Just a small lesson why you really need to think and plan correctly when using a repricer. I’ve been selling an item and shared the Buy Box with several other sellers and everyone got a fair share of the sales action. Profits were, decent sales for everyone involved until “YOU” came along with your repricer wanting the Buy Box all for yourself. “You” configured your repricer to always stay 2 cents below everyone else and suddenly my sales went to zero. Did you really think everyone else would just sit idle and let you have all the action?
Two other guys jumped at it and the race to the bottom started. “You” stayed below the lowest price and continued to rake in the sales – occasionally sharing the Buy Box, but by watching your inventory I could tell you were getting the highest number of sales. The race to the bottom continued because other sellers were noticing the same thing. Profits started shrinking from about $3.75 per sold unit to $2.00 per unit and then it went on and on (calculation based on my own source price which I assume is similar to what the other sellers were paying as well).
I had just re-stocked my inventory and was waiting at the sidelines to see where this would lead. Finally the price war stopped with “YOU” still occupying the Buy Box. I had not had any sales in over 10 days because of YOU. I re-ran my numbers and decided to play a game to see where your bottom price would be. I had enough margin available to play this game for a while and I started underbidding you by 2 cents. Your repricer caught up about every hour and within one day I drove the price down another 50 or 60 cents. We came close to a full dollar number and I decided to go below that number to see if that would be your “magic” limit number and sure enough it was. Now I was controlling the Buy Box and enjoyed the majority of sales. Another seller followed us and placed his bid right between mine and yours. If “YOU” were having any sales at that point that number would now go down even more.
I left my price and eventually sold out my inventory more quickly than anticipated, but my next shipment was not too far out to replenish the item. I started keeping an eye on YOUR inventory and your numbers stayed the same. YOUR once profitable item is sitting on the shelf collecting dust while the other seller and I seem to get all the sales at this point. I am making significantly less profit per unit sold, but my turnover rate increased dramatically and I have to send in more units more often which is fine with me.
So, YOUR greed and stupidity not only killed the high profit margin on this specific item, but by hijacking the Buy Box you “motivated” other sellers to become more active on pricing of their units – eventually finding your weak spot and taking it all away from you. I am not sure what YOUR profit margin was, but mine was cut from over 170% to about 45% and I am willing to lose a bit more of that if necessary. Keep in mind when using your repricer and when planning to hijack the Buy Box that there are other sellers that have more room to wiggle than you do and are willing to do so.
You enjoyed the spotlight for a short time, but now what?! Less profit, less (or no) sales, and a shelf full of product units at Amazon’s FBA warehouse because you prematurely decided to go deep on this item. As mentioned, before YOU came along the price was stable for a long time and the Buy Box was easily shared with everyone resulting in decent sales and profits for everyone involved. Your greed and your short-term thinking not only killed the profit margin long-term, but it also side-lined your sales almost completely. You be thinking you can wait this out easily, but keep in mind you do not know where your competition is sourcing their products from and you do not know how much your competition is paying per unit. I can live with the current price and I have a steady source where I can replenish this item over and over again – letting you wait it out and wait it out for a very long time. You’re ready for that?
This example can be very common when selling products on Amazon.com. If you simply send product units to the FBA warehouse, pick a price, set your repricer, and don’t have a real plan and strategy then things can backfire dramatically at you. Yes, a well configured repricer can be a great tool to protect your sales volume, but you should not forget about the competition. If there are other sellers on the same product and you start a price war – do you really think everyone will just sit there and “congratulate” you for being such a smartass? Do you really think you will get away with hijacking the Buy Box? Well, maybe exactly that is your plan, but then YOU better be prepared, have the margin and the funds that support that plan. Because if you don’t you simply destroy a product listing and a fair market value that was established before.