How to Stop Price Erosion on Digital Marketplaces

Sarah Abel

May 17, 2022

If you’ve ever seen your prices on Amazon or other digital marketplaces like Walmart, Target, or eBay drop below the selling price you’ve set, you understand how frustrating price erosion can be for your brand. On top of that, price erosion hurts your sales and profits—but it doesn’t have to be this way.

At Pattern, we are passionate about helping brands stabilize their prices across all selling channels, both online and in-store. Let’s break down what price erosion is, how it impacts your brand, how it happens, and how to stop it.

What is Price Erosion?

Price erosion is when your product’s prices are lowered by another seller online or on ecommerce marketplaces like Amazon, Walmart, or Target. But price erosion isn’t unique to online sales, the lowered prices also trickle out to your retail partners and brick and mortar customers. You see, as one seller lowers their price to make a quick sale, other sellers are forced to lower their price to compete, creating an uncontrolled race to the bottom.

How Price Erosion Impacts Your Brand’s Sales, Profits, and Brand Equity

Price erosion affects your business on much more than the listing price. Sales, profits, and brand equity are all hit when you don’t take control of price erosion on digital marketplaces.

Price Erosion Impacts Sales

When faced with the option to buy the same product at a lower price, customers will almost always choose the lower price—even if it means putting a product back on the store shelf to order online. Marketplaces like Amazon and Walmart know this and want to always provide the lowest price to attract and keep customers. For example, price plays a key role in Amazon’s algorithm for search rank and Buy Box ownership, giving unauthorized sellers a leg up to convert the sale when they break your price.

Price Erosion Impacts Profits

When customers flock to other sellers who offer a lower price, your brand immediately loses sales, but that’s not where the problems end. If you choose to lower your listed price to regain sales, you will find yourself in a game of price-chicken, with the price lowering until you can no longer make a profit online.

But you still have brick and mortar, right?

Brick and mortar stores are faced with the same dilemma. If they don’t lower the prices of your products they lose the sale, which also erodes their profits. If this problem continues, your retail partners will get mad. Many times brick and mortar retailers start price-matching programs, allowing stores to match online prices while your brand foots the bill for the difference. Unfortunately, this still ends with your brand losing profits in an attempt to capture low price sales.

Price Erosion Impacts Brand Equity

Once price erosion happens, it’s difficult to regain profitably on Amazon and other retail channels, but it may be even more difficult to regain brand equity. Brand equity is the perceived value a customer has for a brand, which determines the price they are willing to pay for products. Brands typically build great margins because of what their brand represents to the consumer.

Brand equity erodes when consumers see your price lower online or other channels. As customers continually find lower prices online, they come to expect the promotional/discounted prices and opt to wait to buy new, full-price items. This hurts long-term sales, margin and profit.

How Price Erosion Happens

Price erosion can happen on any digital marketplace. Let’s talk about how it typically happens on Amazon.

Amazon’s algorithm looks at your product and scrapes the internet looking for a lower price. If Amazon finds a lower price, and if Amazon is the seller (typically 1P), the marketplace will lower the price of your product. This can start a downward spiral or what we call the The Profitability Death Spiral.

But what happens when Amazon is not the seller? Another way price erosion happens is when a 3P (third-party) seller wants to win sales and lowers the price of the product on Amazon to steal the Buy Box. Then, other sales channels, including brick and mortar, are forced to match this price to compete, creating price erosion.

So you might ask, “Why is my product being sold at a lower cost on other channels?” Below are two reasons:

You Have Wide distribution

Wide distribution is generally a growth strategy to grow your brick and mortar channels and revenue. The thought is, more distribution channels equals more sales. Unfortunately, a wide distribution strategy that can increase brick and mortar revenue can cause channel conflict on digital marketplaces like Amazon. Especially if your retail sellers all try to sell the same product. They are forced to compete on price to win. This causes price erosion as we mentioned above.

You Don't Have Price Enforcement

Another reason why price erosion happens on digital marketplaces is not having enforceable pricing policies. Without that, rogue and unauthorized sellers can continue to erode your price without consequences. They have no parameters on how they can price, where they can sell, or how they liquidate extra inventory. If you do have a pricing policy in place but don’t have strong enforcement, sellers won’t take the threat seriously and will continue disregarding your rules.

How to Stop Price Erosion

Unfortunately, price erosion won’t solve itself, you must take proactive steps to stop it through creating a clean channel, identifying unauthorized sellers, and enforcing pricing policies.

