When brands sell their products via e-commerce retailers, one could think they have no good reason to monitor online prices for the end-consumer. As a matter of fact, they did do their job, and it is now the responsibility of the retailer to sell the products, right?
There is, however, a handful of reasons why brands should keep an eye on e-tailer prices for their products and their competitors’. While it is illegal to tamper with retailers prices in many countries, there are far enough legitimate and legal reasons to monitor online prices!
When building new products, brands try to understand the competition they will face. Price is, of course, a significant element to consider and compare. When trying to determine the launch price of a product, brands will usually look at the launch prices (or MSRPs, MAPs or one of their equivalents) of competing products. Sometimes, however, this is not enough: prices evolve after launch (usually downwards). By the time the brand launches their product, the rival product’s prices may have plummeted, making their alternative non-competitive.
That is just one of the reasons why brands should be very price-aware and keep a close eye on price trends for both their products and their competition.
The lifecycle of a product depends on a lot of factors like the type of product, the strength of the brand or the level of tech obsolescence. Here are two examples:
– garments are usually made, shipped, sold, put on sale and replaced by a new collection in about six months
– consumer electronics typically have a lifecycle of 1 to 3 years before brants rejuvenated them (think about how Apple updates their product lines once in a while).
Price is a significant component of a lifecycle. Usually, when retailers feel that the market is losing interest in a product, they will begin to discount the prices. This is the sign that a new product or an update is necessary. When launching a new product, looking at how the prices of its predecessor evolved is a great way to shape expectations.
While it may sometimes seem like retailers just frantically change prices all the time, there actually is a method to this madness! Price changes are usually either proactive or reactive.
Proactive price changes by a retailer can occur when they:
– identify an opportunity to increase market share and decide to drop the price on a product,
– see a high demand for a product and increase the rate it to improve margins,
– fear they have too many units of a product and discount it to avoid being stuck with too many unsold articles.
Reactive price changes are usually the result of competitive and dynamic pricing. Many e-commerce websites scrape each other to dynamically adjust their pricing. Amazon is very famous for its reactive pricing strategy and efficiency; sometimes, however, they will proactively discount some products as a result of a deal with the manufacturer or a judgment call by a pricing manager.
By closely monitoring the price changes, it is possible to understand which retailers are driving the prices up or down. Although it is illegal to commend the retailers to adjust their prices, the information can be used to shape a distribution strategy or determine optimal volumes to manufacture and ship to each retailer.
Reactive price changes often rely on partially automated pricing algorithms. Some retailers like Amazon develop their algorithm and tweak it constantly for individual products. Other retailers use Price Optimization software to scrape their competitors.
As a brand, it is crucial to understand the underlying tactics that each retailer has set. The programs that they use usually offer a set of rules like:
– set my price to be 1% below my top competitor
– set my price to be the average of my top 4 competitors
– match the price of Amazon.
Retailers will never disclose their strategy (and they may change them frequently). This makes it essential to understand the behavior of each of them to anticipate price fluctuations. Looking at price graphs for specific products is usually the way to go.
In our article Should brands use dynamic pricing too? we discuss the opportunity for brands that have an e-shop to adjust their prices dynamically. While this is not a thing for all brands, the advantages include:
Of course, brands will usually avoid competing directly with their own retailers. They will typically align their prices to just hover above the prices of their highest-selling retailers.
Monitoring e-commerce prices in your market have a lot of advantages. It benefits brands and retailers both. Although it is possible to monitor e-commerce prices manually for low-scale companies with a small set of products and competitors, you may rapidly want to set up an e-commerce monitoring solution.
To achieve the benefits mentioned in this article, look for a solution that:
BlueBoard is an e-commerce monitoring software offering top of the line solutions to monitor online prices. Talk to our team to find out if we are a good fit for your current price monitoring challenges!