Price Points by Omnia Retail

In the competitive world of e-commerce, marketplaces like Amazon, Google Shopping, eBay, and Idealo have become key players, connecting buyers with sellers and offering a simple way to comparison shop. Amazon, for...

In the competitive world of e-commerce, marketplaces like Amazon, Google Shopping, eBay, and Idealo have become key players, connecting buyers with sellers and offering a simple way to comparison shop. Amazon, for example, captures 37.8% of all e-commerce sales in the United States. However, while selling on marketplaces can enable brands to reach new customers and increase sales, it also has its disadvantages, including increased competition and decreased profit margins. To be successful in marketplace sales, businesses need to understand the role they play in retail and how to differentiate themselves among a sea of sellers. In this blog, Omnia will explore the realities of selling on marketplaces, best practices, while adding our predictions on the future of marketplace sales. The role of marketplaces in the e-commerce landscape Marketplaces exist to connect buyers with sellers. With so many e-commerce brands and retailers competing for sales – somewhere between 12 and 24 million worldwide – marketplaces have become key players in online sales, enabling customers to simplify comparison shopping. The coronavirus pandemic boosted the relevance of marketplaces as well, as customers looked for places they could buy many different products in one location. So how do the marketplaces actually make money? There are a variety of business models. Some charge commissions, where they receive a percentage of each transaction. There are general listing fees, featured listings, and ads where sellers can boost their products to the top of search results. Some marketplaces also offer to take part of the process over for the seller; for example, the Fulfilment by Amazon (FBA) model, when a manufacturer chooses to outsource shipping and warehousing to Amazon. In a survey from Digital Commerce 360 and Bizrate Insights, 84% of respondents in the US said they make purchases on marketplaces at least once per month. 35% buy from marketplaces at least weekly. Common categories for purchases differ by country and website, but below are some of the most successful shopping categories for top marketplaces: Talk to one of our consultants about dynamic pricing. Contact us The realities of selling on marketplaces As with any retail channel, there are benefits and challenges that accompany selling products on a marketplace. Some of the advantages and disadvantages include: Advantages Expansion: Marketplaces enable existing brands to expand their reach, whether from selling in new regions or reaching new customer demographics. Trust and traffic: Marketplaces provide a major advantage to new e-commerce stores: web traffic and trustworthiness. Buyers may be hesitant to purchase from an unfamiliar website, but they feel more secure making a purchase on a well-known platform such as Amazon. New revenue streams: Marketplaces provide new revenue opportunities to e-commerce businesses, allowing them to access new customers and increase sales. For example, Amazon claims that companies selling on their marketplace can increase sales up to 50%. Disadvantages Decreased profit margins: Transaction fees are a marketplace norm, so total profits from selling the same product at the same price will be lower than selling D2C from your website. With transaction, advertising, and fulfilment fees, Amazon can take up to 50% of a seller’s revenue. Increased competition: Raising prices to cover marketplace fees might not be such a simple option, as competitors may be selling similar products at a better price. Unless you're selling something unique, you'll likely need to compete on both price and visibility, which are highly connected and dependent on each other. Giving up control: The marketplace processes transactions and is the primary source for customer service. This means businesses will give up some control over their customer experience, data, and product perception compared to when they are hosted on their own websites. Selling through any third party where the business has less control will have implications for the customer experience. When building a marketplace strategy and choosing which marketplaces to work with, brands should keep in mind the concerns that customers may have: The graphic above shows that 45% of customers found that prices were higher on marketplaces in May 2022 compared to the past, indicating how little control a brand can have over its prices on a marketplace. Other challenges marketplace customers encountered also have to do with limited control over customer experience; longer lead times for delivery (36%) and products out of stock (35%) would be the fault of the marketplace if they run fulfilment, such as the FBA model at Amazon. Shipping fees (24%), limited assortment (21%), and customer service wait times (16%) are also dictated by the marketplace. 