A discussion draft of the Online Sales Tax Simplification Act of 2016 is expected to be introduced in Congress soon.
It’s getting harder for e-retailers to ignore dynamic pricing, says the August cover story of Internet Retailer magazine. But simply changing prices isn’t always enough to beat Amazon and other e-commerce competitors.
When it comes to dynamic pricing, Amazon.com Inc. has been among the most aggressive in tracking competitor prices and changing its prices on the fly to attract online shoppers looking for the best deal. On hotly contested products, Amazon will change its prices many times a day, and competitors have no choice but to respond.
As shown in the August cover story of Internet Retailer magazine, Sears Holdings Corp. is among the retailers taking on Amazon, as highlighted by a study from pricing monitoring firm 360pi of 500 products in the consumer electronics and appliance categories for the period between April 28,and May 4. During that period, Sears, the fifth-largest North American web retailer by sales, changed its prices for 8.3% of those SKUs at least four times each day, and made three to four changes daily for another 3.6% of the items studied. Amazon changed prices four times a day for only 1.1% of those SKUs, but made three to four daily adjustments on 3.7% of SKUs. Apple Inc.’s Apple.com, by contrast changed the price on none of its products, a sign of the power the Apple brand possesses that keeps it from having to compete aggressively on price.
In a study during the 2013 holiday season of items in the electronics, toys and hardware categories, price-monitoring technology vendor Ugam recorded 9,715 online price changes on Amazon.com between Nov. 24 and Dec. 14, far more than the number of price changes by such major competitors as Best Buy Co. Inc., Target Corp., Wal-Mart Stores Inc. and Toys ‘R’ Us Inc.
“No one can keep up with Amazon,” says Jenn Markey, vice president of marketing for 360pi. She says Amazon might change a product’s price up to 10 times a day—more often on price-sensitive products such as power tools and less often for apparel. She says the most active retailers change prices daily on 15% to 20% of their product assortments. As many as 20% of all online product prices change at least daily, with some of the hottest items changing price every few minutes, says Michael Paulson, vice president of product and business at Decide.com, an online price-tracking firm recently acquired by eBay Inc.
The story in the August issue of Internet Retailer magazine looks at the experiences such retailers as Build.com, eBags Inc. and Bourbon & Boots have had with dynamic pricing, and what motivates them to change their prices without sacrificing margins and engaging in a race to the bottom with Amazon and other e-commerce competitors.
The story also shows that while price is important, it’s not the only factor that determines where a consumer buys. A bigger selection and more aggressive marketing can also boost sales, even in the era of dynamic pricing. That’s illustrated by the experience of eBags Inc. with a three-piece set of luggage from the Rockland brand called the “Carnival Hardside Spinner.”
The web-only luggage and handbags retailer introduced the product back in 2001 at a price of $180, and it was a slow seller. Eventually, eBags decided to get into the dynamic pricing game, adjusting prices based on what its competitors were doing. “With this set [and many other items] we were attempting to be ‘in range’ with a price that would deliver the right balance of sales and margins,” says Peter Cobb, co-founder of eBags. “We were not always trying to be the lowest price on the item.” But, he noted, eBags had to be price-competitive because luggage was “a highly price-competitive and price-elastic category.”
The e-retailer doubled down on the Carnival Hardside Spinner luggage set by adding three colors, giving shoppers a total of nine sets to choose from. That brought in more consumers comparison shopping across the web for luggage, Cobb says. “When a style increases in SKU count [it provides] more reasons for a consumer to compare prices across various retailers,” Cobb says. “This sort of situation is where dynamic pricing really starts to prove its worth.” EBags also promoted the item more heavily through e-mail and personalized promotions.
The effort paid off quickly, with sales of the set quadrupling helping the retailer turn a profit on the line, Cobb says. In fact, the product remains one of the top sellers on eBags.com, and the e-retailer regularly shows up at the top of Google Inc.’s search results for the set, offering it at $139.99.
Cobb says eBags, which offers 55,000 SKUs, now changes prices on some items in response to other online prices, but in a way that maintains profit margins. “To price items, we set up business rules that allow our dynamic pricing to find the revenue and profitability sweet spot for every SKU being dynamically priced,” he says.
He also emphasizes that eBags gives consumers other reasons to buy on its site beyond price. The e-retailer offers a loyalty program and invests in customer service, for example participating in Google’s Trusted Stores program, which offers purchase protection on e-commerce sites Google has deemed reliable.
That kind of service can lead consumers to shop at sites that don’t offer the lowest prices, even today, says Arie Shpanya, CEO of Wiser, which helps retailers and brands track online prices. As an example he points to Zappos.com, which has never sought to be lowest-price shoe retailer online. “Buyers are still willing to pay more—even though Zappos is owned by Amazon—and they are doing so since they want to get a premium service, such as a 365-day return policy, free shipping both ways, and getting wowed through customer service,” Shpanya says.
Not every retailer deems dynamic pricing necessary. That group includes pet products retailer Drs. Foster and Smith, a cataloger that launched its e-retail site in 1996 and generated Internet Retailer-estimated web sales of $205 million last year, up 11% from 2012. “We haven’t done dynamic pricing and have no plans to moving forward,” says Gordon Magee, the retailer’s manager of Internet marketing and media. “With a variety of marketing materials in play from catalogs to e-mails to coupon code offers to display ads, we want customers to have the same prices available to them no matter how they come to our site or have been motivated to call our call center.”