Amazon Pricing Strategy and Buy Box Optimization [Impact Pricing Podcast]

Mike Danford: If you have not tested pricing, do it today. Do not wait, there is no better time than right now. If you tested it a year ago and you have not touched it, or you did it six months ago, do it again. The market is constantly changing. Be willing to make those small changes.

Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the quantitative relationship between them. I am Mark Stiving, and our guest today is Mike Danford. Here are three things you want to know about Mike before we start. He is the CSO at Adverio, an omnichannel growth company. He spent several years in the insurance industry, and he is a hybrid athlete, emphasizing strength training and endurance running. Welcome, Mike.

Mike Danford: Thanks for having me, Mark. Looking forward to it.

Mark Stiving: How did you get into pricing?

Mike Danford: A lot of brands come to us focused on advertising and marketing. We work with large catalogs, and we came up with a pricing audit. It is pretty common to find out that they do not change prices, sometimes for years, or they do not try to keep up with market trends. We thought it was a way to help revamp and boost the product lifecycle, or pull it out of a decline. My original first foray into it was actually repricing, because I was a reseller on Amazon, and it has obviously changed since then with algorithmic updates.

Mark Stiving: I work a lot in the B2B space, but it certainly seems to me that in B2C people are changing prices all the time. Am I missing that?

Mike Danford: No, you are exactly correct, and it seems more important now than ever. Different platforms will have sales, site-wide or otherwise, and individual brands run promotions, and you have to follow it or you lose your rank and comparative conversion versus other brands on that platform. I feel like it is a slower, less reactive environment on your own website, where you are not directly against a competitor's price right beside you, so you can be a little more dynamic. But if you are on omnichannel, on Walmart or Amazon plus Macy's, they will run promotions on those other sites, and the major marketplace will actually remove you from the Buy Box if you do not follow those prices. So there are way more factors now than there ever have been.

Mark Stiving: Define for us omnichannel, and give us an example you work in that we would be familiar with.

Mike Danford: Omnichannel is just more than one channel. Typically for us it means marketplace, since we are primarily marketplaces, and we also have DTC coverage. The most common omnichannel pairing is Amazon, Walmart, and Target. Most are Amazon and Walmart, a few are all three, and then there are other marketplaces, Best Buy, Home Depot.

Mark Stiving: So if I am on Amazon and Walmart, do I also have my own website, am I selling direct?

Mike Danford: For the brands we work with, mid-seven and mid-eight figure brands, you are going to have some kind of online presence that is more than just a website. Those days are gone. Amazon and Target specifically require proof of a certain level of unit velocity before you even get invited to that marketplace.

Mark Stiving: And what about brick and mortar, does that fit here?

Mike Danford: It does. Walmart specifically is getting much better at bringing physical retail data into your online data and letting you commingle it. But for the most part, very few brands we interact with have their own dedicated store. They are going to be on shelves in other retail stores, Walmart, Home Depot, bike shops, small merchants, so they will have some brick-and-mortar presence.

Mark Stiving: So what are some issues we think about when we think about pricing in this omnichannel world?

Mike Danford: The biggest thing is they have to communicate, and you have to follow. Amazon is probably the most robust and most reactive to price changes on their platform. They want to be the cheapest price available, and if they find your same SKU, ISBN, or barcode cheaper elsewhere, they are going to force you to match the price, which you can do in the platform, or if it is outside your parameters they will pull you from the Buy Box, you lose sales, and you have to update it. Macy's and a few other marketplaces have a promotional calendar but do not tell you exactly when they will run promotions, so you have to be responsive. The more marketplaces and channels you are on, the more signals you have to be mindful of. When we can get brands to use Amazon as our true north and have everything follow that, it is much easier and less impactful on the aggregate. A few brands cannot do that because of arrangements with certain marketplaces. Another challenge is we have ways to say, this is a very similar product, but let us call it a different product line, or change the thread count, or change something small, so that if it is cheaper on another marketplace, Amazon does not see it as the same product. It is a little bit of gamification. Brands that are in Costco often have to do that, otherwise you are constantly losing the Buy Box, and people will buy the product from Costco and list it on Amazon, and you lose your own selling potential. So you want to give resellers a place to hang out and not interrupt your brand sales.

