With 9 percent market share of the entire US commerce market, and being a major marketplace in Europe as well, Amazon is the leading e-commerce marketplace for merchants with a low barrier of entry. Amazon is a lucrative opportunity for merchants who seek to get access to millions of daily transactions with a no-risk model (fees are paid upon actual selling of goods; there are no upfront advertising fees).
There are pros and cons for listing on Amazon:
- 200m active buyers, $60b+/yr in GMV
- Growing faster than traditional e-commerce marketplaces
- Amazon has the perfect demographic for SLT, this will be a VERY successful channel for you guys
- Competitive fear
- Competitive fear
- Competitive fear
- They don’t allow for much remarketing
- They can be a bit ‘robotic’ – hard to get a human involved
This post will cover what’s considered the “holy grail” for merchants: Winning the Amazon Buy Box.
Before we approach the task of scheduling the pricing strategy, price automation, and updating (which will help you compete on the amazon marketplace), we first need to understand the way Amazon’s own algorithm works and which factors are being considered.
Once we understand how Amazon’s own algorithm works, we’ll try to set a few rules that will help you to beat Amazon’s pricing strategy with its own techniques.
The Key Elements in Amazon’s Algorithm:
It’s vital to first understand the key factors in Amazon’s pricing algorithm. Though Amazon does not officially disclose the actual parameters that are considered while determining which seller will achieve the Buy Box; we have combined various discussions from Amazon Seller Forums along with seller feedback and internal data stats (we interviewed more than 50 featured merchants for this study). This combined data, conducted by our pricing strategy team, led to summarizing the key factors that Amazon’s algorithm considers while evaluating sellers priority in getting the Buy Box.
We call the factors RAFPTI (Rating, Feedback, Performance, Time, Inventory). Here are the details:
Seller rating (in %) that will reflect the total customer satisfaction rating given to the seller. This factor combined with the feedback score will allow merchants to obtain the “Featured Merchant” status, which is a preliminary condition in order to obtain the Buy Box. In most cases, merchants with over a 98% seller rating should expect to get “Featured Merchant” status.
Total number of feedback reviews left by customers. New sellers that suffer from a relatively low amount of feedback (<100) will usually not obtain “Featured Merchant” status. We recommend reaching at least a feedback score of 200 in order to increase the chance of obtaining “Featured Merchant” status (usually will be a combination of a seller with over 200 feedback score and 97 percent-plus rating and over 3 months as active seller, and over $10,000 in accumulated transactions).
Number of item returns, exchanges, chargebacks, claims, refunds, etc. If you maintain a high performance ratio (less than 1 percent) you will either see a “Good” or “Excellent” status on your seller central dashboard. Getting a high ratio of returns/chargebacks/exchanges will most likely cause a “Poor” seller performance status, which will immediately deny any “Featured Merchant” status and will also put the account in suspension risk.
Shipping & Handling Time
Another key factor is the Shipping & Handling time (Amazon considers the total time from which the order has been placed until the actual order arrives to the customer) that the seller’s policy states. In order to gain higher visibility and chances to be featured in the Buy Box, a one to three business day shipping method should be offered as a standard at the very least. Offering a default Shipping & Handling time of five days or longer will usually result in a lower chance of being a “Featured Merchant.” That said, it is all relative to the listing itself, if a merchant who offers four-to-six days shipping on a product listing when other sellers offer six to eight days, then the former will get the priority in visibility. If the same shipping policy is offered where other merchants have a one-to-three-day policy, then it’s more likely the visibility priority will be given to the seller with the shortest shipping time.
One of the most obscure factors in Amazon’s algorithm is the quantity depth. Although our research showed no significant pattern for seniority in the Buy Box of sellers who carry high volume/deep inventory quantities vs. sellers with single/few quantities; it seems clear that the weight factor does play a factor in some other cases. A good example is when seller is out of stock often for specific items. Our research has also shown that carrying items in quantities of one to five and then relisting that on the Marketplace would not affect the Buy Box seniority, as Amazon investigates the relative time that seller was out-of-stock. If the seller relists the items, Amazon will keep their merchant position intact.
Please bear in mind, each of these factors individually contribute to the entire ranking and calculation of the Buy Box location. There is also a rotation on the Buy Box when sellers are equal or have no significant advantage to each other.
Best Practices to Win the Amazon Buy Box
Now that we analyzed RAFPTI factors that affect Amazon’s algorithm, we want to share the “secret sauce” – how to win the Buy Box and which best practices will work their magic. We conducted live experiments with our users, which yielded a 25 percent to 211 percent and 7 percent to 85 percent increase in revenue and profit, respectively. Those experiments were conducted on Wiser’s Amazon repricer that covers over 10M SKUs and 20 different Amazon sellers with a volume range of between $0.5MM to $30MM. The results of this study are listed below.
To stay on top of competition many retailers use amazon repricing software. This helps them to automate their pricing strategy when their product portfolio is within the tens of thousands of SKUs and repricing manually is simply unmanageable. That said, amazon repricing to the button dollar alone is not the solution. Thus, a more robust and comprehensive strategy should be adopted.
