Researchers at Northeastern University tracked pricing of 1,640 of the best-selling products on Amazon’s site over four months. In particular, they were examining what prices were featured in what’s known as the “buy box,” the area on the right side of an Amazon product page that invites you to add an item to your cart. It is coveted real estate for the millions of third-party sellers on Amazon, and for good reason: Landing there practically guarantees that users are going to find the seller easily. It has been estimated that about 82 percent of sales on Amazon are made through that box.
But, it turns out, “when you go to a page on Amazon, what you’re seeing is typically not the lowest price available,” Christo Wilson, the lead author of the study, said in a news release.
Amazon relies on an algorithm to determine which seller ends up in the buy box for any given product. Wilson and his co-authors found the process is significantly more likely to give that spot to sellers who use real-time pricing, in which software is used to automatically optimize prices on the fly based on what competitors are charging. Here’s why that matters: Most sellers using that kind of pricing model don’t have the lowest prices on the site. In fact, the researchers found that 60 percent of those that use real-time pricing have higher prices than other sellers of the same item on Amazon. Most of the time, the price difference is about $1, but Wilson said researchers found “many” cases where the price difference was in the $20 to $60 range.
Amazon declined to comment for this report. Jeffrey P. Bezos, chief executive of Amazon, owns The Washington Post.
If you’re truly set on getting the best price, Wilson suggests clicking on the link below the buy box, where you can see the full roster of sellers on Amazon that are peddling an item. And even then, he said, the prices are often — but not always — in order of lowest to highest, so it helps to cull through the listings carefully.
Wilson said his study points to the growing primacy of real-time pricing on the e-commerce site.
“From the seller’s perspective, if you want to be competitive on Amazon, you pretty much have to adopt an algorithmic approach,” Wilson said in an interview.
So just how often are these prices moving up and down in the world of dynamic pricing? Wilson found that a third of the products researchers monitored had at least one price change per day. About 170 products registered an average of three price changes per day, while another 50 items fluctuated eight times daily. In other words, you can see how it would be hard for a relatively small merchant to regularly hit the pricing sweet spot if they’re not using software, since it would be quite time-consuming to keep up with all that movement.
The findings might leave you wondering: Why would the sellers using real-time pricing not end up being the lowest on Amazon? Wouldn’t it be logical for them to try to win customers by using pricing algorithms to ensure they are always providing the best deal?
Victor Rosenman, chief executive of Feedvisor, says not necessarily. Feedvisor is a company that provides algorithmic pricing software to third-party sellers on Amazon. Rosenman says that third-party sellers should consider a host of factors when setting their price, including how fast they can ship items to customers, what their customer feedback rating is, what their return rate is, and so on.
“You need to set the price that basically reflects your relative performance,” Rosenman said. “The better the performance, the higher price you can ask.”
Meanwhile, sellers that aren’t as competitive on things such as shipping time might go ahead and slash prices lower to go toe-to-toe with their speedier counterparts.