Mark Stiving: I remember many years ago in consumer electronics, TV manufacturers would build a specific model for Target and a specific model for Best Buy, so I could not compare prices, they are different TVs.

Mike Danford: Yeah, we definitely do that. You have to get creative and figure out if it makes sense. Sometimes you just decide a product should not be on all marketplaces, or rotate the inventory. Whatever works, less is more sometimes.

Mark Stiving: So what is the strategy for the solution? How do you make it make sense for your clients?

Mike Danford: A lot of times it depends whether they are already on the marketplace and we have historical data. If we are getting into a new marketplace, it is tranching out which portions of the catalog we put on each marketplace and seeing how it reacts, because a product line that does well on Amazon will not do as well on Walmart or Target and vice versa, different audiences and demographics, especially Walmart versus Target. The other is looking at historical data and understanding that being on more marketplaces does not always raise the entire tide. Sometimes you just lose sales from Amazon and they go through Walmart or your own website. So we measure that, get the correlation, make sure of the causation, get into marketing mix models, and know when to pull off a platform because it does not make sense. We had someone pull inventory out of one retailer because we lost control of pricing, and the daisy chains were blocking about 30 percent of the catalog on other marketplaces, so they pulled it from the shelves instead. Maybe they can go back to that relationship later, but it is a dynamic thing.

Mark Stiving: I have not heard the answer yet on how you think about where to put your products and how much to charge on this platform versus that platform. Any thoughts?

Mike Danford: We call it threshold. Unit velocity is a big part of what we put in there, and then there are day-over-day or even intraday changes at a product level, which we can usually pull 24 to 48 hours later. A price you have on Monday may be different from a price on Friday. You have to play the game of not moving your price too much at one time, and understanding where the demand curve and price elasticity intersect, which takes data points to understand historically. That intersection changes over time, so you keep an eye on it. If your price is not the price you want, you have to figure out how to increase the value on the listing, add more, bundle, virtual bundles, to get the LTV you are looking for. We have anchor strategies. With high multi-variant catalogs, if a certain size or color variant is not moving as well, can you tweak the price so it is more or less than the others in that group, and how does that change sell-through? There are so many tactics, it is not one size fits all, not across brands and not even within the same catalog. The market is so dynamic, you get to spray and pray a little, then read what works and continue it, be nimble and adapt, do not set and forget. And seasonality plays a big part, we have a bunch of tentpoles across brands, we just came off Halloween for a couple of brands, and Q4 is a big one.

Mark Stiving: When you change prices, what percentages do you change it, is it a big 10 percent, is it 1 percent?

Mike Danford: Each platform has its thresholds, and a larger percent delta in a certain amount of time gets you slapped on the wrist. We also want to do it small to understand elasticity, so the percentage is usually less than 3 percent in the beginning, just to see what happens. Sometimes a 3 percent delta makes a big impact and increases or decreases unit velocity. Other times we see 10, 15, 20 percent changes before we have a noticeable impact. We factor in unit velocity versus the gross contribution dollar at the end of the day, sometimes high velocity is less but I am still making more overall. It depends on the product and the margin. Each platform has different fees, we have apparel brands where within a certain price range you get a significant reduction in the platform's fee for that category, so you play within that. Reducing fees is another way to help with pricing. And there are tactics with coupons, shopper-specific coupons, deals, stacking coupons, so many ways to adjust price outside of just the dollars and cents you see in the Buy Box.

Mark Stiving: Are you essentially testing a bunch of things to see what works, or do you have strategies of here is how our buyers are behaving, so we think this strategy will work for this product?

