The Pricing Blog by Omnia Retail
15.02.2024
Unleashing Superpowers in Pricing: How Omnia's Visual Decision Tree Approach Revolutionises Dynamic Pricing
Omnia Retail’s origin and purpose In 2012, my co-founder and I had conversations with category managers from established online retailers in mature e-commerce categories, such as consumer electronics, and learned that...
Omnia Retail’s origin and purpose In 2012, my co-founder and I had conversations with category managers from established online retailers in mature e-commerce categories, such as consumer electronics, and learned that they were spending a lot of time each week manually looking up prices of their competitors on comparison shopping engines and were still running behind with repricing the products in their assortment. Propelled by e-commerce, product ranges were increasing in scope, and the heightened transparency of online pricing resulted in frequent price fluctuations. It became increasingly laborious and time-intensive to maintain competitive pricing as it required manual gathering of pricing data, calculation of optimal price points, and implementation of adjustments. This challenge led us to founding Omnia Retail. Over the years, we saw that as other retail categories matured online, they struggled with the same problem. Similarly, over the last few years, brands have become more serious about their direct-to-consumer (D2C) channels. Brands selling a product against the initial Recommended Selling Price (RSP) for the whole product life cycle leads to insult pricing and the need to change their prices, yet again, to align with the market. As a result, we now see that brands are starting to struggle with the same problem that retailers experienced over a decade ago. Simply being passionate about the challenge and using our prior retail and e-commerce knowledge, we applied our engineering expertise to solve this problem for retailers and brands. It was only later - when our company had grown to a size where everyone couldn’t fit on the same lunch table anymore - that we started reflecting on why we were so invested about solving this challenge. This very reflection led us to establishing Omnia’s purpose explicitly: “We give retailers, brands and their teams superpowers by unleashing the full potential of pricing through market data, insights and automation.” The most central concept here is the word “superpowers”. On a basic level, it refers to automating the tedious and time-intensive tasks that thousands of our users at retailers and brands had to manually do before: looking up prices of competitors, making calculations, and implementing changes. This already removes a lot of tedious work and frees up time to focus on more strategic and creative work. However, that is only one of the basic layers of “superpowers”. Another more exciting element is that we enable our users to do things that were never possible before, even if they would have all the time in the world to spend on pricing. In terms of insights, an example is providing dashboards that provide our users with a “God-view” of the market: fully understanding their own price positioning and understanding what their key competitors (or resellers) are doing. Regarding pricing automation, it’s about having nuanced and advanced strategies, understanding how they are set, impacting results in terms of price positioning and ultimately sales, and contribution margins. Elements of success for dynamic pricing software implementations Through the more than a decade of serving retailers and brands with pricing software, we have seen that certain elements lead to success and ensure the best returns on dynamic pricing implementations: Clearly defined pricing objectives: Begin by setting clear pricing objectives, emphasising the importance of starting with a clear end-goal in mind. Without clearly defined objectives one can have the greatest pricing platform in the world, but there is no guidance on how to use it, and how to measure success. It's essential to recognise that pricing objectives may vary across different parts and levels of the business and are likely to change in response to external factors. Therefore, the pricing platform must accommodate for these varying objectives to remain effective. Securing engagement and support: Securing the engagement and support of team members with direct involvement in pricing is crucial whether it’s as their core responsibility, such as dedicated pricing managers, or as part of their wider role like category managers and buyers. If these individuals struggle to implement the pricing strategies they aim for in the system, or if they cannot explain the prices suggested by the system, they may resist adopting the dynamic pricing software or, at the very least, lack the motivation to leverage the platform's potential fully. Continuous improvement: Rapid cycles of learning and enhancement drive ongoing improvement. This process is supported by ensuring all operations occur in the software's front-end. Any hardcoded rules established by a pricing software vendor in the back-end will hinder such a learning cycle. Moreover, maintaining transparency about the operational logic and performance metrics is essential. From these elements of success we have learned at Omnia, we derived two essential design principles for developing our price management