Price War We all know the price has a lot to do with winning a share of Amazon’s Buy Box, but perhaps merchants place a little too much importance on price.
Instead of worrying so much about having the lowest costs among your competitors, RepricerExpress recommends avoiding a price war as a technique for coming out on top. It rarely works out for the best, and we’ll take a look at why that is.
Repricing on Amazon Wars: Pyrrhic Victories All-Around
There are three people affected in a price war: you, your competitor(s), and your buyer. While the damage to you and your competitors is obvious — slashed prices going so low it starts to affect your profit margin — the reality is a little less clear for your buyers.
It may seem like a curious point to make that buyer also get hurt in price wars, as to how can someone who gets the product they desire for the lowest price possible be losing out? While on the surface it seems to make sense, going a little deeper, we can see it’s not all it’s cracked up to be.
First, your buyers will come to expect those kinds of prices from you all the time. If you don’t provide them, because you’ve gotten into a pricing war with your competitors, your buyer knows all they have to do is shop around and someone will have the price they want. And lastly, over time, consumers will begin to equate ‘cheap prices’ with ‘cheap products’ and will be cutting themselves off from an awesome merchant with a nicely varied inventory. It may not be a fair label, but we as humans have a built-in tendency to associate lower prices with lower quality.
Long-Term Sustainability Will Be Difficult
We’re not saying to never use pricing software on your products drastically, as that can actually be a very good pricing strategy.
If you want to move a slow item or entice buyers into picking up an expensive item, you can price a product really low and either a) move it at record speed or b) price it low as part of a pair and move twice the amount of inventory.
It’s sort of like having a sweet tooth for chocolate. It’s nice to indulge in it here and there because it feels like a treat. But when you start having chocolate every day, the appeal of it goes down and there’s no reason to think of chocolate as being for a special occasion. Your dentist will also have a word with you and tell you it’s probably a good idea if you back off the chocolate a little bit.
Price slashing (the practice of cutting prices by large amounts) is the same way. Everyone gets excited about it when it happens sporadically and you won’t get the eCommerce version of a cavity from it. Start reducing your prices to rock bottom all the time, and you’ll soon be pricing yourself out of business.
It Almost Never Works Out to a Win For You
Let’s assume that you’re one of the rare few for whom the previous arguments just don’t apply. For whatever reason, lightning never hits and you’re able to successfully dodge pitfall after pitfall. It’s kind of tempting to think your luck will always run this course, isn’t it?
Except it won’t.
The curse of being this lucky is eventually you’ll get so big, the really big players will want to squish you. Think of what Walmart would do if they found out you were responsible for their losing 10% of their customers each year. They wouldn’t very well just sit by and let you scoop them up. Instead, they’ll do everything in their power to make sure you’re yesterday’s news.
Now, we’re not saying to not grow your company really big and be as successful as possible. We’re saying to not take the route of selling things as cheaply as possible to attain that goal. You’ve seen countless examples of how the short and fast path is almost always a recipe for disaster (e.g. the US housing crisis, the dot-com bubble fiasco, etc.), whereas slow and steady means building a solid foundation, which will serve you much better in the future.