Mike Danford: We have three buckets whenever a brand comes to us. The first is the obvious bucket, you have not changed your product or pricing, we do not know if there is any elasticity, or there is not enough unit velocity to give us statistically significant data. The second is once we sense the pricing is too high for the unit velocity required to get to the next level, that is more of a let us reduce price and see if we can get the lift. The third is your unit velocity is really high and we do not think it will change much, so let us increase your price. Those three are mostly dealt with using your historical data, up to two years from when we connect to the account, plus external data. Some platforms give us the median price across competitors, and we can scrape your closest competitors. We also work on something we have not named yet, a range of your review count and rating or quality versus your competitors to understand elasticity. Maybe you are a hundred reviews less on average and people do not care, but if you are a thousand reviews less, price becomes more impactful. That is the fun part, where the AI and large models come into play.

Mark Stiving: Let me tell you a story from a few years ago. My first book was Impact Pricing. It went out of print, and I watched the price on Amazon go up to 250 dollars. I am positive nobody paid 250 for it. Just for kicks, I had 50 of them in my closet, opened my own store, and put them for sale for 25. Over the next week or so, I watched those 250 prices come back down to about 25. I assume this was automated pricing, but I do not know. What do you think happened?

Mike Danford: A few things. First, was the condition the same, both used or both new? Which platform was it, Amazon? Okay. That big of a delta is pretty wild. Most brands, if set up correctly, if your price goes too high they will not follow you, or too low they will not follow you, they have a ceiling and a floor. Somebody should have had a lower price if there was another offer available. If that was the only offer available, that is what Amazon selects. However, I would still be surprised if they actually won the Buy Box at 250, which means when you land on the listing you can buy right there. I would be very surprised Amazon allowed a 250 price in the Buy Box.

Mark Stiving: What do you think happened, was it automation that brought the price down, is there an automated program people use?

Mike Danford: You have native automated pricing inside Amazon, and you have resellers using dynamic or repricing software, which is what I started with seven or eight years ago. Dynamic pricing is where you are trying to manipulate the Buy Box and test elasticity, but not 250, that is 10X, that is just not normal. Most of the rules in the third parties you plug in are based on unit velocity, increase price if velocity is here, or if velocity drops decrease price within this range to get velocity back. But that 250 is quite the anomaly, that is not normal behavior.

Mark Stiving: I did not think it made any sense, so I just thought it was fun to watch.

Mike Danford: My final answer is one, I do not think it was actually in the Buy Box, and two, it would have been the only offer available from the only seller. For it to be in the Buy Box it would have had to stair-step up over a certain number of days, otherwise Amazon would have pulled it out and not allowed it in the Buy Box.

Mark Stiving: So how long has the Buy Box been an issue? In all honesty I had not heard about it until a couple weeks ago, when I read an article about Amazon turning off the Buy Box.

Mike Danford: Pretty much since day one, because remember Amazon came out as a bookseller with multiple people selling the same books and textbooks, a lot of people fighting for the Buy Box. So they had that technology, probably one of the first multi-seller platforms for a particular product. It changes each year, a different thing comes up. It factors in seller ratings, how many products they have sold in the last few months, lifetime rating, the quality and quantity of seller ratings, not the product rating. There are apps where I can scan a product with my phone and it tells me the historical pricing range and how many sellers there normally are, which is what I used to do when I bought and sold. And if it is your own brand with brand registry, you should be the only one selling the authentic product, but you still get hijackers. Some brands cannot get brand registry, we have an Australian brand right now whose trademark the USPTO is not accepting because they say it is too generic. So there are all these little things to navigate to protect your Buy Box. And if you are reselling, it is a game, this is my range, I do not want to sell for less than this, I do not care if there are a hundred units in front of me, I will wait until those sell and then sell mine. Or I need to move these because they have been sitting, I have to liquidate and be more aggressive. Buy Box has always been an issue, and if your product is on other websites, external factors come in and Amazon will tell you your Buy Box is suppressed because your price is lower elsewhere. It is getting more and more involved.

