors on the same listing. With Informed.co, you could set up a repricing strategy that automatically reprices you above MFN competitors and price-matches FBA competitors to help you maximize exposure on the More Buying Choices page.
But, since the majority of sales on Amazon and Walmart are made via the Buy Box, you may want to go a step further by pricing above MFN competition and below FBA competition. In theory, that would price you at a sweet spot between your lower-priced MFN competitors and higher-priced FBA sellers, which has the potential to win you a share of the Buy Box — even as an MFN seller with FBA competition.
Another positive effect from pricing above competitors
With the awareness of automation tools like repricers growing every day, it’s clear that more of your competition will be relying on automated repricing tools as time progresses.
With that in mind, it’s important that revisit the scenario from the beginning of this article, where multiple sellers are using a repricing strategy of pricing below their lowest competitor, causing the dreaded “race to the bottom” that every seller fears. Sellers may be pricing below the lowest seller using the same fulfillment method, pricing below the current Buy Box holder, or pricing below the lowest-priced seller on the entire listing.
Whichever price-below strategy they’re using, due to the nature of newbie users, you may encounter competitors using these simple-yet-aggressive tactics more often than you’d like. Aside from being frustrating, these competitor price changes can alter the entire landscape of listings for the worse over time, dragging down the average price per listing and infringing on the margins of every seller.
Enter the counter-intuitive seller who decides to price above his competitors (hey, that’s you).
With your stellar seller rating and FBA fulfillment, you don’t have to price to pennies above your breakeven price just to get some time in the Buy Box. As a result of your ability to win the Buy Box at a higher price, any competitors using a price-below strategy pegged to the Buy Box winner will have their prices brought up when you win the Buy Box with a price-above strategy in play.
As long as you have top seller metrics, you’ll be able to sell at higher margins and simultaneously protect the profitability of your most successful listings by stunting any race to the bottom that your competition may be trying to start. The caveat, of course, is that the situation can change for the worse if your seller metrics get weaker, so it’s vital to maintain your metrics over time.
Why one repricing strategy is rarely enough for Amazon sellers
The most important thing to keep in mind when considering a strategy of pricing above your competition is that your chances of winning the Buy Box vary depending on each listing’s competitive landscape, in addition to unique factors that apply to each Amazon category.
For example, your 95% seller rating might be the highest out of all sellers on one listing, but on another listing, you may have competitors with seller ratings above 95%, making it much more difficult to win the Buy Box on the latter listing without some significant drop in your price compared to your competitors with better seller ratings.
And, if you’re like many Amazon sellers, you may have a combination of FBA and MFN listings because you want to have more control over how orders are fulfilled for expensive items, bulky/heavy products, and/or fragile goods.
If you fall into this group, then you should seriously consider having numerous repricing strategies in place for each segment of items that you sell.
You may want to create one set of repricing strategies for FBA items (say, one strategy for FBA items that cost you between $1 and $10, a second for FBA items that cost between $10.01 and $25, and another for items that cost you more than $25) and another, similar set of strategies for your MFN items based on their different cost prices.
With the help of Informed.co’s profit-based minimum price feature, you can create different strategies for each group of listings based on your minimum desired profit per sale, minimizing the amount of math you’d normally have to do when setting up your minimum price points (a.k.a. “min prices”) within each repricing strategy. You can express your minimum desired profit as either a fixed currency amount (in dollars, British pounds, Euros, etc.) or a percentage amount (5% profit per sale, for example).
So, in the above-mentioned scenario, you can hypothetically have three price-above strategies with a different minimum profits per sale set to each group.
For products that cost you between $1 and $10 (including shipping, marketplace fees, and, if applicable, FBA fees, which our software uses to calculate your profit), you could set your repricing strategy to automatically calculate your minimum price points to the price earns you $2 in profit per sale for each product.
Then, you can create another strategy for higher-cost products that auto-calculates their min prices to a price that earns you at least $5 per sale. For your highest-cost items, you could then create a final price-above strategy where your min prices would net you $10 in profit.
Note that these would be your minimum profit per sale in those listings, meaning you’d typically earn even more in profit per sale, unless you were always selling at your min price (which is highly unlikely). However, whenever you use a proper automated repricer, you’ll be required to set minimum prices for each of your listings to ensure the software never prices you below your breakeven point plus the minimum amount of profit you want to earn on each sale.