10 important factors for successful marketplace selling To successfully sell a brand’s products on marketplaces, businesses will need to make their product listings stand out, promote and advertise, differentiate from competitors and other channels, and more. High-quality product listings: Creating well-written, accurate, and detailed product listings that include high-quality images and videos can help attract potential customers and increase sales. When selling in a new market with a different language, consider working with a native speaker for translation or editing to ensure product descriptions do not sound like they came from an online translation service. Positive customer reviews: Positive customer reviews are a powerful tool for building trust and credibility. According to one US survey, nearly all (99.9%) consumers say they read reviews at least sometimes when shopping online. Encourage your customers to leave feedback on your products and services. Product assortment: Offering a diverse range of products can help attract more customers and increase your chances of making a sale. Ensure that your product selection is relevant to your target audience and differentiated as needed between marketplaces or retailers and your D2C channels. Strategic advertising: Marketplace ads and paid listings can boost the visibility of your items or store and improve search result rankings. However, be mindful of budget when engaging in any type of advertising. Optimization for search: Optimise your product listings for search engine visibility by including relevant keywords and phrases in your titles and descriptions. Promotions and discounts: Offering discounts can increase brand loyalty if a customer has bought from you before, but even more importantly in the competitive marketplace environment, it helps attract new buyers. According to RetailMeNot, 80% of consumers feel more encouraged to buy from a brand that is new to them if there is a discount or offer. Competitive differentiation: Differentiate yourself from the competition by offering unique product features or bundles. For example, if you are wanting to create a sportswear line, Nike and Adidas own the majority of customer sales in this category, however, is there something they are missing? Creating what is called a “challenger brand” is about finding a gap in the market and using it as the key to your success. Compliance with marketplace policies: Ensure that you comply with the marketplace's policies regarding product quality, returns, and refunds to avoid penalties and maintain your store's reputation. Stock levels: If a product is not in stock, customers cannot buy it; but the seller can also get penalised by the marketplace if its products are not consistently in stock and available for purchase. Pricing: Marketplace sellers need to constantly adjust their pricing to stay near the top of the results and avoid being undercut by competitors while still maintaining reasonable profit margins. Dynamic pricing software like Omnia enables sellers to automate the price and price perception management based on large quantities of data, ensuring products are always priced in a way that fits the company’s pricing strategy. All of the above factors, especially reviews, stock levels, and the quality of a competitor’s listing, can be used as additional data when formulating a pricing strategy. A vendor may choose only to compare and adjust its price with offers of the same quality, or might not adjust a price to match an offer if there is no stock available. All these factors are taken into account when automated pricing is applied. How the relationship between brands and marketplaces is changing The relationship between brands and the marketplaces they sell on has been evolving over time. Let’s consider Amazon as an example. Brands who want to sell through the retail giant can either offer their products as a vendor or a seller: Vendor model: Amazon's vendor model involves buying products directly from the brand-name manufacturer, then selling the products under their own label on their platform. Otto and Zalando operate with this model as well. Seller model: Under the seller model, brand manufacturers use Amazon purely as a platform to market and sell their goods, but ownership remains with the manufacturer until the goods are sold to the end consumer. One of the main differentiators between these models is price: Under the vendor model, Amazon sets the price; with the seller model, the brand sets its own price. This level of control is appealing to brands, and there is a trend in the current landscape of more brands moving from the vendor model to the seller model on Amazon, giving them complete control over their pricing. Some of this shift away from the vendor model is happening by force: Amazon contacted vendors telling them the company would be actively pursuing direct partnerships with brands beginning on January 15th, 2024. The future of marketplaces No one can predict the future, but while marketplaces surely are not going anywhere, the way brands and customers interact through this third party is likely to continue evolving in the coming years.

With the increased transparency in the market, pricing becomes a very competitive game. All retailers are monitoring one another, and a single price change can trigger a chain of price changes. This is especially true...