Create a Clean Channel

As we mentioned above, price erosion can be caused by wide distribution and a high number of online sellers. So, the first step to stop price erosion is to limit your marketplace distribution and control the number of sellers who list your product on marketplaces like Amazon, Walmart, or Target. Your goal is to create a clean channel with authorized sellers. To do this, you need to identify and remove bad sellers.

Identify Unauthorized Sellers

After you’ve committed to a clean channel strategy, your goal will be to identify the sellers that are causing issues on Amazon and other marketplaces. This can be difficult, but we know your pain and have built software that can expedite the identification and takedowns of these sellers. Just click the link below to have us run a sellers report. Companies who identify sellers and take a proactive enforcement strategy can achieve a clean channel on Amazon and other digital marketplaces.

Create and Enforce Pricing Policies

A clean channel achieved from limited online distribution needs to come first, but after a clean channel is established, the only way to maintain it is to set and enforce pricing policies. Getting granular with your sellers about how they can price, who they can sell to, and how they can deal with extra inventory sets both them and you up for success.

Pattern works closely with an eControl legal firm, Vorys, to give partners the legal assistance they need to achieve seller enforcement and stop price erosion.

How Pattern Stops Price Erosion

The great news is price erosion can be stopped. Pattern provides the technology, framework, and experience you need through our monitoring software, legal partner, and tested approach to eliminating rogue sellers. If you're feeling the pain of your prices eroding, we would like to help. Just click the link below and we can help you achieve pricing control on Amazon.

Ready to stop price erosion online? Schedule a meeting today & see your seller's report.

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Variable Pricing Model: Best Strategy for Improving Amazon RoAS

Variable Pricing Model: Best Strategy for Improving Amazon RoAS

In 2022, Amazon made $31B in ad revenue, revealing how its advertising business has become a profit center and essential for brands to drive traffic to their product listing with Amazon’s advertising products. Yet, success on Amazon shouldn’t always mean a higher ad spend–just a more strategic ad spend. 

We hear from executives that it is frustrating to spend so much on advertising on Amazon without a jump in sales.At Pattern, we’ve had success on Amazon for hundreds of brands using a variable pricing model to determine ad spend to help save a brand money and increase sales in the long run. Our proprietary technology helps brands figure out where to put their Amazon advertising dollars, and which investments will bring the best results. 

Here’s more about why variable pricing models work on Amazon:

What is the Amazon Variable Pricing Model? 

Everyone wants the best return on ad spend (RoAS) possible, especially on Amazon. A variable pricing model on ad spend means having the flexibility to adjust your ad spend and allocate the money to different areas. Variable pricing strategy requires solid data and information so you can make the best decisions that will lead you to an optimal RoAS.

Key Benefits of Using a Variable Pricing Model

  • Improved RoAS on Amazon

  • Increased knowledge for making strategic advertising decisions

  • Enhanced product content backed by data-driven insights

  • More up-to-date information on how to spend your advertising budget

  • Further insight into your true RoAS

  • Higher number of keywords you can win on

How Pattern Improves Your Amazon RoAS 

There are a lot of different opinions and ways to improve your Amazon RoAS, but one way we know that works time and time again is to vary your ad spend based on recommendations from comprehensive thorough and current data and research. 

At Pattern, we use our Predict™ software to run variable pricing models to help brands identify which keywords on Amazon they’re already winning and which ones to optimize and advertise for focus on optimizing and advertising for. 

For example, a brand selling socks for men and women on Amazon might put efforts into using the keyword “socks” for their product, but Predict™ software will help identify alternate and more efficient keywords to bid on– keywords such as  “women’s running socks” or “running socks for men”. 

Figuring out how to best utilize your ad spend can be a difficult and frustrating process. A lack of resources, reports, and data can lead to an inaccurate RoAS and false sense of success. As a top seller on Amazon, Pattern has helped hundreds of brands increase their organic rank by making better and more efficient use of their advertising spend using our Predict™ software

Pattern’s advertising goal is for your brand to increase your organic rank on only those keywords which you have the mathematical propensity to win. How can we know that propensity? Our proprietary data that helps predict where to put your ad spend. A variable pricing model helps brands to follow the ebbs and flows of selling on Amazon and constantly adjust their advertising strategy.

Looking to improve your RoAS on Amazon with a variable pricing strategy? Contact us. 

6 Executive Trading Problems on Amazon and How to Avoid Them - blog header

6 Executive Trading Problems on Amazon and How to Avoid Them

At Pattern, we are constantly trying to better understand brands' performance and experience on Amazon through our research and marketplace data. Our latest Amazon Seller report uncovered common pain points executives faced throughout 2022 on Amazon in Europe and the Middle East. 

