How do you rebuild a brand’s price level when it’s dropped below the safe line?
- 03 December 2018
In today’s retail markets, it is obvious that the trend is to move from physical stores to online stores. As of now, brands can leverage the power of the big marketplaces like Amazon, eBay, and any other popular regional marketplaces and use their own physical stores mostly for logistic services, delivery centres, showrooms, and branding.
Moreover, most of the online shopping process begins with these 3rd party resellers. Online customers first land on the page of the online shopping malls, where they can find an amazing variety of products. Next, they jump from one product page to another, read well-written product descriptions and reviews, compare prices, and finalize the purchase, all within minutes.
This becomes typical online purchasing behaviour
So, we can say that resellers provide a great channel for brands to promote their own products and to have multi-channel abilities.
However, there is a dark side underlying the relationship between brands and resellers. Brands need to be careful regarding several aspects while sustaining a healthy business with their online resellers; there are some cases that can be harmful to brands while selling their own products through the resellers’ platforms.
Allow me to explain…
Specifically, controlling the product quality is in the hands of the brand, but it is not the same for pricing! Pricing is the only influential factor that brands do not have complete control over with respect to their own products which are sold in resellers’ online stores.
Resellers’ main concern will always be their own business. Even if you are inviting resellers to be aligned with your pricing strategy, they are always searching for aggressive ways to maximize their revenues and beat the competition while battling with other platforms. This is especially apparent for a channel like Amazon where demands are high, and prices are low.
For example, Amazon is really enthusiastic about providing customers with the best deals and lowest prices. The resellers on Amazon who drop their prices are shown in first place. That’s their brand. Many resellers have conceded their branding to Amazon and focus just on the sale.
That’s why your brand’s price level could be in danger if you are not controlling the resellers’ pricing actions on your products or if you are not able to find action plans if the pricing is dropping below your safe line.
What does dropping below the safe line actually mean?
Firstly, don’t confuse yourself over the meaning of dropping below the safe line, it does not always mean being the cheapest and, in fact, it could be understood in many different ways; actually, “below the safe line” is a situation where something goes wrong with the price level or causes your brand to lose its direction or brand value.
In this article, we aim to illustrate some cases about the possible risks for your brand price level and then, you will find actionable tips that brands need to follow in order to rebuild their pricing actions after facing these kinds of potentially catastrophic scenarios.
Destroying a brand image
There is a risk of destroying the brand image if your reseller drops your prices excessively; if your ideal customers perceive your brand as a premium type, you might face a dramatic loss of sales. You don’t want your designer-made shoes selling at ridiculously low prices in the marketplace.
When one online reseller sets a low price there is a risk that others might follow, lowering your brand’s prices to be in the running with the highly competitive online landscape. That scenario can create a dangerous domino effect and, after the huge efforts and big spending on advertising to maintain a valuable brand reputation, the last thing you want is to see your brand harmed just because of misapplying your prices on the resellers’ stores. It will most likely take tons more time and efforts to regain your brand’s reputation.
Confusion towards your prices
Also, there is a risk of confusion over your prices if they differ between one of your resellers’ stores and your own store. If your products are always sold for $100 in the different channels, they may appear more valuable to shoppers than a different brand which can be found at varied cheaper prices. Consistent pricing sends a clear message about a brand’s value to buyers: if you want to buy from my brand, you’re going to have to pay the price we set, which ultimately shows the product value. This is all about the perception that you create and how you follow that plan.
These different scenarios are red alerts for your brand to closely track its product prices on resellers’ platforms. We will now try to give you some practical and actionable tips to overcome these issues and recover your brand.
Is your brand suffering any of these challenges? If yes, let’s take a look at our advice!
Implement MAP (Minimum Advertised Price) Monitoring
What is MAP and MAP monitoring?
A MAP price is a minimum price that resellers agree not to sell below. For example, if you have a sneakers brand and you set a MAP of £75, then all different resellers including online retailers and Amazon must advertise your sneakers at £75. If a reseller decides to make a discount and promote the product at £50, it means they are violating the MAP agreement. In addition, the continuous monitoring of product prices in resellers’ stores is called MAP monitoring.
However, before having the right of objection, you have to make a MAP agreement with your resellers in order to prevent them from undercutting the agreed prices. So, the MAP policy should clearly explain the steps to be taken to enforce the agreement, as well as the consequences for violations. In a study of online MAP policy, Ayelet Israel provided that proper monitoring and instant communication ensure better alignment with resellers. With a higher level of alignment and policy compliance, your resellers become mindful to apply your desires and requirements.