With the increased transparency in the market, pricing becomes a very competitive game. All retailers are monitoring one another, and a single price change can trigger a chain of price changes. This is especially true for leading enterprise retailers, the one being monitored by competitors. A small price change provokes main competitors to follow. Within a day, the new status quo can become a few euros lower than before. So how can you create a sustainable setup that keeps you competitive yet does not disrupt the market? We have 3 tips on how you can make smart pricing decisions. 1 - Split competitors into different tiers It is important to take a wide range of competitors into account. This establishes a price benchmark, even if your main competitors are not selling this product. However, keep in mind you may not want to follow the price change of a smaller competitor at the risk of pulling your major competitor (and the rest of the market) down with you. This can best be avoided by analyzing your competition and splitting it into different tiers: Tier 1 competitors are major competitors. They generally decide the pricing level and everybody follows. Tier 2 competitors have a proper shop (not the image you and major competitors have) Tier 3 competitors are all other competitors selling the product Once you split them into tiers, apply more sophisticated logic. For example: Tier 1 competitors: when one of my tier 1 competitors is priced lower I do the same Tier 2 competitors: when at least two of my tier 2 competitors are priced lower, then I follow. Tier 3 competitors: do not follow down, only up If you sell products in a wide variety of categories, we’d highly recommend creating competitor tiers for each. For example, your competitor landscape for high-end cameras is different than those for kitchen appliances. 2 - Accept a small pricing gap to avoid a race to the bottom A single euro difference can make a huge difference in terms of revenue when comparing prices to that of your competitors. However, you do not have to match the prices of every competitor. Some example scenarios: For the tier 2 or 3 competitors be willing to accept that they are priced a few euros or percentages lower than you. Your stronger brand should be able to compensate for the difference. However, do lower your price if the gap gets too large. Regarding competitors continuously undercutting you by a few euros or cents, do not continue the pricing war and allow a small price gap. Otherwise, within a few days, you will lose all the margins and the new status quo is low. 3 - Think Of When To Price-up & Work Towards Healthier Margins When implementing dynamic pricing, most consider how to compete with competitors when prices are going down. But, it is equally important to think about scenarios where you have an opportunity to price-up. If your competitors follow your prices down all the time, there is also a big chance they will follow you up. For example, if there is only one other (tier 1) competitor, and you are both priced on the same level, you can try to price-up a few euros. There is a big chance that your competitor will follow your pricing strategy. You both remain equally competitive (so revenues will not drop that much) but you will have a better margin. In the blogpost related to “margin vs revenue: how to stay competitive and profitable” there are more examples of how to price-up and increase margins. So... how do you implement such Logic? We recently added new (beta) functionality to our pricing engine, called market conditions. This allows you to select parts of your assortment on both product assortment conditions as well as market conditions: Talk to one of our consultants about dynamic pricing. Contact us Product assortment conditions The *if* statement that you are familiar with lets you select any product characteristics. Either static parameters, like categories and brands, or more dynamic parameters, like sales and stock levels. Market conditions An additional layer of conditions that allows you to select any combination of market scenarios. There are 3 templates: When a certain number of competitors are present for that product When a certain number of competitors are lower/higher than my current selling price When a min/max/avg/most-occuring price is lower/higher than my selling price The combination of product assortment and market conditions is very powerful and enables you to outsmart competitors by tuning our repricing engine. This allows you to follow your desired pricing strategy regarding any subset of your assortment and in any market scenario. The market conditions will allow you to implement the above tips. Moreover, conditions allow you to create solutions for other dilemmas as described in the “dilemma blogs” How to reprice your online assortment without frustrating your store employees? Margin vs revenue: how to stay competitive and profitable?

Everyday low pricing is no longer a sustainable business model. In most categories, margins are too small. Setting the lowest price for every product spells bankruptcy. Even in categories with healthy margins, margins...

