Improve Your Sales with Amazon Dynamic Pricing

Supply and demand. Those two principles make up the nucleus of all commerce, online or off. The better you understand supply and demand, the closer you can get to the perfect price — low enough to make customers happy, high enough to make your bottom line happy.

But in recent decades, the popularization of eCommerce has thrown the supply-and-demand model off its axis. With so many more online vendors (supply) and so many new and specialized niche markets (demand), the phantom “perfect price” fluctuates faster than you can update your Amazon product page.

That’s why dynamic pricing is important for Amazon sellers. While setting fixed prices worked well in brick-and-mortar stores for centuries, the fast-paced world of eCommerce requires something a little more…dynamic.

So, what is Amazon dynamic pricing? In this article, I'll explain everything you need to know, including how to apply it to your Amazon store and outpace your competitors.

You may be thinking, "Isn’t all pricing set by demand?” And you’d be right, it is. But the operative word here is current, and when it comes to eCommerce, the current demand changes from moment to moment.

In modern retail, dynamic pricing refers to monitoring the market in real time and changing your prices frequently, even multiple times per day. Online markets like Amazon ebb and flow quickly, so those products that you can’t seem to unload could become best-sellers by the end of the day, just through something arbitrary like a celebrity mentioning them in a tweet.

If you’re not aware of those split-second changes, your price could be outdated within minutes. If you’re lucky, that just means you’re not making as much profit as you could be. But in more damaging circumstances, you’ll start losing all your customers to a rival who changed their price faster.

Why Dynamic Pricing Works for Amazon

If dynamic pricing works best in markets that fluctuate quickly, naturally it works well for Amazon. In a heartbeat, a new competitor can emerge and undercut your price. Dynamic pricing becomes necessary just to stay relevant — the longer you wait to adapt your price to stay competitive, the more customers you lose to the merchant with the lower price.

But with Amazon, it goes beyond just offering the most attractive price for your market. You also have to consider the Buy Box, also known as the “Featured Offer.” As the main offer for any given item, this is the most coveted spot for products.

Your product’s price is one of the Buy Box’s most important criteria.

Your product’s price is one of the Buy Box’s most important criteria. To be clear, winning the Buy Box requires more than just having the perfect price. Other factors include shipping performance, seller feedback, defect rates, stock levels, and some other closely-guarded Amazon secrets. However, offering the best price for customers aids almost all of those areas in addition to helping your items get noticed in product searches.

So if you’re struggling to get into the Buy Box, switching to a dynamic pricing model will certainly help. In Amazon as in other markets, the only way to survive a fast current is to paddle even faster.

How to Use Amazon Dynamic Pricing

If you’re thinking that it’s a lot of work to monitor the market 24/7, you’re absolutely correct. It is a lot of work. For every single product you sell, you have to monitor each and every competitor all the time to ensure that your price is always optimal. If you offer a wide range of products, manually monitoring your prices goes from unsustainable to flat-out impossible.

That’s why Amazon dynamic pricing often involves automated algorithms — the same digital technologies that created the need for dynamic pricing also make it convenient for sellers. In other words, you can use repricing software that watches the prices of your competitors for you, and even changes your prices automatically.

Who’s Managing Your Prices?

As technology advances and retail shifts to online spaces, the traditional retail techniques become less effective and more foreign. Modern retailers need to rely on modern strategies, and the popularization of dynamic pricing is a prime example.

eCommerce takes the supply-and-demand model into overdrive, and dynamic pricing is the best way to keep up with the rapid changes. Add to that increasing customer expectations — more online competition means consumers are less willing to pay unsatisfactory prices — and you can see how dynamic pricing is like a cure-all panacea for many of the eCommerce downsides.