If your reseller decides not to follow your requirements, as a consequence of their violations, you can decide to stop supplying or doing business with them, but you should be aware of some regulations for MAP monitoring. If you are running your operations in the US, for example, you can push your resellers to keep your product prices as you intended. In case you detect a breach, you can follow the regulations and execute legal sanctions. On the other hand, the situation is completely different in Europe because MAP is considered to be a harmful action which encourages unfair competition so, it is restricted to push resellers to follow the MAP that you set.
However, as an owner or manager of the brand, you need constant price monitoring, clear evidence and documentation of violations. Again, according to the study by Ayelet Israel, the reliability of monitoring and having valid reasons for enforcement are the most important elements of MAP agreements. So, you need to use price monitoring tools to detect the violations and gather product information such as SKU, the date of violation, the frequency of violation, URL, etc. Having these tools in place will lead you to a quick resolution.
Instead of tracking resellers’ prices manually, price monitoring software is the most efficient way to monitor the prices that resellers are applying to your brand. If you don’t have the ability to check the prices, you are definitely risking the future of your business.
E-mail alerts, high-frequency price checks, automatic hassle-free product detection, and a MAP violation tracking tool give brands the means of detecting problems with pricing online as soon as they happen and enable them to stay informed before partners start calling.
MAP monitoring also provides additional benefits:
- Fair competition across all distribution channels.
- Maintain brand value and price perception.
- Improve the business relationship with other retailers.
- Prevent under-pricing.
- Cover margins.
- Prevent price confusion.
Release different products for different price levels
We mentioned earlier that becoming engaged with and being visible on popular reseller stores has great benefits for gaining new customers. Without risking your brand’s existing products to be sold on other platforms in terms of pricing (as you have limited control over external websites), you can release different products at different price levels to target different customer groups.
By doing this, you will both maintain your existence in resellers’ stores and avoid harming your top-selling products.
So, set up your new product line which is low-cost and cheaper for resellers, and provide them to the customer’s product discovery phase. As you enable your resellers to sell your new product at whatever price they want, they are the first to be promoted to the customers. Set custom labels that tier products by prices, this way you’ll ensure you keep your existing products at a desired price while putting your new product on shelves aimed at price-sensitive customers.
This strategy is applicable if you have resellers in Europe – pushing European resellers to set MAP is forbidden.
Monitor price elasticity and demand closely
Let me explain clearly what price elasticity is!
Price elasticity is how the quantity demanded of a product will be affected by changes in its price. In other words, brands and retailers can easily figure out online shoppers’ reactions towards price fluctuations.
A market or product that is very elastic would mean a small change in price results in a very large change in demand. On the other hand, a market which experiences little quantity changes in response to even a significant change in pricing is classified as inelastic.
Making equations can be hard but you can find a very simple price elasticity formula below:
Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
If the price elasticity is less than 1 according to the above formula, it is considered as inelastic. That means if you change the price by one unit, the response in terms of demand would not be so significant. Conversely, if the result is more than 1 it is considered as elastic. That means a unit increase in price will create a huge effect on demand. So, you can forecast future demand based on the price fluctuations by correctly calculating the price elasticity of demand.
You can optimize the components of your prices on resellers’ stores by closely tracking the response of the market and the price elasticity. So, imagine a scenario where your reseller drops your prices and the market shows a positive reaction. In that case, instead of pushing the resellers to revaluate your prices, you can stick with it and gain an advantage from that opportunity.
You can also make some internal optimizations such as cost optimization by improving inventory management, diminishing the cost of raw materials, enhancing supply chain operations, improving data management or using tools to automate.
While all of the above tips are applicable, there’s one piece of advice you really should embrace: Be consistent, don’t miss customer price perception.
Stand by your MAP guidelines, regardless of the violator or the extent of the violation. If enforcement processes are consistent, at least you have the ability to monitor the prices automatically, know exactly how to deal with it at that moment, and can use that information to make your MAP enforcement plan even stronger in the future.
Please feel free to share your experiences if your products are sold on other platforms. Do you have similar problems? How do you react to them?
Interested in price monitoring? Contact us – we can help you! -> Click and fill the form.
Dealavo Smart Prices is a tech company specializing in web scraping, data cleansing, data analysis and delivering powerful and actionable e-commerce insights to brands and e-shops. For more than five years we have been delivering services for many clients from 30 different countries. We have gained the trust of global brands including Samsung, DeLonghi, MSI, Xiaomi, Acer, Epson, and many more, including one of the top 10 biggest pure play e-shops in Europe.