Everyday low pricing is no longer a sustainable business model. In most categories, margins are too small. Setting the lowest price for every product spells bankruptcy. Even in categories with healthy margins, margins may quickly evaporate once competitors start undercutting each other. You need to create a smarter, tailored pricing strategy. Within that strategy, you should take advantage of the difference in dynamics among products. Differences in both the product types as well as the competitor landscape (the market conditions). We will zoom into both aspects within this blogpost. By using these differences, you can find the right balance between revenue and margin. This balance is subtle and requires a continuous shift of products between various pricing strategies. The key is to stay competitive where visible to customers, while winning additional margin where possible. Utilize the difference in product types Products respond differently to price changes. Regarding one product, revenues drop when you are slightly outpriced. For other products, you see no revenue decline when prices are set a bit higher. Split your assortment so that you have different pricing strategies that match consumer behaviour. In our discussion of the high-runner strategy, we explain how you can use traffic and sales data to classify your products in different groups. It is most important to have a competitive price set for products that have the most traffic. A television is an example of such a product. Consumers investigate the cheapest price and buy the product at that location. However, the price matters less for cross-sell opportunities (wall-mount and the HDMI cable). At this point, the consumer made the choice to buy the television. It will be easy to buy the accessories with it. Get more margin on the accessories to compensate for the competitive price of the television. A high runner strategy is based upon traffic and sales data to classify products into groups. Price elasticity data can be used to classify products in a similar way. Label products high, medium, or low elasticity and apply different pricing rules. You want high-elastic products to be competitive (e.g. position number 1 among your competitors). Medium and low elastic products can be less competitive (e.g. position number 2, 3 or even higher). Talk to one of our consultants about dynamic pricing. Contact us Utilize the difference in the market conditions As described in our article about competitor price changes it is important to think carefully when you want to follow prices down. Most consider these scenarios when prices are going down. But when implementing dynamic pricing, it is equally important to think about the opportunity to increase pricing. If your competitors follow your lead in setting prices lower, they may follow when setting prices higher as well. For example, if there is just one other top competitor priced on the same level, try to increase your price by a few euros. There is a big chance your competitor will follow your pricing strategy. You both remain equally competitive (so revenues will not drop that much) but achieve a better margin. The same applies when there are multiple competitors (but you and one other competitor are priced lower than the rest). Increase our price to the level of the other competitors and you in turn raise the overall bottom price. These tactics are especially effective, if you combine it with the different product types. For high elastic products, you might want to pull the market up if there is only one competitor. But, for low elastic products, you can afford to do it sooner (when multiple competitors host the same price). Utilize temporary scenarios where a competitive price is less important Some products remain price sensitive. For a higher-price television, a few euros difference can have a big impact on your revenue. However, in other scenarios, price is less important. Make use of these scenarios! Use stock: For popular products, some retailers are reluctant in setting a price higher than the competition. But, if you’re running low on stock and there is a high consumer demand, why not increase your prices? You might not sell at the same turnover, but what is the use of running out of stock way before the new stock comes in? You might as well make additional profit! For more ideas on how to use stock, see our blog post on stock based pricing. Think of promotion impact: Promotional periods inspire different sales dynamics. Most thought is put into the promotional product itself. Yet, there is opportunity to use this period to adjust pricing on similar products. Imagine you have a particular television discounted. This product will cannibalize sales on similar products. Revenues will temporarily drop, creating an opportunity to pull the market up. As revenue on that particular product is down, increase the price and pull your main competitors with you. Regarding your promotional product itself, your competitors often decrease their prices to match your promotional price. Once the promotion is over, prices seldom return to the same level as before. At this point, competitors monitor one another, and nobody wants to increase prices. To give the market a chance to recover, consider your old price point (the one before the promotion price). This can pull the price back to a more profitable level. Check your delivery / installation capacity There can be moments when your sales are limited by capacity issues. Consider a service that delivers and installs washing machines. If all installation slots in the coming weeks are almost fully booked, this limits the amount of washing machines sold. So, make sure your price matches this scarcity so you maintain good profit. So... how do you implement such Logic? We recently added new (beta) functionality to our pricing engine, called market conditions. This allows you to select parts of your assortment on both product assortment conditions as well as market conditions: Product assortment conditions The *if* statement that you are familiar with lets you select any product characteristics. Either static parameters, like categories and brands, or more dynamic parameters, like sales and stock levels. Market conditions An additional layer of conditions that allows you to select any combination of market scenarios. There are 3 templates: When a certain number of competitors are present for that product When a certain number of competitors are lower/higher than my current selling price When a min/max/avg/most-occuring price is lower/higher than my selling price The combination of product assortment and market conditions is very powerful and enables you to outsmart competitors by tuning our repricing engine. This allows you to follow your desired pricing strategy regarding any subset of your assortment and in any market scenario. The market conditions will allow you to implement the above tips. Moreover, conditions allow you to create solutions for other dilemmas as described in our other dilemma blogs: How to respond to competitor price changes without starting a price war? How to reprice your online assortment without frustrating your store employees?