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Competitors and pricing strategy
solution for the pricing war
Abdelrhman Fahmy




msg:638707
 10:00 am on Sep 22, 2005 (gmt 0)

Competitors and their prices are always an important factor for the online retailers to set their Pricing strategy. That kind of pricing strategy (which based on competitors pricing) facing a problem in Industries where products are not very different or may be identical also when the profit margin is high.

Our situation is as following:
We're operating an online retailer with many competitors who are producing exactly the same range of products, the profit margin for that products are high so you have the a flexible range to move within, the problem comes when you decide to list the minimum price for your products, and in maximum of 2 weeks most of our competitors check our pricing list and then lowering there prices. so you now listing the highest prices, following that price war we've ended with the minimum profit margin, while the market could accept a higher prices but at the same time I can't raise the price as the sales really drop when we list a higher prices than the competitors.

So what could you do in situation like that, I myself decided to contact all of the competitors to discuss that but thought to discuss it here first as may be you already have a similar experience.

 

Miklo




msg:638708
 1:33 pm on Sep 22, 2005 (gmt 0)

You could price your items a bit higher and advertise with your unique selling points, like service, shipping, refund policy, free extra products or give your customers an incentive or savings program where they can save on future orders or other discounts.

Selling an item is one thing, but keeping a customer to buy again in the future is just as important.

Abdelrhman Fahmy




msg:638709
 2:02 pm on Sep 22, 2005 (gmt 0)

but if we said that the price is the main factor now and the other selling points is similar , do i have to contact the competitors and ask them all to raise the price to those old days or it's will not work.

etechsupport




msg:638710
 6:04 pm on Sep 22, 2005 (gmt 0)

I think you should implement value added service that can differentiate you from other competitors and you can be able to set a rational price by adding value to your service.

jsinger




msg:638711
 6:33 pm on Sep 22, 2005 (gmt 0)

do i have to contact the competitors and ask them all to raise the price to those old days or it's will not work.

In most places conspiring with competitors to raise prices is illegal. It probably wouldn't help you anyway.

Our prices are higher than many of our competitors. We make money; many of them don't. We aim to be in the middle of the pack and give great service.

Shoppers aren't going to spend hours on the web comparison shopping.

Abdelrhman Fahmy




msg:638712
 6:56 pm on Sep 22, 2005 (gmt 0)

Shoppers aren't going to spend hours on the web comparison shopping

They Do , especially if it's a high price item

oldpro




msg:638713
 10:26 pm on Sep 22, 2005 (gmt 0)

do i have to contact the competitors and ask them all to raise the price to those old days or it's will not work.

I agree with jsinger...

This tactic would run afoul of anti trust statutes as price fixing in the USA as well as most countries with free market economies. Pricing to what the market will bear is relative to market supply for a product.

With our business we have a similiar situation. A high margin item, but we are the manufacturer. Our pricing is keyed on one factor...our inventory. When demand is high and we drop below a certain inventory level we raise prices to slow demand and build inventory. Then when inventory goes beyond a certain level we start dropping prices to get inventory back down to our target level.

My advice...treat your product as a commodity instead of worrying about involving yourself in a price war with your competitors.

BradleyT




msg:638714
 11:43 pm on Sep 22, 2005 (gmt 0)

Basically once the downward spiral starts there's no way to stop it unless you DDoS your competition off the web.

Kidding aside - like others said, add some value like throwing in free shipping or buy 2 get one half off. You can almost always manipulate the numbers somehow to make it look like the consumer is getting a great deal and or benefit while you still maintain a good profit.

jsinger




msg:638715
 12:35 am on Sep 23, 2005 (gmt 0)

When demand is high and we drop below a certain inventory level we raise prices to slow demand and build inventory.

You're forcing me to alert my Congressman, who is up for re-election, that the stench of "price gouging" is waftting from your site.

DonQ




msg:638716
 2:37 am on Sep 23, 2005 (gmt 0)

the problem comes when you decide to list the minimum price for your products, and in maximum of 2 weeks most of our competitors check our pricing list and then lowering there prices.

