How does Amazon determine their prices? (2023)

What pricing strategy does Amazon use?

Dynamic Pricing Strategy

Amazon is known for its dynamic pricing or what is also known as repricing strategy. In this strategy, the prices of products don't remain constant but change often depending on competitor prices, demand and supply, and market trends.

Amazon changes prices all the time based on time of day. Most large retailers experiment with different prices and adjust accordingly minute by minute. Dynamic pricing isn't a new practice.

Skimming: with this strategy, an Amazon vendor often starts with a higher price until the competitors' prices match. It's best for sellers with a unique product that is about to struggle with competitors. Penetration: this is a trick of cutting prices in order to get a share of your competitors' audience.

The Competitive External Price rule allows you to automatically reprice your offers based on the Competitive Price by choosing either of the following: Match External Competitive Price which will keep your price equal to the Competitive External Price.

Amazon was found to be employing dynamic pricing in 2000 with regard to the sale of DVDs. Its version of the practice was a good deal more complicated than a peak-pricing rule for tolls.

Amazon has consistently engaged in predatory pricing — selling products and services below cost to kill off competitors and expand its market share.

With all this data, Amazon analyzes customers' shopping patterns, competitors' prices, profit margins, inventory, and a dizzying array of other factors every 10 minutes to choose new prices for its products. This way they can ensure their prices are always competitive and squeeze out ever more profit.

Amazon charges a referral fee for each item sold. The amount depends on the product category. Most referral fees are between 8% and 15%.

In the spring of 1995, Bezos invited a small group of friends and former colleagues to check out a beta version of Amazon's website, and the first-ever order was placed on April 3 of that year, for a science book titled Fluid Concepts and Creative Analogies.

It is the selling price for the given item, as recommended by its manufacturer. Amazon will show MSRP above the selling price if the current price is lower than its MSRP.

Why do Amazon's prices change everyday?

Amazon Pricing Strategy

It's all done for them thanks to Amazon's algorithm which automatically displays the lowest price at the top of search results. The result is that sellers must constantly monitor their competitors' prices and adjust their own accordingly if they want to stay in the game.

Jeff Bezos, then Amazon's chief executive, apologized for creating buyer uncertainty with a “random price test.” While Amazon said it did not practice discriminatory pricing — charging different people different prices based on demographics — it is all in on dynamic pricing.

In addition, the report found that Amazon was the most competitively priced retailer in 18 out of 21 consumer product categories featured in the study. Amazon tied with Walmart.com for the lowest online prices for cosmetics and with Chewy.com for pet products.

Amazon's pricing model is based around keeping prices as low as possible for the buyer. This means the prices of products can change numerous times, even during a single day.

Its biggest retail competitors are Alibaba, eBay, Walmart, JD, Flipkart, and Rakuten. For the online streaming services audience, Amazon competes with Netflix, Hulu, Apple TV, and Disney+. Amazon's main competitors in the cloud computing industry are Alibaba Cloud and Microsoft Azure.

One of these tools is the Automate Pricing Tool, which automatically adjusts prices for your products in response to account performance. For example, if you have the Buy Box winning price, Amazon Automate Pricing Tool will change your bid without you having to manually change the price every time.

2 ways to change prices for your Amazon listing (2021) - YouTube

The fee for the Amazon FBA Automation Emerald is $30k. The fee for the Amazon FBA Semi-Automation Gold is $10k and the fee for the Amazon FBA Done With You Silver is $5k.

Amazon is famous for constantly changing their prices based on the competition's price, your browsing and buying history, and a bunch of other factors they'll never disclose.

Why does Amazon use dynamic pricing?

Dynamic pricing for a dynamic market

Rather than being overwhelmed by this fast-paced pricing dilemma, e-commerce stores like Amazon have used dynamic pricing to their advantage by adjusting their prices at the same rapid pace of market demand.

Amazon's business model follows both a B2C and B2-B distribution strategy. Indeed, on the one hand, its e-commerce platform is consumer-facing, providing millions of products to billions of users around the world.

The Senate bill, one of several bipartisan antitrust bills in Congress, would prohibit Amazon from giving its products preferential treatment, among other things. It's the bill that would affect the company the most, and the one it has been fighting hardest against.

California sued Amazon on Wednesday, alleging that the company caused higher prices across the state and “stifled competition.” Amazon penalizes sellers on its site if they offer products elsewhere for lower prices, the state alleged.