Mark Stiving: So I want to change my prices hourly. Is that a problem, do we ever do that, does it make sense?

Mike Danford: Repricers will, they can do a pretty significant amount for resellers. Whenever the Buy Box rotates, when one person's offer sells out and the next person becomes the Buy Box, that is a little more forgiving with multiple sellers. But on your own product, your own listing, yes you can do intraday, time-of-day pricing, there is a sweet spot, a heat map for sales. You have to be careful of the delta you make and the number of changes you make in a day. If there is too much volatility, Amazon will pull you because they want consistent pricing, they will put out a promotion or circular with a price and need to know it will stick for a certain amount of time. For hourly to make sense you would need an extremely high sell-through product. If you are selling 10 a day, an hour is not going to make a big difference, but a higher number of units per hour would. We do not do hourly, we have hourly data but it is after the fact. We do make intraday updates for shipment issues or when we have a sell-through limit for the day. You have to be careful because changing your price impacts conversion, and if you do it too much you lose ranking and velocity. But for big tentpole days, Prime Day, or even Halloween, we will make those changes intraday if we need to.

Mark Stiving: Can I do price segmentation? I want to sell my snowblowers in Minnesota at a higher price than in Texas.

Mike Danford: Not on the platform, not most of the ones we deal with. You cannot do geolocation pricing. You can do geolocation shipping if you are not selling through the platform's fulfillment centers, if you sell through your own you can have different plans, but not geolocation pricing in the marketplace.

Mark Stiving: And that is the limitation of the marketplace, they just say you cannot do this.

Mike Danford: Yeah, because when I am on the East Coast shopping on my phone and want to ship to the West Coast, my location versus where I want to ship it is different, so many variables. The way Amazon combats and levels that is shipping times, they have multi-channel, multi-location distribution so they can get it to you in time, which is what people are concerned with. Personally as a shopper, I will look for offers available the same day, and if I can wait a week I will be a little more forgiving on price. If it is lower and ships directly from their warehouse, I will wait a few days, but if I need it instantly I might pay a little more.

Mark Stiving: Let us pretend I sell a product only on Amazon and at Best Buy, the store not BestBuy.com. How do I price it, higher at Best Buy, the same both places?

Mike Danford: The store is a little different, they have different thresholds and you cannot be as dynamic. Amazon, from my understanding, is not going to know the price you are selling at in the Best Buy store. If the products are available on BestBuy.com, then yes, you will have to be pretty close to the same price. I do not know the exact cadence Amazon scrapes, sometimes it is way more sensitive to a price change on another platform than others. We have had products way cheaper on other marketplaces that Amazon does not even notice, and others where there is a one to three day latency because they only scrape twice a week, so you have to hold that price because it has been updated on Chewy but Amazon does not realize it. To keep yourself from playing that game, and losing the Buy Box is very painful, if it is a high-volume product you cannot run advertising if you are not in the Buy Box. So your goal is to keep the Buy Box so you can at least run advertising and keep steady traffic to the listing. Your best move is to master price if you can.

Mark Stiving: Mike, we are running out of time, but I am going to ask the final question I always ask. What is one piece of pricing advice you would give our listeners that could have a big impact on their business?

Mike Danford: The aha moment we have with our brands is one, if you have not tested pricing, do it today, there is no better time than right now. And two, if you tested it a year ago and have not touched it, or did it six months ago, do it again. The market is constantly changing, be willing to make those small changes. And if you have high competition and thin margins on advertising, and advertising is squeezing more of your profits, go to your pricing, there are usually two to 3 percent more margin and contribution dollars available if you look at your pricing, especially in a larger catalog.

Mark Stiving: When you have such tight margins, small pricing changes make a huge impact.

Mike Danford: Yes, absolutely.

Mark Stiving: Mike, thank you very much for your time today. If anybody wants to contact you, how can they do that?

Mike Danford: Sure, adverio.io, or you can find us on LinkedIn, Mike Danford.