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Amazon Buy Box – The 2% Rule

I’ve mentioned in previous posts about winning the Buy Box on Amazon.  To recap, when you search for a product on Amazon and click on a product that comes up, the product page is displayed.  There’s a ‘Buy’ button on that page, and the merchant who gets the sale if that ‘Buy’ button is pressed has the Buy Box.  For any other merchant to get the sale, the customer has to click on the link to the page with all offerings and select that merchant.

One of the main criteria for winning the Buy Box is having a competitive price.  You don’t necessarily have to have the lowest price, but you need to be close.  I have no first-hand information on how close to the lowest price is close enough.  I’ve always just assumed it was an unpublished Amazon decision, subject to change without notice.

However, at the Sellers’ Conference for Online Entrepreneurs, one of the speakers was Skip McGrath.  In his talk, he mentioned that Amazon uses a 2% rule.  I.e., if your total offered price (unit price plus shipping) is within 2% of the minimum, your listing will periodically be rotated into the Buy Box.  How often it’s rotated into the Buy Box isn’t known, and it may depend on other factors as well.  E.g., if your inventory is in an Amazon warehouse (i.e., if you’re using Fulfillment By Amazon or FBA), your listing may get shown more often to people who are physically close to the Amazon warehouse where your products are located than another seller whose products are in an Amazon warehouse that’s physically further away.

So rather than always trying to have the lowest price, another strategy on Amazon would be to always be within 2% of the lowest price.  You will, likely, give up some sales volume on particular products, but you’ll get better margins.  That’s a trade-off I’m usually willing to make, within reason, because I can use the extra time to find more products to sell and make up for the lost revenue.

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Reminder: Congress is working on bills to require online retailers to collect sales tax in all states, rather than just states where they have a physical presence.  There are literally thousands of tax districts in the United States, the time and cost of collecting and remitting the correct sales tax could easily be prohibitive for a small retailer.  Ask your Representative and Senators to ensure any online sales tax bill requires a simplified method for collecting and remitting the tax, such as a flat sales tax paid to the Federal government, which would distribute the funds to states proportional to their populations.

 

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