The rating system should be an added variable on Featured Sellers. A sample rule should look like this:
Repricing below any Featured Seller with:[Feedback count, Rating] – [ all, <, >] – of [number variable] by [number variable [%,$]
Ideally, the rule should be designed like a filter where they can add multiple constraints.
- Seller A has a rating of 93 percent
- Seller B has a rating of 98 percent
- Both are FBM (Fulfilled by Merchant) and Featured
The problem: If there are no FBA (Fulfilled by Amazon) sellers on the product, and even if Seller A is cheaper by 1 percent below Seller B, Amazon will still give the Buy Box to Seller B because they have higher ratings.
In this case, the ideal rule should be:
- I want to reprice to be 1 percent ABOVE all featured sellers with a feedback lower than 90 percent
- I want to reprice to be $0.01 BELOW all featured sellers with a feedback lower than 93 percent
- I want to reprice to be 2 percent BELOW all featured sellers with a feedback HIGHER than 94 percent
- I want to reprice to be 2.5 percent BELOW all featured sellers with a feedback HIGHER than 96 percent
In this case, the rule line should appear this way:
Price [below] any Featured Seller with [Feedback] – [ >] than [96%] by [2.5] [%]
And they should be able to add additional lines of constraints depending on their personal account and feedback level. This will create the ideal rule for their business (like the design we have in the filter where we can add another row of constraints).
Some rules and scenarios would appear as follows:
FBA (Fulfillment by Amazon):
The best rules that fit FBA sellers are rules that apply to compete with Amazon.com (FBA gets same treatment as Amazon.com), and other merchants with similar standing.
Hence, you should use the following rules:
- Compete with Amazon.com at [-] 1 percent to 3 percent
- Compete with similar standing merchants at [-] 1 percent to 3 percent
- Do not compete with non-featured merchants or those with lesser ratings
Following these rules will keep you competing with merchants in your class.
FBM (Fulfillment by Merchant) – Not Featured:
FBM and Not-Featured means shipping and handling is being handled by the seller–not Amazon. Additionally, their rating threshold does not warrant Featured Seller status. This means they will be listed below all featured sellers, further from buyer site.
The competition structure would look as follows:
- Compete with all featured sellers and FBA (when possible)
- Compete with non-featured FBM with similar rating standing
This scenario will give you a good chance to win the sale regardless of your lower rating standing.
FBM (Fulfillment by Merchant) – Featured:
A featured FBM seller has reached the rating threshold to be listed above the fold on Amazon’s price comparison page. Although they are not in the same class as FBA sellers, they are still listed in a prominent location on the website and have a good chance at winning the Buy Box.
A featured FBM seller would want to stick with the following rules:
- Compete with FBA sellers with similar ranking
- Compete with similarly-rated merchants
- No need to compete with FBA or FBM merchants with lower rating standings
Some examples are as follows:
No. 1: A featured merchant with more than 4,000 ratings and over a 97 percent feedback score.
A: Should only compete with similar competitors, not lower.
B: Should compete aggressively with a seller with 10,000 ratings and 92 percent feedback.
No. 2: A-featured merchant at 90 percent feedback with more than 4,000 ratings.
A: Compete at –3 percent versus higher rated sellers or similar – not the rest.
No. 3: A non-featured seller with feedback rating of 98 percent and more than 4,000 ratings.
A: Compete at –5 percent versus all featured sellers.
B: Only compete with non-featured sellers who have similar ratings.
C: Do not compete with lower-rated sellers.
D: Compete at –3 percent with non-featured sellers who have 92 percent feedback with more than 10,000 ratings.
No. 4: Featured seller with 95 percent feedback and more than 1,000 ratings.
A: Compete with similar or better.
B: Compete with non-featured seller with over 97 percent feedback and more than 1,000 ratings.
Although these rules may not guarantee winning the Buy Box, they are essential to follow in order to properly compete with merchants who have a similar (or better) standing than you do.
As large brand name companies do not need to compete with those that aren’t, the same rule applies for merchants on Amazon. Delving further into this, we determine how one client is ranked against the other. Many “Scenario Parameters” are set up for different client needs to be individually met with.
This is essentially a “set of rules” that apply for each unique scenario (each unique client). A Featured Merchant does not need to compete with one that isn’t but one that isn’t needs to compete aggressively against one that is. Our clients range from every end of the rating spectrum. A Featured Merchant at 98 percent and over with more than 7,000 ratings is strong and does not need to compete with a 92 percent seller. Non-featured sellers may want to be aggressive and compete at –5 percent.
These are the rules you would want to follow in order to successfully compete with merchants in your league and keep profit margins up. At the same time, there is no need to compete with merchants who are not in your class and have a large disparity in price.
Editor’s Note: Contributing writers are Matt Ellsworth and Gil Rozenblatt. This post was originally published in September 2013 and has since been updated and refreshed for readability and accuracy.