platform: flexibility and transparency. Flexibility to remove barriers to adoption, improving results and ensuring control. Transparency to keep control while on auto-pilot, create buy-in from internal stakeholders and facilitate learning loops. As the ability to run detailed and complex pricing strategies has become mainstream, it has created the next level of challenges: complexity overload. Omnia 2.0 successfully cuts through the clutter with its revolutionary visual pricing logic with the Pricing Strategy Tree™. It gives complete pricing flexibility and control, coupled with transparency. The power of flexibility: Removing barriers to adoption, improving results and ensuring control Flexibility is a core principle in our design philosophy, enabling our clients' users to execute any desired pricing strategy across all parts of their business. We have seen a vast array of pricing strategies being used and broadly speaking, they are driven by differences in objectives at the highest level, the need to differentiate on objectives on lower levels, and differences in definitions. On the highest level, the main differentiation we see is between maximising revenues - with the constraint that a minimum contribution margin needs to be reached - and maximising contribution margin. Traditionally, we saw pure e-commerce players being primarily focused on the former, while more traditional omnichannel retailers were more focused on the latter. With the changing economy and higher interest rates, the importance of being profitable in the present, we now see pure e-commerce players also shifting more towards margin maximisation strategies. While on the highest level, a retailer or brand might have a margin maximisation strategy, virtually, they will always need to differentiate on the lower level as well. Take for example a racket sports retailer. Although overall profit maximisation might be the main objective, the retailer might be focused on penetration (maximisation of sales, given a minimum margin constraint) in a market where they recently launched, as well as that being the main objective to establish itself in a nascent category like padel rackets. Finally, we have learned that retailers and brands have differences of definitions and that their chosen software should support that, rather than enforcing a rigid rule or definition. Take the example of a stock-based strategy, where a company wants to automatically become more aggressive when stock coverage becomes too high or take the opportunity to steer toward margin when stock coverage becomes too low. The definitions of what’s too high and too low differ not only between companies, verticals and markets but also within a company and on different parts of its assortment. It’s crucial for pricing software to be able to provide that flexibility and give the power to the user, not only to ensure that the retailer or brand can reach its objectives but also to ensure that there are no barriers in the adoption of the pricing software. If business users - like category managers - are not able to implement the strategies, they will be inclined to resist the implementation, putting the dynamic pricing implementation project at risk. Pricing software must be able to support flexibility, but it’s even more crucial that everything is fully supported in the front-end of the user-interface (“the portal”). If there are rules or constraints hardcoded within the back-end, a common practice of some pricing software vendors in today's market, it leads to a lack of transparency and limits the pace of learning (testing with strategies). At Omnia, we’re proud to have this flexibility in our software, with not one line of customer-specific code while serving hundreds of retailers and brands since 2012. The examples previously mentioned demonstrate how the principle of flexibility is integrated into the pricing automation part of the Omnia platform. However, our commitment to flexibility extends throughout the entire platform. For instance, we don't confine our customers to predetermined calculation schedules. Instead, they have full autonomy to set the timing for pricing data collection and dynamic pricing calculations. Additionally, they have the capability to initiate calculation runs manually at any moment from the front-end, such as when assessing the impact of strategy modifications. These calculations are efficiently completed within minutes, even for extensive product assortments. Transparency to keep control while on auto-pilot, create buy-in from internal stakeholders and facilitate learning loops Automation has the potential to save time and improve results. However, when implemented poorly, automation may lead to a lack of control. From the early years, this has been our belief, and preventing our dynamic pricing software from becoming a black-box has been a core design principle. Even in our earlier years, the Omnia software had a “Show me why™” button that took the user by the hand in terms of how the software arrived at a particular price advice. Transparency in pricing software ensures control while being on auto-pilot. An element of this transparency is how your strategies will affect the prices for all products such as the number of products that received “price advice”: prices up, down, equal, price difference vs various benchmarks, and so on. One level