March 7, 2021

Price Levelling in Multi-Channel Ecommerce

Dr Peter Mowforth

When lots of businesses sell in lots of different places, through easy price comparison there is a trend towards price convergence. Lets consider some background to why this happens.On average, Amazon adds 485,000 new products every day while eBay will, at any one time have one billion products listed. While Amazon and eBay are probably the two best known marketplaces there are hundreds of others - many specialising in certain categories of product or geographic regions.Given that almost every business is keen to sell more products, it’s no surprise that business that once sold a few products on one or two marketplaces now open out to sell a much wider range of products on many more marketplaces as well as their own websites.While some small traders (particularly niche manufacturer brand owners) may have just a handful of products to sell, many have thousands (or even hundreds of thousands) of products and, provided they can turn a profit, will do their best to sell them wherever there are customers.While single individuals and small traders may add products to these marketplaces, manually uploading product images, prices, courier details and descriptions, the vast majority of traders now manage all these marketplaces automatically using systems that ‘feed’ the marketplaces from some centralised database or ecommerce Content Management System. There are lots of different ways to do this where you have the ability to synchronise stock levels and product details throughout the world.The final piece of the jigsaw is the big question of what price to sell at.

Some of the clients we work with use price optimisation software where the rule is that provided they make a profit then they are prepared to sell however small that might be. Such calculations precisely calculate the cost of marketing, likely returns rate, lifetime value of the customer etc. Provided absolutely everything is factored in then the logic is fine. The point is that there are a lot of clever competitors out there all doing exactly the same thing. Customers have lots of ways to compare the prices of the same items in all the different places where they are sold so, given that the products are all identical, they will obviously choose the trusted channel that offers the best deal. When that happens (as is increasingly the case), margins converge to the minimum. This is great news for consumers but terrible news for those who sit only in the supply chains of other businesses (i.e. wholesaler, distributors and retailers).What does all this mean. The inevitable answer is a progressive compression of supply chains so that brand-owner/manufacturers have the potential to deal directly with end-user customers. By doing so they will be much better placed to respond directly to what their end-user customers want and so will be in a far stronger position to set product policy as well as offering great value for their customers. Will this end up being good for consumers? The answer is an emphatic and absolute "yes" (unless of course you also happen to be a wholesaler, distributor or retailer).

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