Understanding
Amazon Price Disruption
3 Steps
Manufacturers Can Take Today
to Restore Marketplace Balance
If you are a manufacturer or retailer, the disruption being caused by
Amazon.com is being felt throughout your organization. Many feel
helpless to understand the source of this disruption, much less how
to solve it. Here is an explanation of what’s happening, and three
steps manufacturers can take to reduce the disruption.
While Amazon does not intend to be the low-price leader in the online channel, the result of their price matching strategy is amplification of
the lowest price in the online marketplace. To
understand price matching, it’s important to understand that there are two basic types of product distribution into the online channel: Intended and Unintended. Each type contributes to price disruption in a different way.
Intended Distribution includes established retailers like Walmart, drugstore.com, BestBuy, and, of course, Amazon Retail. When these retailers price promote online or execute EDLP, Amazon price crawlers find these prices and match them. If the EDLP and/or promotions rotate Intended Distribution sellers throughout the year, the net effect is Amazon offering the equivalent of EDLP plus promotional prices year round.
Unintended Distribution refers to “Third Party Sellers” on Amazon Marketplace, eBay, and elsewhere online. While some focus on hard-to-find items to drive sales, problematic Unintended Distribution sellers are using price arbitrage to profit off product sources
manufacturers never intended and, in some cases, these prices are influencing pricing on Amazon Retail. The prices are also easily visible on Amazon’s PriceCheck app, fueling retailer fear that their Bricks & Mortar stores are increasingly serving as a “showroom” for Amazon. In the case of this Olay product, the third party seller’s price was $11.99, vs. Amazon’s price of $16.74. Some examples of how sellers are profiting from price arbitrage include manufacturer and retailer liquidations, “Promo-Hacking” (AKA discount
aggregation), salvaged product (e.g. damages and returns), theft, and even counterfeiting.
Unmonitored and unregulated, product history, condition, and even legitimacy of the product are typically unknown.
Three Steps to Reduce Price Disruption
The results of the problems identified above are increased risk profiles for manufacturers, marketplace
disruption and lack of profitability in the channel, all of which place manufacturer strategy, investment,
and business at risk. Here are three steps some of our clients have taken to successfully monitor and manage the online channel to minimize or eliminate price disruption.
Step 1 “Look in the mirror:”
At etailing solutions, we recommend services like those offered by ChannelIQ to start tracking Intended and Unintended Distribution seller listings, capturing number of product listings and sellers, listing prices, and MAP compliance. In addition, covert marketplace product buys are
often needed to better understand the sources of product flowing through Unintended sellers. With this data, manufacturers can start to identify the loopholes or gaps in their Terms of Sale, MAP, Reverse Distribution, and Product Liquidation policies that are contributing to the price disruption.
We have also found that manufacturers don’t fully understand the basics of Promo-Hacking, and how their own promotional and coupon policies fuel the practice. Identifying policy weaknesses and implementing best practices to make their promotional calendar hack-proof, yet still effective in driving sales, is a key step in the process.
Last, reviewing packaging security practices is important to ensure they are doing everything they can through distribution and into the retail environment to reduce opportunities for theft.
Step 2 Establish New Policies:
After identifying gaps, manufacturers can establish new policies in consideration of the online marketplace. These may include Authorized Seller models, which specify terms for who is allowed to sell and resell product online with specific incentives and repercussions for compliance.
In addition, while many manufacturers have Minimum Advertised Price (MAP) programs, we have found that few, particularly in the CPG space, have adapted or properly enforced the programs to the unique dynamics of the online channel, which is typically easier to do than it is offline.
Last, there is emerging technology to consider, called Badging. Securely identifying “Authorized” or “Preferred” online points of sale is quickly becoming a vital component to manufacturer’s online channel programs to help consumers get a sense of “Should this retailer really be offering this product?”
Step 3 Monitor, Enforce, Evolve:
Ongoing monitoring, policy enforcement, and evolution to adapt to new dynamics, is critical. Manufacturers must be ready to approach Intended Distribution sellers to comply with sales policies, and to identify and investigate Unintended Distribution sellers aggressively. In addition, manufacturers can establish tighter product flow monitoring, comparing shipments to retailer Point of Sale (POS) data plus inventory on hand. This ensures product is not being diverted outside the intended channel. Incentives can be built into policies and programs that activate when the data supports program compliance. Covert marketplace product buys should continue at established intervals throughout the year.
Danny Silverman is Director, Sales Support for etailing solutions, an integrated online eCommerce consultancy providing brands with a distinctive suite of services, including data services/insights, strategy development, sales support and virtual merchandising.
About Etailing Solutions
Etailing Solutions is an integrated sales and marketing eCommerce consultancy that offers a distinctive suite of services including data services/insights, strategy development, sales support and Marketplace Management, specific to the online space. The company combines a deep understanding of online shoppers, brands and the digital sales route to market to offer clients solutions that drive faster growth and profitability through online sales. Etailing Solutions is part of the Hyper Marketing, Inc.
network. To learn more, please visit: http://www.etailing-solutions.com
About Channel IQ
Channel IQ is the leading provider of online retail intelligence solutions to manufacturers, distributors and retailers. Channel IQ provides real-time, online promotion and pricing information, empowering major manufacturers and retailers like Olympus, Dyson, Panasonic, LG, Bulova, Wüsthof, and Tumi to quickly and profitably handle channel issues and competitive situations. Only Channel IQ combines integrated reporting, interactive applications and services to enable manufacturers and retailers to automatically act on real-time data. Channel IQ solutions are the result of cutting edge technology combined with decades of industry experience in channel management, distribution, online retail and manufacturing. For more information, visit http://www.channeliq.com.