Not too surprisingly, there was more than one trading challenge for CEOs selling on Amazon in Europe and the Middle East. There were several top responses such as supply chain issues, advertising, and stock outs–all challenges we hear frequently from 1P Sellers on Amazon no matter the region.  

Here is what we learned about 1P seller trading problems on Amazon:

1. Getting Product into Amazon Warehouses 

Of the brand CEOs who took the survey, 52% mentioned this challenge–making it the most common issue for the second year in a row.  Basically, executives struggle with getting their product into Amazon warehouses, which typically happens because Amazon FBA can be difficult to navigate and comply with. Illegible barcodes, not labeling your products correctly, and a failure to include certain details on barcodes are all reasons your product could be rejected by Amazon FBA works. 

2. Increasing Chargebacks

51% mentioned increasing chargebacks on their products on Amazon, which occurs when brands fail to maintain stock levels or fulfill orders on time. As a 1P seller, if there are any issues with the products you send to Amazon, they will charge you for the time and effort it took for them to resolve those issues. 

Various types of chargebacks could include unauthorized use of credit cards, operational malfunctions (late arrivals, technical issues, etc.), and packaging non-compliance. In a 1P Seller relationship, Amazon will charge vendors with these chargebacks, and disputing them is typically a long, time-intensive, and costly endeavor for any brand.

3. Increasing CPC Costs for Amazon Advertising 

Increasing CPC costs for Amazon Advertising was mentioned by 45% of respondents as a top trading problem. Getting traffic to a product listing helps brands keep their inventory levels stable, so that they never have too much or too little of the product. Increasing CPC costs leads to a possible loss in traffic to a brand’s product, leading to fewer conversions and sales in the long run. 

4. Your Own Supply Chain Being Disrupted 

Sometimes it is not an Amazon issue, but an internal resource and capabilities scenario. 43% of respondents mentioned their own supply chain being disrupted as a common trading problem. Supply chains can be disrupted by a variety of factors, such as inventory order delays, supplier issues, shipping expenses, and problems with existing inventory. 

5. Inadequate Forecasting Methods to Keep Enough Stock in Hand

Many brands lack the resources and expertise to accurately forecast stock levels, according to 38% of the survey respondents. Inadequate forecasting methods can lead to high costs, non-competitive prices, and dissatisfied customers.

6. High Out of Stock Levels Due to Amazon’s Algorithm-driven Price Reductions

High out of stock levels due to Amazon’s algorithm-driven price reductions frustrated 37% of respondents in 2022. Amazon’s dynamic pricing strategy makes sure that the most competitive prices are being offered to shoppers. Low prices are great for shoppers, but sometimes stressful for brand executives. Amazon’s sudden algorithm-driven price reductions can catch a brand off-guard, leading to stockouts. 

Why Most Brand Executives Face the Same Challenges

Being in a 1P relationship with Amazon has its ups and downs—just like any relationship. One of those downsides includes the trading problems mentioned above. In a 1P relationship, Amazon buys your product wholesale and handles most of the selling details, which can be very beneficial in some ways, but may lead to less brand control on your end. Brand executives selling their products through Amazon in Europe and the Middle East face the same challenges that brands are facing world-wide–a lack of brand control and resources to succeed.

Trading problems are just one aspect of the challenges brands face as 1P sellers on Amazon. Learn more about these issues in the full Amazon Vendor Survey from 2022.

How to Avoid These Issues on Amazon

The good news about the trading challenges brand executives are facing as a 1P seller on Amazon is that they are all avoidable. In a 1P relationship, you’re constantly being forced to work around their erratic forecasts, limited communication, and changing priorities. But in a 3P partnership, you dictate inventory management, allowing you to stay in-stock, maintain control of forecasting, and plan for promotions or holidays.

With Pattern as your 3P accelerator, you can simplify forecasting and get inventory to the right place. You ship inventory to one of our warehouses, and we handle the rest—distribution across Amazon’s warehouse network for FBA, repackaging products into bundles, and delivering your orders on time.

Avoid the trading problems on Amazon by partnering with Pattern. Contact us. 

Discover more insights by downloading our annual Amazon Vendor Survey EMEA.

MAP Pricing vs MSRP: What's the Difference? (blog header)

MAP Pricing vs. MSRP: What's the Difference?

“MAP” and “MSRP” are two of hundreds of acronyms floating around in the world of ecommerce, and they’re two of the easiest to confuse and misunderstand. While MAP and MSRP do play similar roles, they also have key differences that can work in tandem to support and protect your brand on marketplaces.

