Last spring there was a big buzz when a book about flies was listed on Amazon.com for $1,730,045.91!! "...The prices," according to the Seattle Post, "were stuck in a feedback loop ... One bookseller raised the price and the other followed, which in turn would cause the first price to rise again. And on and on and on..."
There are many such stories, usually to the customer's disappointment, as when a giant retailer shows a price of $99.80, when $998.00 was intended (note: the retailer is not liable for the price until the time of sending the product).
Above image: Amazon book price reaches Millions of $$$$
The scenarios revolve around automated pricing systems that online retail giants like Amazon -- in a quest to gain market share -- use to monitor and alter their prices several times a day to meet and beat their competition. Amazon recognizes that even a penny makes a difference to consumers.
In the image below we tracked (using our Pricing Intelligence tool) how Amazon (in red) consistently changed its pricing on a Home Theater Project to effectively price compete with Best Buy (in blue), again and again. At the higher price point Amazon was consistently cheaper by 99 cents, while at the lower point it quickly aligned with Best Buy.
Above image: Upstream Commerce's Pricing Intelligence tool showing Amazon (red) tracking Best Buy's (blue) Prices.
How do automated pricing systems harm online retailers?
You are most likely to be undercut. Automated Pricing systems allow big retailers to be very aggressive about pricing; chances are you'll be undercut on pricing on a regular basis.
When shoppers compare websites, large online retailers using automated pricing systems are likely to get the sale. Consumers use comparison shopping engines (like Shopzilla) or they Google the product they want and visit about five sites, usually choosing the retailer with the lowest prices, PLUS branding and name recognition, as well as offering perks big retailers can afford to include, such as free shipping. (note, Walmart just instituted, and touts "free shipping" on its website).
Frequent price changes make it hard for other online retailers to follow suit. It's hard to compete against a big, aggressive online retailer who uses automated pricing systems, as no matter how or when you change your prices, they change theirs. It's like shooting craps where the house odds are stacked against you; it's difficult to beat them, and they'll always slightly underprice you.
The Good News
1. Most online retailers are not using automated pricing systems yet.
2. There are online tools available, called Pricing Intelligence tools, to help you track your competitors on a regular basis; they are very affordable, and even necessary to survive in today's competitive arena.
3. If you concentrate on your own products you can study your competitors' pricing, how they use their space, and find the best pricing policy for your business.
4. Customer service is still key! Frequently-changing prices, prices that are shown and then not honored; and wrong information frustrate and upset buyers. So do transactions made and not fulfilled when items are out of stock. Good online retailers can shine – and generate return business -- with outstanding customer relations and satisfied customers.
Be aware of what's going on in the market and you'll discover many opportunities to come out on top!