Why Running Out of Stock on Amazon Is a Better Strategy Than a Price Hike
This is a guest post by Franz Jordan. Franz is the CEO of Sellics, a powerful All-in-One e-commerce tool that combines everything sellers need to be successful on Amazon. Whether you're looking to increase sales or lower your ACoS, you can now manage your PPC campaigns entirely within Sellics, and optimize the real-time performance of individual products. Other key features include our profit dashboard (see your profit margins in real time), competitor monitoring, keyword ranking optimizer, and more. Try a 14-day free trial here.
Running low on inventory can catch any seller by surprise. The most common scenarios sellers are often faced with include dealing with a sudden spike in demand, a delay with production, or simply losing oversight of inventory levels. Most sellers fear that they will lose their keyword rankings if they run out of stock.
For sellers that have worked laboriously on Amazon SEO to optimize their product rankings, the idea of their product disappearing entirely from Amazon's search results page (SERP) is a nightmare to say the least. This is why sellers typically increase their prices to slow down their sales velocity, in the hopes they can remain in stock until a new delivery arrives.
At Sellics, we had the opportunity to work with an Amazon seller during a real out-of-stock situation, and were able to analyze the available data to compare the respective damage done to rankings by both initiating a price hike v.s. letting the product run out of stock completely.
Contrary to the common belief, we found that it’s generally better to go out of stock than to (drastically) raise prices.
Sellics Case Study: What’s Better for Rankings on Amazon? A Price Increase or Going Out of Stock?
This case study was done with a real product on Amazon. The interesting part is that the seller first raised prices in order slow down sales to retain what little inventory was left, but then – after a very drastic increase in price – ended up eventually going out of stock anyways. This was a very effective way for us compare the effects of price increases vs. going out of stock.
Finding 1: A price increase will likely tank your Amazon product ranking
In this scenario, to avoid going out of stock completely, the seller decided to gradually raise the price of the product over approximately 4 weeks; from 19.90, to 24.90, then 29.90 and finally to 49.90. The rankings of the top 3 keywords, and sales and conversion rates developed in the following way:
It’s clear that the performance figures of the product worsened with each successive price hike; with average sessions, sales and conversion rate all sinking as a result. Especially the final price increase to 49.90, which made a huge dent in the sales volume and conversion rate.
Finding 2: Increasing sales volume is critical following an immediate restock
Interestingly, despite the drastic price increase to 49.90, the seller eventually ran out of stock anyways. Following his immediate restock, the rankings were predictably worse than before going out of stock.
Critically, a week after the product was in stock again, the keyword rankings overall for the product had improved significantly. The keyword rankings had climbed back to a similar level to where they were before going out of stock, and had even seen a slight improvement.
How was this achieved?
The seller decided to immediately run an Amazon PPC (Sponsored Products) Campaign following the product restock, and sales were boosted relatively quickly by the end of the first week, with 82% of sales generated by Sponsored Products.
It’s evident from the data that only a handful of sales following the restock was necessary to prompt Amazon’s ranking algorithm to bring the ranking of the product back to where it was, prior to the item running out of stock.
It’s better to go out of stock than to (drastically) raise prices
Based on the data from our case study, we found that when running low on inventory, if you have a huge gap between restocking, the better option is to keep the price stable and let the product go out of stock. However, if you only need to bridge your stock levels for a few days, it would not harm your rankings terribly if you raised your prices very slightly.
Based on our findings we were able to determine that a product can quickly bounce back to its previous rankings, if sales are boosted quickly following the immediate restock. In contrast, opting for a significant price increase will lead to a worsened performance for the product, with the ranking also continuing to slide.
The critical factor here is to leverage Amazon Sponsored Products immediately after the product is restocked, to help bolster sales and stabilize rankings. We determined that running Amazon PPC campaigns is a must for a product that has just been restocked.
You can read the complete findings from the case study here.
Of course, no matter how you handle a stock run out, the best thing is avoid running out of stock to begin with. You can use the Sellics inventory manager which will tell you when to reorder in order to not run out of stock; based on your sales velocity, inventory level, and fulfillment time.
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