If I read your posting right, you're the one who started the price war. I assume you are pretty popular with your competitors, and they may be waiting for your demise.... ;)

A lesson learned? If you start a fight, don't cry if you get a bloodied nose...

oldpro




msg:638717
 3:19 am on Sep 23, 2005 (gmt 0)

You're forcing me to alert my Congressman, who is up for re-election, that the stench of "price gouging" is waftting from your site.

aw come on jsinger...i know you have to be jesting with me. our prices never very 10% one way or the other. the only reason we raise prices slightly when inventory is depleted is so we can maintain timely delivery and not create a 2 to 4 week backlog of orders...we always want product on hand to ship within 24 hours of order placement. the best way to lose repeat customers is to be out of stock when they want it, or take 2 weeks to get the merchandise to them...not occasional benign "price gouging".

the point that i was trying to make is sometimes we are priced higher than and sometimes lower than our competitors. our pricing decisions are not a reaction to our competitors lowering their prices, but based on internal factors important to maintaining our operational objectives.

taking the "price wars" stategy to its logical conclusion, one has to look no further than the commercial airlines industry...totally bankrupt and on corporate welfare.

jsinger




msg:638718
 12:43 pm on Sep 23, 2005 (gmt 0)

Just kidding. We often raise or lower prices. That's one of the great things about the web: you can adjust your store's volume if you get short of help or are swamped with work.

We sell some products with limited availability. If the product turns out to be red hot, we'll raise the price to maximize our profits on it. Helps to offset losses on items that we have to sell cheaply.

----------------------------------------
Nothing wrong with some benign price gouging
----------------------------------------
Houston airport last night had thousands of passengers but only one tiny Chinese restaurant open to feed them. Line for food was hours long. National chains had shut down. But the one Chinese guy (from Taiwan, of course, LOL), provided a vital service. Hope he raised his prices, too.

If the other restaurants had raised prices, there would have been more of them still open and shorter lines.

If the airlines had raised prices out of Houston and other places, we taxpayers wouldn't be getting "gouged" to keep them going thru another bankruptcy.

How come no one accuses passengers of gouging airlines who are usually selling tickets below cost?

fiu88




msg:638719
 4:16 am on Sep 27, 2005 (gmt 0)

Set some price floors so everybody;s on the same page...and rotate the product discounts so its not so obvious...you need open dialogue with your competitors..just have them realize how everyone can make more money in the long run..

HRoth




msg:638720
 5:11 pm on Sep 27, 2005 (gmt 0)

I well remember being approached a couple years ago by the owner of a large site in my niche. The guy was angry that I was charging less for certain widgets than he was. He demanded that I come into line with his pricing. This way, we would both make a lot more money, and otherwise, he said, he would start a "price war," and since he was a lot bigger than me, he could do more volume, give lower prices, and drive me out of business, so there.

I never bothered to answer this skeev's email. Yet I am still here and still charging the prices that I deem are sufficient for me to make a profit. So much for price wars and threats from sleazebags who can't market their way out of a paper bag.

If you have to stoop to illegal practices to make a profit, you should go get a day job.

CernyM




msg:638721
 7:00 pm on Sep 27, 2005 (gmt 0)

There really isn't that much you can do to artificially maintain high profit margins in widely available commodity products.

Ultimately, customers decide what the price for commodity products will be, not suppliers.

Focus on lowering your own cost structure and grabbing more market share rather than trying to maintain high margins. A more efficient operation is what is required to allow you to survive and thrive.

lgn1




msg:638722
 7:36 pm on Sep 27, 2005 (gmt 0)

The person with the lowest price, can't afford to advertise.

In my industry, markup on the web is between 75% and 115%. Anyone that falls out of that range, is gone within 6 month.

I generally deal with products in the $20 to $80 range,
and I stay away from high ticket items.

jsinger




msg:638723
 12:25 am on Sep 28, 2005 (gmt 0)

The person with the lowest price, can't afford to advertise.

This has come up before. Yes, the deep discounters can't generate the profits to pay for ads. Don't worry about them.They may pop up near the top on Overture or Google when they're testing their new site. Then they submerge and disappear.

After sites agree on pricing, they'd also have to conspire to rig PPC bidding and shipping costs. Are they to agree on customer service standards, too. Most competitors hate each other. This discussion is just silly

Most Mafia movies deal with efforts of the "families" to carve up a city's rackets to maximize profits. You know how those efforts invariably turn out. LOL

fiu88




msg:638724
 5:49 am on Sep 28, 2005 (gmt 0)

There's no such thing as the mafia...

