How Merchants Can Cope with Pricing Volatility on Amazon - Part Two
By Ina Steiner
In part two of EcommerceBytes interview with Alasdair McLean-Foreman the founder and CEO of Teikametrics explains the concept of repricing on Amazon.com and how tools such as his can help merchants capitalize on Amazon's dynamic pricing. See Part one of today's interview on this page.
Sellers who use repricing tools must set up business rules to manage pricing. What kind of rules should every repricing tool offer?
Alasdair McLean-Foreman: There are many different rules that can be used to execute a particular strategy but I think at the very least any repricing tool should have some kind of floor or ceiling limit. E.g. The floor price is the price at which you do not want to sell below and a price that you do not want to sell above is the ceiling price (to prevent the price from going to infinity). Without this "safety threshold," a merchant risks over selling or mispricing. It only takes one error like this to recognize how important this is, especially if the product has a high sales rank in Amazon.
Do sellers always need to sell an item for more than cost, and what kind of margins are optimal?
Alasdair McLean-Foreman: Every seller is a different "agent" in the market, so their preferences for margins and profitability are often very different. In general, the goal for sellers is to sell more products for a higher net margin balancing volume and scale.
Is there an easy method for tracking product margins across a large inventory, and should that be built in to repricing tools?
Alasdair McLean-Foreman: Yes, we offer margin analysis tools across our clients' entire inventory. Amazon does not have access to each seller's costs, so this type of analysis is not available via the standard tools Amazon provides in their Seller Central interface - margin analysis is critical for deciding how to run an Amazon business and is a big piece of our analysis.
What are the other features and services merchants should look for in a repricing service?
Alasdair McLean-Foreman: Amazon repricing requires complex technology, so merchants should look for a service to be accurate and reliable in order to carry out basic repricing functions. For example, many Amazon repricers that are being marketed do not take into account the shipping charges that a customer pays on each Amazon listing. Shipping charges are part of the net price that is used to calculate the Buy Box low price, so repricing services that don't take into account shipping charges are not going to be effective.
We believe repricing is one important part of a larger multi-faceted strategy required to be successful selling on the Amazon platform. Outside of simple automated Amazon repricing, we offer additional services to help our clients grow their businesses on Amazon.
For example, we offer SKU optimization, FBA selection analysis, competitor analysis, inventory restocking analysis, and more managed services to help our clients maximize their performance.
I'm sure there are readers who are skeptical that repricers have the ability to increase pricing, since they experience pricing wars on Amazon firsthand. Can you provide some examples of how a repricing tool could increase prices for products?
Alasdair McLean-Foreman: Adjusting prices has to go both ways to be effective. For example, if a seller is already winning the Buy Box and all other competitors leave the listing, increasing the price quickly to their ceiling price is important to avoid losing profits by selling unnecessarily low. Our tools make dynamic adjustments like this as well as adjusting downward based on the competition based on customizable rules.
Are repricing tools best for products fulfilled by the merchant, by Amazon FBA, or for products sourced through drop-shippers?
Alasdair McLean-Foreman: The effectiveness of any repricing strategy depends on so many factors that ultimately relate to the supply and demand economics of the product (commodity) in question - each is different.
For example, if you're a drop-shipper and you're competing against another Amazon seller with the identical supply source and the only strategy is repricing against their listings, as a seller making a pricing decision you really don't have a competitive advantage to do anything other than list the product at your lowest selling price.
This is a good example of "race to the bottom" scenario you asked about above. From an economic's viewpoint this is an interesting scenario as it follows the mechanics of "Game Theory" - the equilibrium and end result is that each seller chooses to go down to their floor price. Repricing in this situation will not generate long-term profits.
To generate long-term and sustainable profits by selling on Amazon, we believe a seller needs to do more than just repricing especially if their product listings are in a highly competitive category. An FBA fulfillment strategy is one way that this "game" can be changed and can be very effective if executed correctly.
How do you choose which products to put in FBA?
Alasdair McLean-Foreman: We offer a number of data-driven tools and services to help our clients with FBA selection and restocking. We focus on an exhaustive approach to the Amazon data that helps our clients identify and prioritize their FBA investments.
We analyze data such as sales rank, whether Amazon themselves are selling on the listing, number of other FBA sellers, and other important criteria to make accurate FBA investment picks for our clients.
What is SKU optimization?
Alasdair McLean-Foreman: Amazon has a vast catalog, so making sure all of a merchant's products (available SKUs) are listed correctly is very important. There is a lot of inefficiency in the current process for creating Amazon listings that sellers can find frustrating. We help our clients make sure they have maximum coverage and list all of the SKUs they have available. We call this process SKU optimization.
What do you think of product-bundling and are there ways sellers can do this strategically?
Alasdair McLean-Foreman: Product-bundling can be a way of creating a new offer that a consumer can purchase via a unique Amazon listing. This can be an effective strategy as it changes the competition matrix for a particular Amazon product. E.g. If other sellers can't create the same bundle or find it harder to source the other components, a seller may have an uncontested or less competitive selling opportunity.
Can you give an example of product bundling?
Alasdair McLean-Foreman: An example of bundling is a Coffee Maker like this one.
As you can see, the first listing has a sales rank of 70 as the standalone item but the bundles in positions 2 and 3 still have very low sales ranks (high sales velocity). The bundles in this case are 350 Micro Filters and 350 Micro Filters & a zipperd nylon tote bag.
This creates three completely independent listings / ASINs that are all opportunities to sell in high volume.
Amazon explains its Best Sellers Rank by Category, but what should sellers understand about this ranking - how is it helpful?
Alasdair McLean-Foreman: That information on sales rank is vague and basically correct since its just a relative ranking. Similar to Compete.com or Alexa.com for web traffic its relative.
The important thing to note is that the lower the sales rank the higher velocity and also the more accurate the ranking is to show you how things are selling. e.g. Comparing 20,000 to 40,000 sales ranks isn't going to tell you much but comparing 50 to 500 is going to tell you that there is huge volume for the item ranked at 50 and also a lot of volume at 500.
Basically, anything under 1,000 in a top level category is going to sell considerable volume. In higher volume categories like Electronics this is going to be amplified.
What is the ideal size for a merchant wanting to use repricing tools - is there such a thing as too small or too big?
Alasdair McLean-Foreman: I think the process of accurately pricing products (or commodities) is important for anyone selling in any market. Since Amazon is so vast and very competitive anyone wanting to make money is going to need to reprice either manually or using a service like Teikametrics.
And could you provide more information about Teikametrics pricing?
Alasdair McLean-Foreman: We offer a range of packages that are tailored to help small sellers all the way up to multi-million dollar merchants. Since we're very focused on also providing expert help for our clients, the prices for our services vary based on the level of service that a seller is looking for. Our basic repricing service starts at $150 dollars per month.
We also offer a more managed service that includes expert consulting, account management, strategy, and deep data-analysis for sellers looking to be even more competitive in the Amazon marketplace.
We are currently offering a completely free repricing review for anyone selling products on the Amazon platform. It's a great way to get a basic snapshot of how our services can immediately impact sales and for a limited time we're even giving a free $10 Amazon eCard for anyone wanting to sign-up - go to Teikametrics.com to sign-up.
About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to firstname.lastname@example.org.
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