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How Sellers Can Overcome E-Commerce Inflation While Selling on Amazon
Amazon sellers are constantly dealing with outside influences that affect their strategies. One influence that’s been unavoidable this year is the challenge of inflation, which has hit an all-time high of 8.5%, the highest it has ever been in 40 years.
When Amazon sellers hear the term “inflation,” they typically think of rising prices and a weakening virtual currency. But inflation as an Amazon seller is much more complex than that. The rate of inflation is the change in the general level of prices of goods and services in a nation. It is not the same for everyone or for every item. It depends on the cost of inputs and the value of outputs and can be positive or negative. E-commerce inflation is not something you want to see as an Amazon seller.
So, how can you fight e-commerce inflation on Amazon and stay competitive in the long term? We will explore some practical strategies for lowering your risk of price volatility.
First, Why is E-commerce Inflation Bad for Amazon Sellers?
When companies increase their prices, they are competing on price. That’s a zero-sum game. If one company wins, another loses. If many companies all increase their prices, then all companies lose. For example, recently, Amazon announced it will be adding a 5% fuel and inflation surcharge to existing fees it collects from third-party sellers using their fulfillment services in the U.S. This is in an attempt to offset some of its own costs by passing fees along to Amazon sellers.
Despite fees increasing, a common strategy everyone takes to try to regain customers is to lower their prices. Unfortunately, this adds to the problem by reducing the overall amount that consumers are spending and putting pressure on prices at all levels of supply.
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How to Fight E-commerce Inflation While Maintaining Profitability
As Amazon sellers know, prices on Amazon need to be adjusted regularly to ensure that the seller is making a profit and that products are not becoming overpriced and losing appeal to customers. Right now, shoppers are feeling the weight of inflation and are already becoming more price-conscious.
To combat e-commerce inflation on Amazon, sellers will need to prioritize managing margins over volume. This mainly involves closely monitoring sales data and using repricing technology with automatic price adjustments, strategies, and price tracking capabilities.
Monitor Your Amazon Pricing and Sales Data
One of the best ways to fight inflation on Amazon is to track your pricing data and sales performance regularly. This can be done manually or using technology like Feedvisor’s algorithmic Amazon repricer to do the work for you. Track the data for at least the last 90 days. You will want to see when your products are selling well and when there might be an opportunity for price increases.
Win the Buy Box, and Often
In times of inflation, you want to win the Buy Box as often as possible. Customers are more likely to choose featured items because of the ease of purchasing and the design of the Buy Box itself.
By winning the Buy Box as much as possible, you will maintain a healthy profit margin. If the product doesn’t consistently win the Buy Box, then a competitor may win it at a lower price, causing them to take a smaller percentage of the sales, and your profit margins will be lower.
How to Win the Buy Box in Times of Inflation
- Increase your prices – In times of inflation, you should prioritize profitability over volume. Raise your prices slightly higher (this equates to 1-2%) and aim for slightly higher margins. If you have a good product, then you may be able to increase your prices while retaining your sales volume. Unfortunately, this strategy can get expensive if not done correctly. It could also damage your brand reputation if your customers are now paying more for inferior products. To use this strategy effectively, you will need a repricer such as Feedvisor’s award-winning algorithmic repricing platform that takes into account all external factors, including your competition, and automatically adjusts your prices.
- Lower your standards – As an Amazon seller, you want your customers to love you. They’re going to do a ton of research before buying from you. If you’re a high-quality seller, then you want them to pick you over your competition. This means that you need to be willing to accept lower margins than you might wish to. Low-quality products won’t win the Buy Box and you may be forced to accept lower margins than you’d like at this time.
- Go niche – If you’re selling general products, then go niche. Go to products that only appeal to a small percentage of your audience. This will make your products more unique and valuable to your customers.
- Focus on building a strong brand – The most important way to lower your margins is to build a strong brand. This will let you charge more for your products down the line. It will also give you an advantage over new competitors who have to work extra hard to earn customers’ trust.
Buy Box Misconceptions and Myths to Keep in Mind
There have been many articles about how to outsmart the Buy Box in recent years and, while many of them may work in specific situations, these are generally oversimplified, outdated, or incorrect.
Below are the most common fallacies about the Buy Box:
Price Point Manipulations Affecting Search Rank
It is a common misconception that raising your price will affect your search rank, and you need to have the lowest price to win the Buy Box. Unit sales, not prices, actually drive the search rank algorithm. So, in times of inflation, you CAN raise your prices and conceivably keep your sales volume to maintain the Buy Box if your product was selling well before.
Lowest Price Wins the Buy Box
Having the lowest price, or specifically, the theory of undercutting the lowest competition by a certain percentage and then taking off an extra penny to always win the Buy Box, is false. After testing this theory extensively with multiple products, at multiple price points, and in multiple categories, it is evident that this is not a fixed rule. The idea may have gained popularity because when the theory was tested on low-end products, it created a lot of false positives.
Although lowering prices can increase one’s chances of winning the Buy Box, continually lowering the price creates price wars between Amazon sellers, driving down profit margins on all sides. It is crucial to avoid these scenarios by employing holistic, data-driven optimization solutions that allow you to achieve an optimal balance between pricing and profits.
Using a repricing technology like Feedvisor’s powerful, “AI-first” platform can help you further grow revenues and profits by pinpointing the optimal pricing for each product in your inventory. Feedvisor’s machine-learning technology makes adjustments in real-time based on your minimum and maximum price points, operational costs, demand, and more so that your products are always sold at the right prices that are in line with achieving your business goals.
Final Thoughts: Prioritize Your Bottom Line
E-commerce inflation is reaching new heights by the day, making it harder and harder for Amazon sellers to stay afloat. Fortunately, there are strategies that Amazon sellers can use to combat this problem and prevent themselves from being pushed out of the market. Using our repricing platform, you can rest assured that you will always have a fair opportunity to compete for customers.