If you're new to the ecommerce industry, I'll let you in on a “little” secret. There's an 800 pound gorilla in the room that is nearly impossible to take down.

Its name is Amazon, and it's the largest online retailer in the western hemisphere. 

It’s safe to say that all online shoppers are familiar with Amazon. New studies have actually found that 44% of shoppers turn to Amazon first when looking for an item.

That’s because the company is known for having an incredibly wide product assortment, low prices, and impressive customer service.

But how did Amazon climb to the top? There are several factors that can be attributed to the retailer's success, but one of the biggest reasons was the adoption of an automated repricing solution.

Amazon has a major case of first mover advantage when it comes to dynamic pricing, and now the rest of the industry is playing catch up.

In case you're unfamiliar, dynamic pricing is a strategy that allows retailers to set flexible prices for their goods and change them according to demand, competitor prices, and dozens of other factors.

It was made most popular by the airline and travel industries.

Amazon's repricing wisdom consists of multiple factors that help it to be the best at pricing strategy, and retailers now have tools that allow them to reprice similarly to Amazon.

Here's how you can mimic the steps Amazon takes to continuously optimize prices.

1. Product awareness

Retailers should always keep their head on a swivel to improve awareness of what's popular in the market. Scanning the web to understand what products are readily available at all times can make sure your product breadth is wide and your assortment is optimized. 

It's also important to know what's selling well and what is dropping in demand. Scanning top selling lists on big box retailers' sites like Amazon or Best Buy can give you a clue as to what might sell well in your store.

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2. Competitive intelligence

It's great to know what products are being carried by your competitors, but it's even better to mine their pricing data.

If you can't afford to sell your products at your competitors' prices, then it's probably not worth it to carry the product. Gaining this intelligence in real time can make sure you're on the ball at all times.

3. Build recommendations

Having a ton of data is great, but what about actionable insights regarding your data? You could analyze all your data yourself to look for patterns and price accordingly, or you can automate the process.

These recommendations can shape your pricing strategy. Do you want to be a low cost leader? Or do you want to charge a premium for your services?

Getting an idea of how you can compete against other sellers will set the blueprint for your entire pricing and selling strategy going forward.

4. Automated pricing recommendations

Once you've established your recommendations, you can set rules to automatically reprice throughout the day. These rules should reflect your overall pricing strategy, and are usually built based on competitor prices.

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Whether you want to be a dollar below your competitor or price above them, repricers can change prices throughout the day. Of course, historical data can decide whether this is a good idea or not (i.e. if competitor prices have been incredibly low, you may not be able to afford pricing below them.) 

5. Dynamic pricing rules

Automated price changes can be taken a step further with dynamic pricing rules. Your prices will change according to fluctuations in the market, such as competitor prices, demand, etc.

From there, a machine learning algorithm can learn what worked well for your bottom line, and actually change its algorithm accordingly.

That way you don't have to worry about constantly changing rules. 

6. Track Results with Pricing Analytics and Forecast 

Repricers will offer reports that include the impact your pricing strategies had on your overall bottom line. You can use this information to decide whether you want to continue implementing your pricing strategy, or try a new one.

Think of it as A/B testing pricing strategies

To really get on Amazon's level of dynamic pricing, your tool should provide reports and analytics to measure the impact repricing has made, and perfect strategies using a machine learning algorithm.

This completely hands-off approach is Amazon's wisdom in a nutshell. Continuously testing and optimizing is the best way to make sure you always have the right price at the right time.

Why does this matter?

Why should retailers consider dynamic pricing? It's simple: it can level the retail playing field.

Amazon will no longer have a such an advantage over smaller retailers, and competition will intensify. 

Intense competition will encourage further innovation between all retailers to figure out how to take the online shopping experience to the next level.

Those who cannot afford to drop prices to compete with Amazon will continue to optimize the overall shopping experience to justify higher prices.

Consumers will experience low, affordable prices throughout the internet, as well as an industry-wide improvement of the online shopping experience.

Amazon doesn't need to have all the fun anymore. Retailers of all sizes have a complete set of tools within reach to help them keep up with the retail giant. It's time for retailers to take on the big gorilla in the room and win.

For more on this topic, read:

Ari Shpanya

Published 19 October, 2015 by Ari Shpanya

Ari is the co-founder of HomeShare and Zent , Graduate of the GSB Stanford Ignite program, and a contributor to Econsultancy.

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Comments (1)

Lee Cash

Lee Cash, Senior Business Development Manager at Qubit

I guess what's really scary here for retailers who want to be price competitive with Amazon is when you consider the limited amount of profit that Amazon has posted throughout its years of operation. If you're going to take on Amazon at its own game, does that mean you'll also have to sacrifice profits and play the long game too? If not, Amazon will be investing in the next thing in customer experience to beat you down when you achieve price parity.
Sorry to paint a bleak picture here, perhaps someone can respond with a positive counter to this?

over 2 years ago

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