deeper is the need for dynamic pricing users to understand the impact of every element of their pricing strategy. For example, one could have a very elaborate pricing strategy, but if anywhere in the strategy there would be a pricing rule “always adjust to the lowest price in the market”, there would be a high chance that the rule will set the prices for the majority of your assortment, and most likely down. Understanding how elements of your strategy impact the eventual prices set links to another significant benefit of transparency: improving results by enabling learning loops. When implementing dynamic pricing you can achieve surprisingly strong results by implementing a pricing strategy once, and then never touching the system again. However, we see that customers who use our software more continuously and are evaluating and testing new approaches achieve the best results. This is only achievable with a pricing tool that creates maximum transparency, facilitating those learning loops. The Pricing Strategy Tree™ as embodiment of flexibility and transparency Our previous pricing platform, Omnia 1.0, was very flexible. However, our most advanced enterprise customers using complex pricing strategies could end up with a long list of pricing strategies. Although relatively easy to build up incrementally, this could make it hard to grasp the strategies running and the logic behind them. In numerous instances, consultants specializing in pricing strategy assisted our customers by creating decision trees to map out and advise on their clients' strategies. This inspired us to use a decision tree as the main interface when building pricing strategies. Although we already had the idea of a Pricing Strategy Tree on our roadmap, acquiring German pricing strategy company Patagona GmbH at the end of 2021 gave us an unfair advantage. Patagona had developed a Pricing Decision Tree to build strategies in their Pricemonitor product. We evaluated this concept with our customers and based on their invaluable feedback, we developed the Pricing Strategy Tree as one of the core elements of our next-generation platform, Omnia 2.0. The new platform was launched in the Summer of 2023, with new product features being added monthly. Not only does the Pricing Strategy Tree lead to more transparency in terms of letting our users understand what’s running, we see that in practice it also makes it easier and simpler to create strategies. That is because it’s a visual drag-and-drop interface, but also because we embedded functionality; such as copy-and-pasting of selected branches within the tree (typically set-up for one market or format) and copy-and-pasting of entire trees across countries or formats. The latter is particularly relevant for our global customers to be able to roll out pricing strategies to additional markets with just a few clicks. To drive transparency even further, the Pricing Strategy Tree proved the ideal canvas for additional functionality: path tracking through the strategy tree, strategy branch statistics of the tree, and naming of tree branches. The path tracking is an evolution of the “Show Me Why™” in Omnia 1.0 called “Explain Price Recommendation” in the Omnia 2.0 platform and provides a full explanation of how the price advice of a particular product came about. This is a typical question for a business user as a category manager or buyer. The “Price Explanation” visually tracks the path through the tree to show the logic and how the price advice came about. “Strategy Branch Statistics” covers another use case, one that was never possible in our previous Omna 1.0 platform: It highlights how elements of the overall pricing strategy impact the eventual prices set. It does this by showing how many products are repriced by each branch in the tree, the average price difference and percentage difference of the price advice vs current price points, as well as the number of products priced up and down. One important benefit of this is that it gives our users insight into which branches are most dominant in setting the eventual prices. Remember the example of having an elaborate pricing strategy with a rule somewhere to “always adjust to the lowest price in the market” in the transparency section above. However, the value of Strategy Branch Statistics goes beyond that. It also provides users insights into the performance of a particular strategy branch, thereby facilitating the important learning loops discussed above. Another functionality we have added to the Pricing Strategy Tree™ canvas is the naming of branches of the tree. Although the tree already makes it easy to show the logic applied, the naming of branches makes it even more practical for users and co-workers to understand what happens in a particular branch by describing it in natural language, for example “Follow the lowest price point of key competitors when stock coverage is too high”. The naming of tree branches also lays the foundation for the steps we plan to take providing more insights in the performance or effectiveness of branches. “We have seen several pricing tools, but the pricing strategy tree plus “show me why” is a super unique selling point and best implementation of dynamic pricing we have seen so far.” International enterprise office supplies retailer. AI is a means, not an end: A case for blending rules, AI, and goal-based pricing