How to Build a Multi-Channel Pricing Framework for Amazon

For close to a decade, Amazon has been aggressively scraping product prices several times a day across thousands of other websites. As a result, brands have had to step up their efforts managing retail prices of their products across multiple retail channels. Creating a multi-channel pricing framework that accounts for the pricing challenges of operating on Amazon can be difficult for any brand, so here’s what you need to know.

Amazon: The Price Hawk

If you’re changing the prices of your products off-Amazon, you need to pay close to attention to what Amazon does—because the world’s largest marketplace will respond.

Here’s a real-life example.

Let’s say your brand decides to fund a short-term special with a regional retailer, or a major online retailer decides to fund its own price discount on your brand’s products. In both situations, these sorts of retail price changes are very quickly identified and evaluated by Amazon’s price scrapers. Depending on the strategic importance of the brand or specific product, and the size of the prize difference of the product  on Amazon and other scraped sites, Amazon’s response will likely have major ramifications across all retailers—online and offline—that carry your brand.

For channels like Walmart.com, Target.com, BedBathandBeyond.com, and Costco.com, Amazon pays particular attention to retail prices on not just identical SKUs but also unit prices across comparable—but not identical, i.e., with the same manufacturer part numbers/UPCs—products. As a result, the brand may find Amazon immediately responding in a number of ways, depending on who owns the inventory being sold on Amazon.

Here’s how Amazon might respond depending on whether your brand operates as a first-party (1P) vendor or third-party (3P) seller.

First-Party/1P Inventory

Should Amazon have its own inventory of a brand (let’s call it Brand A), then Amazon has immediate ability to change retail prices on Brand A, reflecting its desire to match lower prices found elsewhere. It is worth noting that on brands with significant brand awareness or popularity, this desire to hold 1P inventory is entrenched in the ultimate desire to manage retail prices on Amazon.

Should a lower price be found on some other website that is low enough that Amazon decides not to match that price, Amazon may well suppress the Buy Box on its own 1P inventory of the brand, causing more headaches for the brand. Or Amazon 1P may match that lower price found elsewhere, and send the brand a bill for lost margin caused by Amazon’s price matching.

Third-Party/3P Inventory

Given the endless number of sophisticated unauthorized sellers out there, most any popular brand is likely to be sold on the Amazon channel—whether the brand wants to be there or not. So, while the brand may have a 1P vendor relationship with Amazon, the downward price pressure that can be caused by unauthorized 3P sellers will likely drive down the price at which Amazon 1P sells the brand.

In situations where Amazon doesn’t own inventory of Brand A’s products, but the products are sold by third-party sellers on the Amazon marketplace, typically Amazon will suppress the Buy Box. When this happens, the “Add to Cart” button on the product detail page is removed, causing customer conversion to drop significantly.If any 3P sellers are running Amazon advertising campaigns on these impacted products, those ads are also deactivated immediately. In addition, if the 3P seller has a promotion set up on Amazon for these impacted SKUs (such as a Lightning Deal or Deal of the Day), those promotions are usually paused immediately too, messing up situations where the 3P seller has stocked up inventory to support a promotion that’s no longer running.

In some situations, the brand may be operating its own 3P seller account, and may choose to match the lower price identified elsewhere. But there are a few big issues here:

1. Amazon rarely tells anyone where it’s found the lower price. As a result, it becomes the responsibility of the brand and/or individual third-party sellers to find where the product is being priced lower than Amazon.
2. The brand may have legitimate reasons to encourage or to support a lower retail price elsewhere. This may include wholesale discounts driven by larger-volume purchases on other channels, or a desire to sell through inventory that has become stale on those channels.
3. The third-party seller on Amazon may not be the seller or supplier of product on these other sites or have no communications or negotiating power with these other channels, yet it has to suffer the price-matching policy implemented by Amazon.
4. The brand may not have negotiating power with the other retailer, while that retailer exercises its own legal right to set retail prices on its own channel.
5. If the lower-priced retail site is being supplied by an unauthorized seller, the brand may have no way to identify or communicate with that seller about how to better manage cross-channel pricing parity.

How Brands Can Manage Pricing Challenges on Amazon

So how are brands supposed to work through these issues?

First, it’s crucial for a brand to have near real-time data to see how its products are priced across key online sites. We like services like Oris Intelligence and PriceSpider for monitoring retail prices across channels. If the brand also supplies Amazon with 1P inventory, the brand must assume that Amazon will match most external sites’ lower prices. And when Amazon lowers its retail prices, that becomes the new retail price norm online, as well as offline, given how easy it is for anyone—customer, supplier, retailer—to see retail prices on Amazon.

Second, the brand should stop offering specific retailers lower prices while not including Amazon 1P in that discount opportunity. Amazon will match anyway, and eliminate the other retailer’s ability to offer its customers anything reasonably deemed as “special.” Furthermore, if Amazon 1P matches a particular retail price, other retailers may start complaining to the brand that they were not offered similar discounts, while they remain constrained by the brand’s MAP/MSRP policies.

Third, if the brand doesn’t sell 1P but has either its own 3P account or authorized 3P sellers representing it on Amazon, those off-Amazon price discounts will hurt 3P sales opportunities on Amazon. So it becomes much more critical to negotiate and police hard with other retailers who might make price-discounting decisions that affect the brand across all channels—or at least on Amazon.

Finally, one note of caution: we have seen the speed with which Amazon 1P will match a lower price it finds elsewhere. But it’s also important for brands to stay on top of what happens after off-Amazon price discounts are discontinued. We have seen many situations where Amazon is slow to move back up 1P prices or reactivate the 3P Buy Box. In both scenarios, the brand needs to have someone on point to check the speed of upward price changes, and communicate with Amazon about getting in line with these higher prices, as needed. Given Amazon’s statement that it is not a leader in price discounting, but rather a follower of other retailers’ price discounts, brands must hold Amazon accountable to move its prices back up quickly when no other retailers remain as low as Amazon 1P.

If you need help with your Amazon pricing strategy, get in touch with us.