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Dynamic pricing has been part of Amazon’s strategy for years, with the first mention of “automatic pricing” appearing in its financial reports as early as 2012. Since then, advances in Amazon’s algorithms-driven by rapid progress in AI-have made dynamic pricing increasingly sophisticated. This article explains how Amazon’s dynamic pricing system functions and identifies which businesses benefit most from this technology.
What is the goal of dynamic pricing?
Amazon’s dynamic pricing allows its sellers to automatically adjust their prices, as often as 2,000 times a day, in order to convert a larger pool of shoppers and maximize sellers’ chance of winning the Featured Offer.
Amazon’s dynamic pricing enables sellers to automatically adjust their prices – sometimes up to 2,000 times per day – to attract more shoppers and maximize their chances of winning the Featured Offer (formerly known as the Buy Box).
Which dynamic pricing features are available on Amazon?
- Competitive Featured Offer: Set your price to be below, match, or above the current Featured Offer. Repricing stops once you win the Featured Offer. Ideal for products with multiple sellers.
- Competitive Lowest Price: Adjust your price relative to the lowest available offer. If you’re already the lowest, the tool compares your price to the next lowest. Useful for highly competitive listings.
- Competitive External Price: Match or cap your product price based on the lowest price found at other retailers (excluding other Amazon sellers). If your price plus shipping exceeds this external price, your offer may become ineligible for the Featured Offer.
- Business Competitive Featured Offer: For B2B sellers, set single-unit and quantity-tiered prices relative to the B2B Featured Offer. Repricing stops once you win the Featured Offer.
- Business Price and Quantity Discount: Offer single and multi-tiered discounts to business customers that automatically adjust alongside your standard prices.
- Based on Sales Units: Decrease your SKU’s price based on sales volume targets within a set period. Useful for inventory liquidation or demand-based pricing.
How does Amazon monitor prices on other marketplaces?
While Amazon does not publicly disclose its exact methods, it is widely believed that the company tracks prices on external sites by matching products using universal identifiers (such as UPCs, SKUs, and product titles) and attributes like brand names.
What advantages does dynamic pricing provide?
The primary benefit of dynamic pricing is that it saves resources otherwise spent on manual price adjustments, as Amazon’s algorithms continuously track shifts in demand and competitor pricing to determine optimal prices for maximizing sales. By monitoring prices for products sold both on Amazon and other marketplaces, this tool is especially valuable for popular items offered by multiple sellers online.
What are the potential downsides of dynamic pricing?
- Price war risks: Automated repricing can trigger aggressive price competition, eroding profit margins, as sellers undercut each other to win the Featured Offer.
- Customer loyalty risks: Frequent price changes may alienate customers who expect stable pricing, especially for everyday or branded goods.
- Less suitable for unique products: Niche or highly differentiated products may not benefit, as demand for such products isn’t driven by price competition.
- Products with price restrictions: Sellers bound by minimum advertised price (MAP) agreements or other pricing restrictions need to exercise caution, as dynamic pricing can unintentionally violate these terms if price boundaries are not properly set.
Which types of businesses gain the most from Amazon’s dynamic pricing?
Businesses selling commoditized products in highly competitive categories like electronics and household items, where consumers are very sensitive to price changes, benefit the most from dynamic pricing. Additionally, businesses with limited resources can leverage automated dynamic pricing tools to reduce labor costs, allowing them to efficiently adjust prices in real time without the need for manual oversight.
Do other marketplaces support dynamic pricing?
Other than Amazon, few marketplaces offer built-in dynamic pricing tools, given the complexity of dynamic pricing and the resources needed to build such tools. Walmart Marketplace is one of these few. Similar to Amazon, Walmart Marketplace offers its Repricer tool, which automates prices based on Buy Box price, competitors’ prices, and external prices. While eBay does not offer a built-in dynamic pricing tool, eBay sellers sometimes use third-party tools, such as RepricerExpress or OmniaRetail.
Should you implement dynamic pricing?
Whether you should implement dynamic pricing largely depends on your business type and how price-sensitive your customers are. If you sell commoditized products in highly competitive markets where buyers frequently compare prices, dynamic pricing can help you stay competitive and reduce operating expenses. However, if your business offers normal or premium products, frequent price changes may not be as effective. Consider the market in which your operate and your ability to sustain low prices before deciding if dynamic pricing is the right strategy for your business.