We believe that AI as a powerful technology can greatly contribute to the “superpowers” in our purpose. Think about automated import mapping, creating reports based on natural language, surfacing conclusions from data and charts, and so forth. We are also convinced that AI will provide more and more value in the future core area of price setting. However, given the importance of transparency and flexibility, we firmly believe that the future of pricing setting won’t be AI only - on 100% of the products in 100% of the cases - but rather a combination of pricing rules and AI. In terms of intelligence in price setting, AI is a means not an end itself. The core need that we see at the retailers and brands across our customer base is more focused on moving away from setting granular business rules - with the aim of reaching specific objectives - to rather focus on setting the objectives themselves at a higher level and letting our Omnia pricing platform optimise for that. As a company focused on and committed to delivering value to our customers, we naturally plan for this need with more and more goal-based “nodes” (blocks) in the Omnia Pricing Strategy Tree™. Goal-based nodes can have a combination of complex AI running under the hood, for other goal-based nodes less complex statistical rules, depending on the need. The first example of such a goal-based node with AI under the hood is our Amazon Buy Box AI block whereby our user sets the Amazon Buy Box win probability certainty and the AI - based on large amounts of historical data - tries to land exactly at the right price point to reach maximum margin while keeping the win probability as a constraint. This is very different from the previous approach in our software and, to our knowledge, the current state of Buy Box optimisers in most channel management software which has usually been going step-by-step down until you win the Buy Box and then up again to increase margin. That approach is simply too slow and there are too many variables with influence that have changed in the meantime. Although we envision that larger and larger parts of the assortment will be priced by such goal-based nodes in the future, we believe they will always be combined with business rules on part of the assortment (again, it will be rules and AI). For example, our users may want to apply hard constraints (such as upper and lower boundaries) which can differ on different parts of the assortment. For promotions, retailers and brands will want to set hard price points during a certain time frame. Those are just some examples of why the goal-based nodes need to be combined with business rules. The crucial thing is that the principles of flexibility and transparency continue to be crucial when combining rules and AI. You need one single interface where rules and AI can be seamlessly combined, applied by business users, and it remains transparent how and why prices were set. Again, the Pricing Strategy Tree is the ideal concept that automatically ensures this. While this may seem to be a trivial design prerequisite, we see that other pricing software vendors that have begun making first steps with AI in their platforms often are violating this principle. There are vendors that offer “AI-only” with no capability to combine it with rules. We have seen vendors with a separate “AI-version” of their product, next to the old rule-based version of their product to let customers choose one of the products. Then, finally, there are vendors that perhaps are actually more of a team of pricing consultants, as they have to hardcode rules in the back-end, as well as requiring a lot of manual intervention from the team of the vendor for the algorithms to at least provide decent results. The latter case also leads to very long implementation times and learning loops that are too slow, as we learned when taking over customers of these vendors. “With that pricing tree, the flexibility is almost endless.” Pricing Team Manager of the largest beauty pure e-commerce player in Europe. Unleashing superpowers with Omnia 2.0 At Omnia, we believe we are still in the early stages of developing the ultimate pricing platform we aim for in the long term. Yet, we're immensely proud of how the Omnia 2.0 platform is already giving our customers superpowers by enhancing their capabilities more and more. We have made huge leaps in terms of dashboarding, and are constantly evolving those dashboards on a weekly basis thanks to the great feedback from our customers, and the way we have decoupled the visualisation layer from the data layer, enabling us to make fast interactions with little development time. We are clearly on the path of having that “God-view” of the market from the introduction above. Perhaps an even bigger leap has been the core topic of this article: the introduction of the Pricing Strategy Tree in Omnia 2.0, which combines ultimate flexibility and transparency, and we believe is the ideal concept to combine business rules with (partially AI-driven) goal-based pricing. We couldn’t be more proud of the feedback we have received from our customers, and the market as a whole, since the launch of Omnia 2.0 in the Summer of 2023. And we are very excited about further growing the superpower of our users by adding more intelligence to the Pricing Strategy Tree and the entire Omnia 2.0 pricing platform.