Competitors agreements usually benefit all parties...so whats the damage?

Philip_M




msg:638725
 6:56 am on Sep 28, 2005 (gmt 0)

I agree with jsinger.

"Our prices are higher than many of our competitors. We make money; many of them don't. We aim to be in the middle of the pack and give great service."

Remember that your aim is to achieve the highest dollar gross contribution margin, not make the highest volume sales. You would get 100% of the market if you gave the stuff away.

"Shoppers aren't going to spend hours on the web comparison shopping."

Some will, some won't. Those who will are unlikely to shop with you at any sensible price - they will alays find some idiot selling a few cents cheaper. These customers are not worth having. You want the customers who value the many aspects of good service.

There are only two business strategies - Do It Cheaper, or Do It Better. Another maxim is that your aim is not to beat your competitor(s) - it is to have no competitor(s) by doing something different and offering a unique selling proposition.

jsinger




msg:638726
 11:22 am on Sep 28, 2005 (gmt 0)

From Philip_M:

Another maxim is that your aim is not to beat your competitor(s) - it is to have no competitor(s)

Damn, that's good advice! Probably deserves its own thread here sometime.

HRoth




msg:638727
 12:04 pm on Sep 28, 2005 (gmt 0)

"Competitors agreements usually benefit all parties...so whats the damage?"

The damage is to the law, to one's customers, and to one's own ethics, if one has any. Besides, if you have to break the law to make it in business, you are admitting that you are too lazy and/or inept to do it the straight way. That's a resounding condemnation of one's business skills as well as one's moral fiber. I like to have respect for myself and for my customers, to see them as people instead of as prey, just as I would like to be seen.

I try to follow the "have no competitors" idea by creating products that no one else even has. I still carry the widgets whose prices made the larger site owner mad at me, but I have growing sections of widgets I created from scratch. In those I don't have to worry about what my competitors are doing at all, and they are selling very well, so much so that eventually I plan to concentrate on those products exclusively. I have to say that doing things this way has an unexpected mental benefit in that it redirects all my energy to listening to my customers and to my own creativity, which is enjoyable, instead constantly watching my competitors, which just causes anxiety. There's a pretty interesting book about the no-competitors approach called "Blue Ocean Strategy." Lots of real-world examples.

gorgmd




msg:638728
 11:34 am on Sep 29, 2005 (gmt 0)

The situation you are describing is totally theoretical:

If you have a product, which is widely available, at best from different manufacturers with exactly the same specifications, many competitors dealing with the product and a big market and demand for the product, but at the same time a sufficient (or even more than that) supply there will be no high above average margins in this sector even if the customer would be willing to pay higher prices. This a rule of the market/economy most of us are living in and there is nothing you can do about.

The price sets itself depending on many factors which include development, production and handling costs as well as supply and demand. The latter two are influenced by production availability and the number of places you can get the product from.

Agreeing with competitors on higher prices is as others said illegal nearly everywhere in the world (because this would undermine this economic rule, leading possibly to the erosion of the economic market and to an increase of corruption etc.).

As others said - the only thing you can do to increase your margins is to make something better than your competitors:

- have lower costs

- sell something different: a better product, a better service, more accessories or other products your customer can buy together with your main product; a product thatīs worse, has a slightly lower price but much cheaper production costs (but if you are not producing it yourself the rules above apply, so its price could drop easily, too) etc.

- if you are doing something like mentioned above, but you seem not to be able to charge higher prices for it you have to ask yourself, whether the value added services or upgraded products you are offering are not wanted by the market or you are just not able to explain it to your customers and convince them properly

- be visible while your competitors are not (SEO, advertising etc.)

- offer a shopping experience thatīs better than that of your competitors

-> the latter two should lead to more sales, increasing your margins, because of hopefully lower costs for your products (production or buying costs)

In most cases, if you are doing everything right in your business, then such a situation should not occur. Otherwise you have to ask yourself questions like:

If you are not different, why should customers be willing to pay you more?

If you are doing the same hundreds of others are doing, why are you doing it?

