Practical Ecommerce

How to win a price war

As the Internet continues to grow, and more consumers are becoming web savvy, ecommerce sales likewise increase. It is inevitable that many (indeed most) shoppers are driven by price. They look for the lowest price that they can find. Hence the price wars. It would be foolish to run an ecommerce business without taking into account these price wars, and winning them.

First you need to define what you mean by winning. You win when you continue to make enough sales at a proper margin. You do not win by dropping your price too low just to make sales.

Take Amazon. It is assumed by many that it is just driven by price. This is not wholly true. Whilst price does play its part, it is not the only criteria. On Amazon, the seller that wins the buy box gets the majority of the sales. The winner of the buy box is determined not only on price, but on speed of dispatch, level of positive feedback, and a number of other factors. Thus if you provide a better value than your competitors, you can charge more than them and still get a share of the buy box. Amazon values good customer service. Customers tend to be lazy. They tend to buy from the “Buy Now” box on Amazon, rather than looking for a cheaper seller.

Further you need to research Amazon’s catalogue. Whilst in theory there is meant to be just one entry for each item, on the more popular items there can be several duplicate entries. Lazy sellers will just list on one. Clever sellers will list on all. It is likely that the duplicate entries will not be as hotly contested and hence may have higher prices. Further you should see what you can do to improve these less contested entries so customers are more likely to find them in their searches. You should ensure that the entry has a full description; good keyword bullet points, and uses sensible search nodes. If you do it right these duplicate entries will climb up the sales rankings and you can likewise increase sales. Eventually however Amazon will merge the duplicates and you will have to change battlegrounds.

You also should consider Fulfillment by Amazon (FBA). I have long resisted this, but I can see the advantages. Firstly, for U.K. sellers, FBA’s fulfillment costs for medium sized items are about 30 percent less than the cheapest U.K. postage cost. Secondly FBA items get the buy box even if they are significantly more expensive than the non-FBA options. The thing to watch out for, however, is storage costs. There is absolutely no point in sending slow-selling inventory to Amazon. Any profit will be eaten by the storage costs.

Listing titles, categories, and descriptions are even more important on Ebay. Here there is a separate entry for every seller. It is much easier to sell at a premium to cheaper sellers if your item comes up on a search and theirs does not. Hence you need to do proper search optimization on your listings. This is to not only to get your listing found on Google, but also to get prominence on Ebay’s own search.

Then you need to get clever regarding what you list. Lazy sellers will simply create an entry for every single item they have. Clever sellers will go further and consider creating sets. This is especially useful if the products come in assortments and one proves to be more popular than the others in the assortment. If you bundle them all together, you get to sell the less popular alongside the much-desired item. Not only are you increasing your average order value, you are also probably getting a better price for the less popular items than selling them individually. Indeed I have often seen some sellers order in case lots of assorted products, sell off the popular ones at a decent premium, and then dump on the market the huge number of less popular ones. Just to get rid of them. By selling in sets and bundles, you are less likely to be caught with a surplus of items that are being given away by others.

Finally you have to give priority to your own websites. Amazon, Ebay, and PayPal are ruthless when it comes to customer complaints. There is always a temptation by some merchants to put sales on these sites ahead of their own. This is the wrong thing to do; all sales should be equal. That said, you are likely to make at least 10 percent more margin on sales made on your own sites due to not paying a commission. If you are in Europe, you can pass some or all of this savings to your customers. You can make it a feature that you offer better value directly, on your own sites. This can convince shoppers to buy directly from you, rather than through Amazon or Ebay. Indeed if you offer payment by PayPal and Checkout by Amazon, you can say that the buyers have the same protection as if they were on Ebay or Amazon.

A further consideration is timing. Popular items run out. If you still have stock when everyone else runs out, you can choose your price. Let the bedroom sellers burn through their stock at cost or less. They may win the initial price battles. But in the end you will win the price war by selling at premium prices long after they have sold out.


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Comments ( 5 )

  1. Carlos Rivera May 15, 2014 Reply

    Richard,

    Great article!I am ashamed to admit that I had toyed with price in the wrong way in the past. However, we quickly realized it was not the way for sustainable growth.

    I would like to add that sometimes you should sell more expensive on Amazon and eBay for the same products, than you would on your own online site. The way fees are calculated per sale on these marketplaces creates a very different pricing environment than your traditional brick-and-mortar store.

    Thanks,

    Carlos

  2. Priscilla May 16, 2014 Reply

    Some great tips here, thanks for sharing! I guess the most sustainable solution is to differentiate your products or services, as this is how competitive advantage is developed…

  3. Elise May 16, 2014 Reply

    Unfortunately your point about lowering prices because your margins are higher on your own site is not always the case. Retailers and e-tailers tend to be fickle, jealous, and competitive. They can tell your company to increase your own prices to make their prices look better. If you refuse, they’ll threaten to stop selling your products. They’ll throw a fit if you ever come close to competing with them in price. You have to be very careful with pricing and other retailers.

    • Richard May 17, 2014 Reply

      I try to avoid suppliers who also sell direct to the public. You will always loose in the end.

  4. Seamus Breslin May 19, 2014 Reply

    What a great article Richard—very succinct and well-balanced.

    I don’t think all sellers would necessarily have the same strategy and selling on your own website is more costly than most think (at least a successful site that has to spend time and money driving traffic to it) but there are more than enough points here for any seller to consider.

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