When it comes to algorithmic pricing, Amazon is still the retailer to beat. Other retailers continue to marvel at—and attempt to emulate—the e-commerce giant’s ability to rapidly and frequently change prices on millions of items. Amazon continually burnishes its low-price reputation by undercutting competitors on top-selling, high-visibility products, while protecting margins by charging more for less price-sensitive items. The success of Amazon and a handful of other leading online players with this data-driven approach has made clear that algorithmic pricing is a critical capability for competing in e-commerce, omnichannel, and even brick-and-mortar retail to drive revenue and margin growth.
In this article we try to give you insights how Amazon has mastered data-driven decision making in E-Commerce.
When customers purchase products from Amazon, they typically do so through the Buy Box. The Buy Box is shown on every product page on Amazon: it contains the price of the product, shipping information, the name of the seller, and a button to purchase the product.
However, many products on Amazon are sold by multiple sellers. In these cases, a proprietary Amazon algorithm determines which seller’s offer is displayed in the Buy Box. Because “winning” the Buy Box is so critical for making sales on Amazon, sellers may use algorithmic pricing strategies that give them an advantage with respect to being chosen by the algorithm. Amazon is a highly dynamic marketplace, similar to a stock-trading floor, where prices for products changed as often as every 15 minutes.
The company has garnered quite a reputation for their flexible pricing strategies. Many news outlets have reported price changes on items as often as every 2.5 million times a day. The algorithm that Amazon uses to do this is remarkably advanced, and has made algorithmic pricing a new norm in the eCommerce space.
That’s where a company such as E-Tail Genius comes in. E-Tail Genius is designed to give every retailer the “wisdom of Amazon”. What does this mean? We enable retailers and service providers the ability to execute the right pricing strategy, collect the right data and use our algorithm to keep up with and even win sales over retailers such as Amazon.
Amazon has mastered data-driven retail, but that doesn’t mean they need to have all the fun. Algorithmic pricing is now available to retailers and service providers of all sizes. Let me know if you have any questions.
- McKinsey, “How retailers can drive profitable growth through dynamic growth”.
- Chen, Mislove, Wilson, 2015, “An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace”.