Continuing our example, a product that cost you $7 in total fees would never be priced below $9, which would earn you a $2 profit on every sale. Typically, your price would not sit at your min, so you’d expect that listing to be priced over $9 most of the time.
Similarly, a product that cost you $3 total would never be priced below $5, since it also falls into the first strategy with a cost price between $1 and $10. A product with a total cost of $15 would never be priced below $20 (for a min profit of $5 per sale), and a product with a total cost of $26 would never be priced below $36 (for a min profit of $10 per sale).
Having multiple repricing strategies like this allows you to optimize your product portfolio for maximum sales while ensuring you always make a profit you’re happy with on every sale.
How a veteran online seller uses a price-above repricing strategy
Now that you’ve heard the rationale for pricing above competition in specific instances on certain online marketplaces, it’s important to back it up with a real-life case study.
Enter Ryan Grant, veteran FBA seller and creator of the blog Online Selling Experiment. Grant’s selling success story is well documented, and he owes his success in part to embracing automation tools that streamline his operations and make it easy to focus on building his business in other ways.
According to his blog, Grant uses a repricing strategy of pricing 1.5% above the lowest-priced FBA seller on 70 to 75% of his inventory.
Grant, who uses Informed.co to automatically reprice his listings, explained that “pricing at this level above the competition will allow [him] to obtain Buy Box rotation, and also avoids [having his] prices spiraling downward as sellers continually adjust their prices to be the lowest.”
As a seller who wants to “maximize the value [he] receive[s] for every item,” this strategy helps him get a higher profit per sale than he’d obtain with a price matching strategy or an aggressive strategy of pricing below competitors.
While Grant’s strategy of pricing 1.5% above the lowest-priced FBA seller might also work for you, we encourage you to experiment with different strategies of pricing above competition on listings where it’s clear you have superior seller metrics to all (or a majority) of your competitors.
You may be able to win the Buy Box while pricing even higher above your competition than Grant prices above his.
Exceptions to using a strategy of pricing above competition
Grant may be a great example to follow if your business model relies on retail arbitrage, but he’s only one seller. Even so, Grant himself admits that he only uses a pricing above strategy 70-75% of the time, so it should not be viewed as your one and only option.
Another strategy Grant employs, which he says he uses about 20% of the time, is to price-match the lowest-priced FBA competition. There are three reasons he does this:
1. When he wants to drive sales of items before a product removal deadline, such as the April 30th deadline for having meltable products in FBA inventory.
2. When he has a reliable source of replenishment for a product. By price-matching, Grant finds he can typically drive slightly more sales than when he prices 1.5% above competition, so he opts for more sales at lower margins when he can maintain a steady supply of a product, thinking that his profitability on these products will be higher in the long-run because of the increase in sales.
3. When an item has been sitting in inventory too long for comfort. Price-matching can entice shoppers to buy, helping Grant free inventory space before long-term FBA storage fees get applied.
While Grant didn’t elaborate on any other repricing strategies he utilizes, it’s likely that he uses other strategies between 5% and 10% of the time based on the percentages he applied to the main two strategies he uses.
With that in mind, you should also be open to using other repricing strategies beyond strategic pricing above inferior competition and price-matching in certain scenarios.
Consider when you have a sluggish product sitting in FBA inventory with long-term storage fees looming. Instead of getting hit with unnecessary FBA storage fees that cut into your profits, you can try an aggressive strategy of pricing below all competition to get those products moving before you get penalizes with any fees.
This is especially handy when you have solid MFN competition that can meet or come close to FBA delivery time standards and you think you’re losing sales to them.
Depending on how desperate you are to avoid long-term storage fees, you can adjust your price-below strategy to beat your competition by a larger amount as you get closer to the deadline. If the strategy works out as planned, you’ll win twofold by avoiding long-term FBA storage fees and freeing up some cash.
While you won’t earn the profit you’d typically want on these sales, at least you’ll get some revenue back in your pipeline instead of having to pay out storage fees because your products weren’t selling.
With the money you free up by selling these products for whatever you can get, you can reinvest in your business by buying products that have a higher chance of selling fast, and you can consider the slow-selling products you invested in earlier to be sunk costs, which should always be ignored.