01.04.2023
How to respond to competitor price changes without starting a price war
With the increased transparency in the market, pricing becomes a very competitive game. All retailers are monitoring one another, and a single price change can trigger a chain of price changes. This is especially true...
With the increased transparency in the market, pricing becomes a very competitive game. All retailers are monitoring one another, and a single price change can trigger a chain of price changes. This is especially true for leading enterprise retailers, the one being monitored by competitors. A small price change provokes main competitors to follow. Within a day, the new status quo can become a few euros lower than before. So how can you create a sustainable setup that keeps you competitive yet does not disrupt the market? We have 3 tips on how you can make smart pricing decisions. 1 - Split competitors into different tiers It is important to take a wide range of competitors into account. This establishes a price benchmark, even if your main competitors are not selling this product. However, keep in mind you may not want to follow the price change of a smaller competitor at the risk of pulling your major competitor (and the rest of the market) down with you. This can best be avoided by analyzing your competition and splitting it into different tiers: Tier 1 competitors are major competitors. They generally decide the pricing level and everybody follows. Tier 2 competitors have a proper shop (not the image you and major competitors have) Tier 3 competitors are all other competitors selling the product Once you split them into tiers, apply more sophisticated logic. For example: Tier 1 competitors: when one of my tier 1 competitors is priced lower I do the same Tier 2 competitors: when at least two of my tier 2 competitors are priced lower, then I follow. Tier 3 competitors: do not follow down, only up If you sell products in a wide variety of categories, we’d highly recommend creating competitor tiers for each. For example, your competitor landscape for high-end cameras is different than those for kitchen appliances. 2 - Accept a small pricing gap to avoid a race to the bottom A single euro difference can make a huge difference in terms of revenue when comparing prices to that of your competitors. However, you do not have to match the prices of every competitor. Some example scenarios: For the tier 2 or 3 competitors be willing to accept that they are priced a few euros or percentages lower than you. Your stronger brand should be able to compensate for the difference. However, do lower your price if the gap gets too large. Regarding competitors continuously undercutting you by a few euros or cents, do not continue the pricing war and allow a small price gap. Otherwise, within a few days, you will lose all the margins and the new status quo is low. 3 - Think Of When To Price-up & Work Towards Healthier Margins When implementing dynamic pricing, most consider how to compete with competitors when prices are going down. But, it is equally important to think about scenarios where you have an opportunity to price-up. If your competitors follow your prices down all the time, there is also a big chance they will follow you up. For example, if there is only one other (tier 1) competitor, and you are both priced on the same level, you can try to price-up a few euros. There is a big chance that your competitor will follow your pricing strategy. You both remain equally competitive (so revenues will not drop that much) but you will have a better margin. In the blogpost related to “margin vs revenue: how to stay competitive and profitable” there are more examples of how to price-up and increase margins. So... how do you implement such Logic? We recently added new (beta) functionality to our pricing engine, called market conditions. This allows you to select parts of your assortment on both product assortment conditions as well as market conditions: Talk to one of our consultants about dynamic pricing. Contact us Product assortment conditions The *if* statement that you are familiar with lets you select any product characteristics. Either static parameters, like categories and brands, or more dynamic parameters, like sales and stock levels. Market conditions An additional layer of conditions that allows you to select any combination of market scenarios. There are 3 templates: When a certain number of competitors are present for that product When a certain number of competitors are lower/higher than my current selling price When a min/max/avg/most-occuring price is lower/higher than my selling price The combination of product assortment and market conditions is very powerful and enables you to outsmart competitors by tuning our repricing engine. This allows you to follow your desired pricing strategy regarding any subset of your assortment and in any market scenario. The market conditions will allow you to implement the above tips. Moreover, conditions allow you to create solutions for other dilemmas as described in the “dilemma blogs” How to reprice your online assortment without frustrating your store employees? Margin vs revenue: how to stay competitive and profitable?