What is the reason/motivation behind your business? Why have you decided to start it? Because there were so many companies already active that the market was sufficiently covered and you thought that it would be a good idea to add another shade of grey noone needed?
Or did you start your business before your competitors and they catched up with you? Why didnīt you innovate further, develop new products, services or more advanced technologies, so that you stayed ahead of them and would still be able to charge more?

lorax




msg:638729
 1:57 pm on Sep 29, 2005 (gmt 0)

Excellent post gorgmd.

and welcome to WebmasterWorld!

bullfrog




msg:638730
 4:50 am on Oct 19, 2005 (gmt 0)

Sticking to the MSRP is a good option. It insures that the customer is not paying too much for the quality of product they are getting and that you are earning a reasonable profit on the sale. If things spiral into price undercutting on the web you can spend all day checking up on fluctuating prices. Use the extra profit per sale to increase advertising over the competition who may be selling more items but earning less on them.

fiu88




msg:638731
 5:08 am on Oct 19, 2005 (gmt 0)

Talk to your competitors....
just because its illegal doesn't make it immoral...

Chevron to exxon..
" well were thinking 2.60 wholesale is what we need to make a decent profit...how do you feel such a price would affect your businees?"

" Well 2.60 may be good if we didn't have to cut any deals..we were thinking more along the lines of 2.63"

jsinger




msg:638732
 6:49 am on Oct 19, 2005 (gmt 0)

Yeah, I don't like discounters. But I must admit that discount pricing draws customers to web shopping, away from Brick/Mortar and especially conventional catalogs.
With internet commerce at only 2% of the retail pie, discounting makes sense.

Done right, ecommerce can be very efficient compared to other retailing. No one sells at "MSRP" on the web because good, established sites make money at lower than normal pricing.

We have suppliers who are now attempting to reel in flagrant web discounters. They talk about "destructive discounting practices." I think catalog retailers, especially, are pressuring them to do that. For the time being, low web pricing probably benefits most of us, whether we are discounters or not.

HRoth




msg:638733
 9:21 pm on Oct 25, 2005 (gmt 0)

But are people buying on the web because items are cheaper or because items are more readily available (they can shop at work) and there is a much wider selection? Personally, there are many things that I just can't get even in nearby cities and have to buy online. I also notice that many of my customers live away from the big cities, where there is naturally a greater variety of widgets.

I read a study of webshopping that showed that people did not do much comparison shopping online. It was about prices on ebay and how they were generally higher for the studied items than those sold on other sites. Yet people did not take the time to do a search, even though a brief search would save them an average of 20%, according to the study. And this was mostly for high priced stuff, like electronics, where you would think people would be way more into price shopping.

Yeah, this was only one study. But I have noticed myself that prices for an identical widget can vary hugely, and shops with ridiculous prices manage to stay in business. I think this must be a side-effect of people not doing much price comparison online.

lorax




msg:638734
 11:42 am on Oct 26, 2005 (gmt 0)

>> I read a study of webshopping that showed that people did not do much comparison shopping online.

There's a reason for this IMHO. Some folks don't feel as comfortable searching for products online and when they finally find what they're looking for they either buy it, hold off until they can afford it, or decide not to buy it. The point is that it took them long enough to find one, they don't have the energy or desire to find two or three.

This is where sites that set up side-by-side comparison excel. When an independent site operator (independent of the manufacturers) can offer the comparison tool then they've created something very useful and will attract more and more buyers. Of course, the quality of the tool and the depth of product selection all heavily influence the popularity/usefulness.

natural number




msg:638735
 11:46 am on Oct 26, 2005 (gmt 0)

I would hate to see you contact your competitors and agree on price. That would be a cartel, and illegal under anti-trust. I suggest you go into a pricing war and under-cut your competitors until they can't do business anymore.

jsinger




msg:638736
 2:10 pm on Oct 26, 2005 (gmt 0)

I read a study of webshopping that showed that people did not do much comparison shopping online.

---
Absolutely true. We have a few products where we are among the highest priced on the web. Yet: 1) they sell very well for us; 2) customers almost never seem to notice.

I maintain (sort of) an excel spreadsheet on our competitors' prices, along with shipping costs, and I can tell you it is backbreaking work.

A Law of E-commerce: there isn't much price comparison on most low priced products.

Another Law of E-commerce: Discounters don't put higher priced competitors out of business. (the opposite may be true)

This 37 message thread spans 2 pages: 37 ( [1] 2 > >
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