Why online sellers should use a repricer to price above competition
So, now that you’ve got the gist of when and why you should price above competition, as well as when you may want to consider other repricing strategies, let’s address the ol’ elephant that’s been lurking in the corner:
How in the world are you going to manage all of these repricing strategies?
If you’re working with more than a handful of listings (and who isn’t?), then there’s really no chance you’ll be able to keep up with managing the vast number of price changes required to constantly keep up with your competitors.
Just thinking about the amount of time that you (or one of your handsomely paid employees) would have to invest in monitoring the competitive landscape of every. single. listing. should make you shudder in fear of losing a grip on your work-life balance forever; let’s agree to never go there again.
Instead, consider the efficient, effective alternative of using an automated repricer. The right automated repricer will let you create and monitor a multitude of repricing strategies for all of your listings, just like we described in this article.
You could have a series of strategies that price your FBA listings above your FBA and MFN competitors on certain listings, another series of strategies that price match your competition for your MFN listings, and a handful of other, specialized strategies that you experiment with to try to boost your profits in creative ways.
An automated repricer will allow you to program your minimum and maximum price points per listing to ensure profitability at your minimum prices, while keeping you consistent with MSRP at your maximum prices to avoid being flagged by the marketplaces you sell on.
It will also allow you to determine which competitors to reprice against based on factors such as fulfillment type, seller rating, and handling days, so you don’t waste your time (and reduce your margins) by having your prices react to price movements of inferior competition.
Some repricers even have algorithmic repricing strategies that are built to perform specific tasks, like Informed.co’s “Get the Buy Box” strategy and Sales Velocity Algorithm (SVA) for private label repricing.
Created by our team of in-house eCommerce experts and senior engineers, Get the Buy Box strategically powers listings into Amazon’s most coveted real estate so you don’t have to think about how to do it yourself. Private label repricing relies on our Sales Velocity Algorithm to reprice listings with little to no competition using machine learning to help you hit your target 30-day sales velocity.
You may decide to set your repricer up with simple strategies at first, including any pre-built algorithmic strategies and/or simple rules-based strategies, just to see how each one affects your sales compared to your previous results from before you started using a repricer.
Once you see the repricer’s effectiveness within these initial strategies, you can try experimenting with new, custom strategies and tweaking your existing ones to see if you can improve sales even more, or keep them consistent, but with better margins.
The bottom line on pricing above your competition with a repricer
Depending on how good your Amazon seller metrics are and what fulfillment method you use, there may be a case for pricing above your competitors in an effort to increase your profit margins while maintaining a share of the Buy Box.
It may be counter-intuitive to price higher than competitors, being that price is a major factor in both consumer decision-making and Amazon’s Buy Box algorithm. But, if you use Amazon’s preferred fulfillment method — hey hey, FBA — and you have superior metrics, such as a higher seller rating, faster shipping and handling time, and lower order defect rate, you can potentially win the Buy Box even if you don’t have the lowest landed price on a listing.
It’s virtually impossible to keep up with manually repricing above your competitors when you have more than just a handful of listings, so an automated repricer is the best way to handle the process of constantly keeping your prices slightly above your targeted competition -- without having to devote countless, tedious labor hours to it.
If you don’t have experience using an automated repricer, have no fear: it’s easy to get started with help from the Informed.co Customer Success team.
When you sign up for a free 14-day trial, our team will connect with you before the trial officially starts to give you a crash course in our automated repricing platform. That way, you’ll get to know the software fast and from an expert to find out exactly how to get setup for success from the start.
Once you have a sound understanding of what to do and you’ve got your basic setup in place, you’ll be prompted to “Enable Repricing” and your 14-day free trial will begin.
So, while it may be called a “free 14-day trial,” we welcome you to our community with open arms and give you plenty of time to familiarize yourself with our automated repricing platform (getting your listings uploaded, your marketplaces added, and your min prices entered) to ensure you get the most impact possible from your free two-weeks of automated repricing and the experience doesn’t go to waste.
After all, nobody wants to lose days of their free trial learning how to optimize the software they’re testing out; they want to use the software and see if it actually makes an impact on their bottom line to justify an investment.
We’d love for you to experience the power of Informed.co to see whether our automated repricer will make a worthwhile investment for your online store. Get started on your free trial today.