Amazon and Price Matching: A Guide for Vendors
Does Amazon price match?
That’s a question that many vendors have, either before they’ve launched on Amazon, or when they’re trying to make sense of how Amazon sets pricing for the vendor’s products. Whether you’re already a Vendor or you’re considering making the move, it is important to understand how pricing works on Amazon.
Amazon as a Sales Platform
First, we should clarify that when you make a purchase on Amazon, you’re often not buying it from Amazon, but directly from a Seller that’s using Amazon as a sales and fulfillment platform. This distinction is crucial in understanding the pricing mechanics on the platform.
This article primarily covers Amazon’s price matching strategies for products it sells itself (that is, purchased from a Vendor). But first, let’s talk about Sellers…
Seller Pricing Strategies
Sellers set their own prices and pricing strategies can vary widely across sellers. Those who have their own brands and sell across multiple channels often keep their Amazon selling price at MSRP (Manufacturer’s Suggested Retail Price) to avoid conflicts with their own resellers. On the other side, some sellers use sophisticated repricing tools that constantly adjust the selling price based on a variety of factors like competitor pricing, demand, and inventory levels. It all depends on the product category, and whether Sellers are selling their own branded products, or if they’re reselling third-party products.
And now… about Vendors:
Wholesale Vendors and Amazon’s Pricing
If a product is sold wholesale to Amazon by a vendor, then Amazon sets the selling price. While the vendor can enter the product’s list price when setting up their SKUs, resellers like Amazon are not obligated to observe MSRPs.
Additionally, Amazon does not honor MAPs (Minimum Advertised Prices), which are agreements between suppliers and retailers to not advertise a product below a certain price.
Vendors can set their cost price and list price, which Amazon will take under advisement when setting the price for the customer.
However, the final pricing decision is entirely up to Amazon.
Amazon’s Pricing Strategy: Does Amazon Price Match?
This leads to the key question that vendors ask: how exactly does Amazon set pricing? Do they price match other online retailers?
A Complicated Answer
The answer to whether Amazon price matches is both no… and yes. It’s complicated.
Amazon’s pricing algorithms are not transparent, and they factor in a range of variables.
Pricing strategy also varies widely between product categories, and it’s also important to understand that Amazon’s automated methods are apparently run on salvaged Apple //e computers running on software that can’t be updated since it can’t cope with the Y2K bug. So, it’s often anybody’s guess.
We’re kidding about that last part… sort of. But if you’ve ever felt that the systems that run Amazon’s back end are written in INTERCAL and ported to run on discarded Soviet-era Hewlett-Packard minicomputer clones, you’re not alone.
Amazon is Not a Low-Price Guarantee Retailer
Some online retailers operate on a low-price guarantee. This means they’ll scrape pricing from other major resellers and automatically set their price to be lower than competing stores.
Although many consumers seem to think so, Amazon doesn’t work this way. They did back in the early days, when those Apple //e systems were running a little more reliably, but as Amazon became a larger and larger force in the online retail world, they moved away from that practice.
In short, they don’t aim to have the lowest price, because they don’t have to.
Amazon’s Pricing Data and Strategy
Amazon does engage in price scraping (using automated tools to check the pricing at other online retailers) but the precise list of other sites they scrape, and what they do with that scraped data, is not shared by Amazon.
Their mission is not necessarily to offer the lowest price available. They often have competitive prices, but it is not unusual for them to be higher than other retailers.
In the world of multiple online marketplaces, where vendors compete with sellers, price scraping can get confusing.
Here’s a common scenario:
You, a Vendor, have a product which has a MSRP of $19.95. You sell it in to Amazon at a sufficiently low price for Amazon to make their required margin. If the gap between your cost price to Amazon and your MSRP is larger than Amazon’s minimum margin, Amazon will usually set the selling price to MSRP.
Now, let’s say that you also sell that product to Walmart. And, a number of third-party resellers offer your products on the Walmart Marketplace, as well. Some might match your MSRP, some might sell it for lower than MSRP, and some may sell it for higher than MSRP. They might even be trying to sell it for some crazy price like twice MSRP, for some inscrutable reason. Let’s say some discount outlet liquidator got ahold of your product and is trying to sell it on the Walmart site for, say, $28.34.
That discount liquidator will never sell it at that price, of course.
But Amazon will scrape that price. And when this happens enough, you’ll receive periodic emails from Amazon expressing concern that your MSRP price is too low. Amazon’s scraping bot wants you to raise your list price to match that crazy price set by the liquidator.
There’s no harm in ignoring these.
Amazon’s Margin Focus
Now, let’s look at the hypothetical scenario where your list price doesn’t give Amazon enough margin to sell at list.
Most of the time, Amazon will just sell your product above the MSRP. This probably isn’t ideal for you. The long term solution for this is to lower your product costs, or raise your MSRP across all of your sales channels.
Here’s what we mean:
Amazon’s Unique Reverse Price Protection System
In rare circumstances, if a vendor with a high-volume product does not provide enough daylight between their sell-in cost price and list price, and Amazon’s scrapers find that other major retailers are selling it online at list price, one of a few things will happen, and none of them are good for your business.
First, Amazon may choose to sell it above MSRP.
In some cases, they may block your product — that is, refuse to sell it. This means that you won’t get the buy box, even if you’re the only source for the product.
For some product categories, and based on a number of internal variables, Amazon may choose to sell it at MSRP, and absorb the margin loss. They’ll do it when it’s strategically important for Amazon to offer your product at MSRP even though they’re not making their desired margin.
But in some cases (and again, this varies based on the product category), Amazon may sell at MSRP and charge the vendor for the difference between their actual margin and required margin.
This acts as Amazon’s own unconventional version of price protections. And, it’s something they can get away with, since they’re Amazon.
In Conclusion…
Navigating Amazon’s pricing strategies as a vendor can be complex. Understanding that Amazon focuses on maintaining its margins and doesn’t strictly adhere to price matching is vital. Vendors need to be strategic in setting their cost prices and list prices, keeping in mind Amazon’s potential responses and the competitive landscape.
Need some help with your Amazon business, whether it’s just some quick analysis or you’d rather just throw us the keys and let us manage it for you? We get you, and we’re flexible like that. Let’s set up a Zoom call and see if we can work together.