Price wars happen on Amazon when merchants selling similar products repeatedly reduce prices to undercut the competition and gain a larger market share.
Essentially, that occurs because sellers believe getting in price wars helps them win the Buy Box and maximize sales on Amazon. However, this strategy often leads to reaching the point where sellers make a loss just for the sake of maintaining the Buy Box.
That’s why getting engaged in the price war puts you at risk of losing control over the prices and lowering profits. Therefore, you must be cautious when entering price wars and avoid them where possible.
Keep reading to find out what is a price war on Amazon and how to avoid price wars.
What Is The Amazon Price War?
Price wars take place when competing merchants selling the same products repeatedly lower prices to offer the least-expensive deal to the buyer.
The reason for that can be fighting for the Buy Box and capturing additional sales or gaining a larger market share. Since the Buy Box allows the buyer to purchase products with one click, attaining it ensures getting the majority of the sales. Amazon’s Buy Box algorithm considers pricing as one of the essential criteria to grant it.
How do the price wars work?
If one of the competing sellers considers that lowering the price will help them grow sales, they drop the product price to make a better offer and attract shoppers. Their competitors also reduce prices to match that offer and keep their market share.
As a result, the number of sales increases because the price is lower; however, each product is sold for a reduced price. That means lower profits for all sellers short-term.
At a certain point, one of the competing sellers reaches the break-even price level when they can’t lower the price anymore because they will lose profits. The fight between the sellers willing to undercut their rivals can even force them to make a loss just to preserve the Buy Box or make a sale.
The price war between the sellers can even force them to make a loss
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Why Avoid Getting Into A Price War?
If you win a price war, it may seem that your sales will grow. However, this is more of a short-term effect that will rarely generate increased profits. A price reduction of 1% can result in decreasing your profits by more than 10%.
A price war is a miss out on long-term
The lowest price doesn't mean the optimal price. When you create your price strategy, it usually targets your audience and generates conversions. If you significantly cut your price, this can essentially hurt your profit margin. It may result in short-term sales growth but doesn’t guarantee higher profit.
That is because your buyers will expect you to keep the same low price level even though you’re no longer at a price war. They'll look for another offer if you cannot maintain the former pricing.
Your product loses value
If you lower the price too much, the shoppers may get the idea that you are selling lower-quality items, which is the reason for such cheap pricing. In that case, cutting your profit margin may be in vain because it will generate fewer conversions.
Price is not the only reason for Amazon to grant the Buy Box
There are several factors taken into account by Amazon when it grants the Buy Box. Though pricing is one of the most essential criteria, your customer service, feedback, and rating are equally important. Therefore, instead of entering endless price wars, you may offer better services that add value for the customer.
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How To Avoid a Price War on Amazon?
Price wars are always ongoing on Amazon. Entering the endless fights may hurt your profits and business growth in the long run. You must stay profitable to maintain and scale your business. Therefore, it’s a good idea to avoid entering into price wars most of the time.
To do so, don’t lower your prices too much, promote your competitive advantage, and proactively avoid products that trigger price wars.
Don’t go beyond your break-even price
Price cuts are good when you want to get your slow inventory moving. However, you mustn’t overdo price reductions because your business should maintain sustainable profitability.
Identify the break-even selling price level and don’t go beyond it even though a competitor may win the Buy Box. They may run out of stock, or Amazon can remove their Buy Box due to their account health issues. Then, you can step in. Sacrificing profits short-term may hurt your business in the long run. Keep that in mind and match the low price only if you can afford it.
Offer added-value services
Instead of endlessly lowering prices, develop your competitive advantage. Consider what can differentiate your offer from a competitor and why a buyer should pay more for your product or service. Offer extra services that create added value for the customers.
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Avoid products that trigger price wars
When more than 10 merchants are selling the products, there is high competition for the Buy Box. Very often, they will start price wars.
To determine the level of the competition, you must identify how many FBA and FBM sellers are on the listing and compete for the Buy Box.
Amazon seller tools help you do so. Seller Assistant App shows you how many FBA and FBM merchants sell the product and how the Buy Box price changes over time.
Seller Assistant App shows a seller in the Buy Box link to the storefront. It also indicates if Amazon is in the BuyBox (in that case, it’s better to avoid such products because it’s complicated to compete with Amazon).
Seller Assistant App displays the number of FBA and FBM sellers who sell products in the new condition. It also indicates the number of sellers who offer the BuyBox price +5%.
In addition, Seller Assistant App lets you quickly determine the average and the minimum Buy Box price and calculate the price increase by 2%, 5%, and 10% in the dropdown menu.
It gives information about the price dynamics — the arrow shows the average BuyBox price dynamics for 90 days. The green arrow shows the upward dynamics, and the red arrow shows the downward dynamics. Avg BB indicates Average BuyBox price for 90 days. Min FBM is the minimum FBM price, including delivery, and Min FBA is the minimum FBA price.
Seller Assistant App shows price dynamics, average and minimum price
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Seller Assistant App also allows setting a minimum price on Amazon Repricer. There are three price settings available:
- Break-even point (Zero-profit price)
- Price with 10% ROI
- Price with 20% ROI
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Final Thoughts
Price wars happen on Amazon when sellers repeatedly reduce prices to undercut the competition and win the Buy Box. However, this strategy often leads to reaching the point where sellers make a loss.
That’s why getting engaged in the price war puts you at risk of losing control over the prices and lowering profits. Therefore, you must avoid price wars and products that trigger price wars where possible. Seller tools can show you the products with high competition.
Seller Assistant Аpp is one such tool. It’s an all-in-one extension that incorporates the features vital for product research. Advanced IP Alerts can immediately tell you if a product has any sales restrictions or has led to problems with account health in the past. It combines an FBM&FBA profit calculator, Quick View, UPC/EAN to ASIN converter, ASIN Grabber, Stock Checker, and Restrictions Checker in one tool.
A successful Amazon FBA business is a highly desirable asset.
As per Nine University, Learning how to start an Amazon business is not difficult at all, but mastering the art of selling on Amazon is a bit more of a challenge.
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