So what are MAP and MSRP and why do they matter? Here’s what you should know: 

What is MAP?

MAP (or minimum advertised price) is the minimum amount that a manufacturer or wholesaler recommends resellers advertise their products for. MAP pricing policy is essentially a one-way boundary you set to protect your brand, protect the margins of your resellers, and maintain fair competition across all of your distribution channels.

When setting a MAP policy strategy, remember the important things you’ll want your MAP policy to do are:

  1. Protect the interests of your brick-and-mortar resellers, giving them the margins they need to display and carry your product as well as sell it.

  2. Stay small enough that it discourages resellers from heavily discounting your products and keeps competition fair.

  3. Accurately reflects on the brand image and value you want to reflect.

“Advertising” and “recommends” are the key terms here. MAP policies should only recommend the price that is advertised online or in-store for a product, not attempt to fix the actual selling price of the product—that’s illegal—or recommend the actual selling price. That’s MSRP’s job.

Benefits of MAP

MAP not only keeps competition fair, but allows you to control your brand identity and promote consumer trust of your product and brand. Here are some of the benefits of having MAP policies:

  • Better brand protection and control

  • Creates a level playing field for retailers

  • Reduces bad customer experiences

  • Provides an accurate performance analysis

How Can Brands Effectively Enforce MAP?

It’s critical that MAP policies are structured in such a way that a brand avoids violating anti-trust laws. One way brands can effectively enforce MAP is by simply monitoring online product prices across digital channels to identify fluctuations in the market. 

At Pattern, we help brands not only develop a MAP policy, but also enforce it. Enforcing MAP policies and gaining marketplace control includes finding unauthorized sellers, which Pattern’s data finds. Once Pattern finds the unauthorized sellers, Vorys eControls (Pattern’s legal partner) steps in and handles the takedowns of unauthorized sellers, continuous enforcement of brand management, and reseller policy enforcements.

What is MSRP?

MSRP (or manufacturer’s suggested retail price) is how manufacturers standardize pricing across their resale channel and determine what price is fair for their product. The key difference between MSRP and MAP is that MSRP is the actual price manufacturers set and recommend retailers charge for their goods while MAP is the advertised price. 

MSRP doesn’t necessarily have to be the final price of a product—it’s most often a starting price—but it is determined by taking into account all of the costs associated with the distribution and manufacturing process for a product and the margin amount resellers need in order to make a profit. MSRP also establishes value. For example, if a brand wants to build a premium brand, the MSRP can reflect the actual or perceived value of their product.

Benefits of MSRP

Setting up an MSRP for your product includes the following benefits:

  • Maintains brand equity

  • Establishes brand and product value

  • Standardizes costs across marketplaces

How Can Brands Effectively Enforce MSRP?

Like MAP pricing, MSRP has to be set up as a one-way policy and not an agreement between a manufacturer and a reseller to avoid landing a manufacturer on the wrong side of the law. It’s a recommendation, not a contractual bind. As mentioned for MAP policy, Pattern helps brands effectively enforce MSRP with our proprietary data and expertise to protect their brand. 

How Do MAP and MSRP Work Together?

MAP and MSRP have different applications that may prove useful in different scenarios. For example, MAP policies are typically more useful in marketplaces where competition is fierce and price erosion happens easily if sellers are left unchecked. Ideally, however, MAP and MSRP are a dynamic duo that work together to serve the interests of your brand, support your resale channels, and protect your resellers.

Setting an MSRP establishes value for your product and lets your resellers know you’re serious about controlling channel conflict, maintaining pricing equity, and protecting their margins so they’re more confident setting pricing at the MSRP level.

MAP is the second half of setting a pricing policy. Setting a MAP price for your product, in addition to an MSRP, further standardizes pricing across your resale channel and gives legitimate resellers a fair environment to compete in while setting boundaries against unauthorized sellers harming your brand.

MAP combined with MSRP creates a stronger level of brand protection, giving your brand more sustainable, profitable growth.

Maintain Brand Control With Pattern

MAP policies can be tricky to draft, because there are so many legal lines to tiptoe around and so much nuance that goes into pricing. They can also be tricky to enforce without the right tools. At Pattern, partnered with Vorys, we have the tools and resources to help you maintain brand control on all marketplaces. 

As an ecommerce accelerator, Pattern can help you identify MAP violators and regain control of your brand online so that your image and your resellers are protected. To learn more, contact us today.