blog / article

Price Recovery: A Necessary Repricing Feature

by Cardy Chung
15 Nov 2021
Different Amazon sellers use different repricing methods based on the products they sell. In this article, we will be focusing only on one method, velocity-based repricing.

What is Velocity-based Repricing?

Velocity-based repricing is a method that adjusts prices based on market demand and seller’s own inventory supply. The factors affecting products’ prices are the rate of selling and inventory turnover. For instance, you could set a rule where your price would reduce by 5% if the weekly sales quantity is 5 or less, or increase price when product supply is low. You customize your own rules and the software will do the work for you!

This method is used mostly by sellers that don’t have direct competitors or when the products sold have no alternatives under the same ASIN. Private label sellers are a common example of Amazon sellers that use this method. Although highly recommended for sellers without direct competitors, it can also be beneficial in some way for sellers from any category.

Possible Problem

As mentioned, velocity-based repricing sets prices based on sales. An important note is that the price changes are made gradually, with a certain percentage increase or decrease every time based on seller needs. Consequently, if a product constantly encounters low sales volume, the price would gradually reduce until it reaches the minimum price set by the seller. One possible drawback is that since price only rises when sales increase, there is a risk of stagnant product pricing.

For example, sales for seasonal products like sunglasses can decrease dramatically during off-season, causing the product price to drop significantly. Before summer (and sales) come back, the sunglasses’ price will stay at the minimum price. This could be damaging for the seller’s long-term success as it sets a bad expectation for consumers to always expect a low price. They now see the low price as the default or market price.

A possible scenario is when the seller tries to reset the price back up it would be seen as unreasonable, even if it is a normal market shift. From the sellers’ point of view, the maximum price should be the normal price and the low price is a temporary pricing strategy when sales are low. However, from the buyers’ point of view, they’ve been watching the product maintain a low price, why should they pay more now? As a result, the price increase would backfire, damaging the sellers’ reputation and potentially losing customers.

A Solution from StreetPricer

sp solution
StreetPricer is an advanced AI-based repricing tool for Amazon sellers. It offers an option under its velocity-based repricing tool to rebound the price back to the maximum whenever it hits the minimum level. This is useful for Amazon sellers using velocity repricing as it helps in conditioning consumers’ perceptions. With regular price adjustments that avoid stagnant minimum prices, the higher price would instead be recognized by consumers as the normal price. Any price reduction would then be regarded as the special offer it is and bring more sales.
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The above is a reverse Sawtooth wave diagram that visualizes how the price changes under the price recovery feature are managed. The product price (y-axis) would decrease over time (x-axis) until it reaches the minimum price. It would then be reset immediately back to the maximum price at which point the process begins again.

ABOUT THE AUTHOR

Cardy Chung is the founder of StreetPricer. Read more articles by Cardy Chung.

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