Amazon recently launched a tool called Automate Price by Amazon to reprice your inventory against your competition. This tool is limited in that it only gives you a few options to compete with the Buy Box holder or the lowest price. This new Amazon feature got me thinking about repricing tools and their importance to running a successful online business.
Advanced Repricing Tool
There are many automated repricing tools on the market these days. With Amazon’s new feature you may be asking yourself if you should invest—or continue to invest—in a more robust pricing solution, or if you can get what you want from the new Amazon feature and save yourself some money.
While some businesses can get away with using a rudimentary repricing tool, most successful online businesses need a repricing solution with more sophisticated features to grab that competitive edge. Here are five reasons you need an advanced repricing tool to get the most out of your online sales.
1. Not all inventory is the same
As an online retailer, you know competition is fierce. Using a “one size fits all” pricing strategy is an excellent way to be left in the dust. With all of the differences in products, categories, individual items, suppliers, sales ranks, and more, relying on a single strategy for repricing your inventory can leave money on the table or result in lost sales.
The best repricing engines give you powerful tools to price segments of your inventory using different rules. You should be able to group your inventory for pricing by category, condition, weight, sales rank, and age. You should also be able to create your own user-defined inventory groups based on non-standard criteria, such as supplier. Once you’ve defined these groups, you should be able to set unique pricing rules for them. It’s important to make sure that you set appropriate rules for each group.
For example, you may have products with a large margin built in, since you get these items at a discount, you can price them at a discount. To maximize sales you may want to match the lowest price, or even undercut the lowest priced competitor for these items because you know you’re still going to make a profit. Speaking of margins, your repricing tool must allow you to protect your margins while maintaining your competitive edge.
2. Protecting your margins
Selling any product for zero profit or, worse yet, at a loss, is a surefire way to go broke. Many repricing tools don’t give you the ability to input your cost of goods or they only let you input a minimum price, such as with Amazon’s new repricing tool. However, even with this feature, you still have to calculate your minimum price. Obviously, your cost of goods is not going to be your minimum price, or price floor. You need to cover your costs and make a profit to be successful.
High quality repricing tools give you the ability to input your cost of goods and a profit margin for every item you sell. This becomes your minimum price, saving you the time of calculating this for each item on your own.
Cost of goods and profit are not the end of the story, either. You incur shipping costs as well. A robust repricing tool will also take into account shipping fees when determining the optimum price based on your rules. It is imperative that your repricing solution uses your shipping rates as well as your competitors’ item prices and shipping fees to calculate your prices.
In order to be as successful as possible, your repricing solution must keep you competitive with the ever-changing market while maintaining your profit margins. Anything less will affect your bottom line.
3. Being the lowest isn’t always the best
A case can be made that having the lowest price for your items on Amazon, eBay, and other markets is the best strategy for increased sales. However, taking into account the information discussed above, being the lowest priced seller isn’t always the best. There are many situations where having the lowest price can be detrimental, such as when the lowest price offer is lower than your price floor, you have very popular items, or you have rare, high-value items.
A situation when having the lowest price will not necessarily benefit you is if you have very popular products. If there is a high demand for a product, you can often get a higher price when you sell it. In these situations, you may prefer to price at a percentage above the lowest offer. This will keep you on the first page of results on the markets while still allowing you to have a high volume of sales.
You also need to protect yourself from “lowball” offers. If you’ve been selling on the marketplaces for any length of time, you have most likely encountered a situation where a product you have listed suddenly drops in price dramatically. Some unscrupulous people have discovered sellers using automatic repricing tools and have found a way to capitalize on this at their expense. They will list a product at a grossly reduced price then wait for the other sellers’ prices to adjust. Next, they buy up all of those items and resell them at a normal price. We call these “lowballs”.
Making sure that you have set your price floors appropriately is the first line of defense, but using a pricing solution that will ignore those lowball offers is the best way to protect yourself and your profits.
4. As your inventory gets older, you need to be more aggressive with your pricing
With the prices of real estate climbing ever higher, your warehouse space is most likely one of your largest expenditures. Getting the most out of it is very important to your success. What do warehouse costs have to do with your repricing solution? The answer lies in your inventory.
Each item you stock on your shelves takes up warehouse real estate. You are paying rent for every item in your warehouse. It is important to make sure that those items are turning quickly, or your profitability will suffer from the hidden cost of stale inventory. It is essential that you limit the amount of space you give to slow moving, low value products.
With a robust repricing tool, you can set up rules that will gradually lower your price on slow moving products. We call this an inventory aging strategy. The concept is simple and powerful. When you first receive a product, you can be less aggressive in your pricing—especially if it’s a popular item. However, the longer it sits on your shelves, the more wasted rent you’re paying for it. This ultimately cuts into your profits.
The most advanced repricing tools allow you to set progressively more competitive pricing rules the longer the items sit without selling. You can even have them automatically lower your minimum price on items that have been on your shelves for too long. Ultimately, you may decide to liquidate them at a break-even price to make more room in your warehouse for faster selling products.
5. More flexibility means more control
Flexibility is key for your business and for your repricing solution. You need to be in control of your pricing to reach your goals, but you shouldn’t have to spend too much time setting your rules. You need the ability to quickly define your pricing rules and strategies and adjust them to react to an ever-changing market.
You should look for a repricing tool that gives you many options so you can fine-tune your pricing strategy, but is also user friendly. If you have to write out a script—or worse yet, ask a support representative to write it for you—to do what you want, you run the risk of making mistakes that can lead to unintended consequences. If you can’t quickly make changes to your pricing rules to correct mistakes or adjust to changing situations, you run the risk of losing sales to your competition.
What’s right for you?
There are many repricing solutions on the market these days. When you are evaluating repricing solutions, one question you must ask is how flexible is it. Does the solution give you the ability to set different rules for different segments of your inventory? Does the repricing solution give you tools to protect your margins while still keeping your prices competitive with other sellers? How easy is it to input changes or create new strategies? Will it adjust your prices on multiple markets? And perhaps most importantly, is the solution supported by a team of experts that will personally help you customize your pricing rules based on your unique goals? If the answer to any of these questions is no, you owe it to yourself to keep looking.
Here at Monsoon we have over 15 years’ experience working with online retailers and have built one of the most advanced repricing solutions on the market. If you’d like to learn more about how our repricing solution can help take your business to the next level, check out our Multi-Channel Dynamic Repricing feature or contact us for a demonstration of the Monsoon Marketplace manager software package.