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The Case Against Penny Under Pricing: A Deep Dive into Effective Repricing Strategies on Amazon

Welcome back, everyone! This is Tim from AMZ Fusion, and today we’re diving deep into repricer settings, specifically focusing on why simply matching the Buy Box on Amazon is the smarter choice compared to the widely used “penny under” strategy. Let’s unpack this with some real examples to illustrate the impact of these strategies on your sales and profits.

The Penny Under Strategy: A Flawed Approach

The “penny under” strategy involves setting your price one penny below the Buy Box price, aiming to undercut competitors and capture the Buy Box. While it sounds aggressive and proactive, it often leads to a detrimental price war, where the only outcome is a downward spiral of prices. This not only reduces your profit margins but also harms the entire seller community involved in that listing.

Why Match the Buy Box?

  1. Stability in Pricing: Matching the Buy Box price rather than continuously undercutting it helps maintain a stable market price for the product. This stability is crucial for preserving your profit margins over time.
  2. Avoiding the Race to the Bottom: Continuous undercutting can lead to what’s known as a “race to the bottom,” where sellers keep lowering prices to outdo each other. This race does not end well for anyone involved—it erodes margins and can make the marketplace less profitable for all sellers.
  3. Volume Over Marginal Gains: By matching the Buy Box, you might sacrifice a tiny amount of profit per unit, but you increase the likelihood of maintaining a higher sales volume. This trade-off often results in greater overall profits due to increased sales volume.

Real-World Impact: A Comparative Analysis

Let’s examine the effects of these strategies with a real product example. Consider an Adidas backpack listed on Amazon:

  • When sellers engaged in the penny under strategy, the price plummeted from $40 to around $26, reducing potential profits significantly.
  • Sellers who simply matched the Buy Box maintained their prices around the $40 mark, avoiding unnecessary price reductions and protecting their margins.

The Smart Repricing Strategy: AMZ Fusion’s Approach

At Just Add Fusion, we’ve developed a repricer that focuses on matching the Buy Box rather than undercutting. Our system adjusts prices based on real-time data every minute, ensuring that our users stay competitive without triggering a price war.

Key Takeaways

  • Price wars hurt everyone: The penny under strategy may seem like a good idea in the short term, but it leads to lower prices industry-wide, reducing profits for all sellers.
  • Match, don’t undercut: By matching the Buy Box price, you can maintain healthier profit margins and avoid initiating a downward price spiral.
  • Focus on the bigger picture: Higher volumes at a slightly lower profit per unit often result in more overall profit than fewer sales at a higher price point.

Repricer Wrap Up

In the competitive world of Amazon selling, effective pricing strategies are crucial. While the temptation to undercut competitors by pennies can be strong, evidence suggests that matching the Buy Box is generally a more sustainable approach that benefits sellers in the long term.

For those new to selling on Amazon or looking to revise their pricing strategies, consider the long-term benefits of price stability and volume sales over the fleeting gains from aggressive undercutting. If you’re interested in our repricer, stay tuned…its coming.

Thanks for tuning in, and make sure to subscribe for more insights into effective Amazon selling strategies. See you in the next video!

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