Amazon Price Wars Don’t Lead to Peace or Profits

By Tami Ben-David
Published on February 18, 2014 | 2170 views

blog 20.6

Selling on Amazon can be a cut throat business. Since 80% of Amazon sales go through the Buy Box, it’s something that every seller wants to win and many sellers will stop at nothing to get! As a result, one phenomenon that sellers often get caught up in is the aggressive price war.

How do price wars break out?

A price war originates with the simple concept that low price is a deciding factor in who wins the Buy Box.

One clever seller thinks to himself that if low price is so crucial, all he needs to do win the Buy Box is set his price the lowest of all the competition. His thinking is that if he is just a fraction lower than the current Buy Box winner (by even one cent), he’ll be able to secure the Buy Box, gain a huge amount of sales, and with it a huge amount of profit.
Wrong.

This clever seller’s plan soon backfires on him when a second seller responds with the same thinking. Seller Number Two lowers his price to one cent lower than Seller Number One’s price. He succeeds in his mission, secures the Buy Box and assumes that he will now gain a huge amount of sales, and with it a huge amount of profit.

Can you see the pattern that is emerging?

Price wars occur when one seller after another reduces their price to undercut the competition.

The price of the product gets lower and lower as a fast and furious race to the bottom ensues. This leads to minimal, if any, profits all round.

So as it turns out, price wars aren’t so peaceful… nor are they profitable.

It takes two to tango

What people consistently forget is that the Buy Box is not won by price alone. While price is certainly an important factor, it is not the only one. The Amazon Buy Box exists in order offer the customer the best possible value for their money. This does not only take low price into account but high seller performance too.

A high seller performance rating is crucial to any seller who wants be successful on Amazon.

If all (or even some) of the metrics related to seller performance are taken into account and improved upon by the seller, not only will they have a higher chance of winning the Buy Box without lowering their price, but they may even be able to increase their price and still win it.

Here are some of the things you should be working on in order to increase your chances of winning the Buy Box:

  1. Ship quickly and ship on time.
  2. Attain positive feedback and lots of it.
  3. Respond to customer queries quickly.
  4. Have enough in stock so you won’t have to cancel orders.
  5. Make sure the product is in top shape.

For information about which of these metrics affect the Buy Box the most, and how to improve your ratings in these metrics, see Feedvisor’s Buy Box Bible. You’ll discover exactly what you need to do to in order to maximize your ratings and improve your chances of winning the Buy Box.

Price wars takeaway

Granted, a price war is a pretty extreme example of losing out on profit. However, if you don’t focus on improving your seller performance metrics, you’ll always have to set low prices to even stand a chance of winning the Buy Box and you’ll never be maximizing your profit potential.

Feedvisor’s algorithmic repricing solution is designed to price up, not down. This means that sellers will be avoiding price wars and winning the Buy Box at a higher price.

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About the Author

A British ex-pat, Tami been writing and content-strategizing for Israeli tech start-ups for the last 5 years. When she's not writing nerdy content, you can find Tami on open water charity swims or traveling to far-flung countries.

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