28.09.2022
Dynamic pricing strategies and tactics to cope with inflation
High inflation is here to stay for years to come Across the world, inflation remains at sky-high levels, with the G20 average Consumer Price Index (CPI) at 9.2% year-on-year for July ‘22 and the OECD countries at 10.2%...
High inflation is here to stay for years to come Across the world, inflation remains at sky-high levels, with the G20 average Consumer Price Index (CPI) at 9.2% year-on-year for July ‘22 and the OECD countries at 10.2% year-on-year for the same month. As Roman Steiner, partner at McKinsey’s Zurich office, explains, there are five issues contributing to inflation that, together, add up to a perfect storm: labour costs and the availability of talent, as well as rising prices in agriculture, hard commodities, freight, and energy. Contrary to what the heads of Central Banks communicated at the start of the inflationary period, we shouldn’t expect inflation to be resolved soon. And, although aggressive interest rate hikes will somewhat help to temper inflation, it will remain a topic that should be top-of-mind at least for the coming years. Retailers have got the hardest “sell” to make Inflation typically cascades through the chain. It starts with higher energy and material costs, to higher component costs, to brands increasing the purchase prices retailers have to pay for finished products, to retailers having to try to get consumers to pay more for those products. In this chain, retailers typically have the toughest “sell to make”, as sustained high inflation - and particularly the soaring energy costs in many regions - are really driving consumers to actively search for savings and become more choiceful in how they spend their money. As Kevin Bright, McKinsey’s Global Leader of Consumer Pricing Practice, notes: “Consumers are substituting one category for another, exiting a category, or shifting to a different brand. There’s massive downshifting, particularly from mainstream brands to value brands.” All of this indicates that the concept of price elasticity should be top-of-mind for retailers. On an overall level, it’s likely that price elasticity across the board is increasing as many households are in a situation where they have to eat away from their buffers. But we also know that price elasticity varies wildly in between categories, so retailers need to be choiceful in where they try to pass on price increases to consumers and where to take a hit on their margins. Interestingly, this is the first serious inflationary period where retailers have pricing software available that can help them to effectively and efficiently cope with the high frequency and high volume of changes both in the purchasing side as well as the market side (changes in consumer prices). In the remainder of this article, we will provide some guidelines on how retailers could use the power of pricing software to cope with inflation. Playing mix when possible One of the interesting things that typically occur when retailers start with dynamic pricing - and, thereby, are able to reprice their full assortment with high frequency - is that the products in the long-tail start selling better. Because of this, we have seen many cases where, although the retailer decided to price more aggressively, which led to significant revenue growth acceleration, the average margin percentage still grew. While this might sound contradictory at first glance, this is because the high margin long-tail products start selling better and weight more heavily in the mix. How strong you are in a category will determine how much you can rely on playing mix. If your shop is often the starting point for shoppers searching, you can rely more on playing mix and it can be wise not to move down too aggressively on all products as the shopper will end up buying one of the products in your assortment, anyways. If, on the other hand, virtually all of the traffic in a category comes from product level out-clicks from comparison shopping engines (and so you don’t have a dominant position), you will need to price competitively on each and every product. Inform yourself on what your key competitors are doing and how they are responding Most retailers operate in an environment where there are multiple shops offering the same product. Especially in these times where e-commerce has become an integral element in many categories, the competitive landscape has become wide. That means that it pays for retailers to study the behaviour of their key competitors before making major changes to their own strategies. In order to help our customers get a clear overview of key competitors and their positioning on the overlapping assortment, we are about to launch the “competitor overview dashboard”. This dashboard shows the total number of competitors found and automatically surfaces your main competitors based on a “match rate” for the selection of the assortment you have made. The match rate breakdown allows you to quickly identify those competitors that have the biggest overlap with (possibly a subsection of) your own product assortment. This not only enables you to continuously verify your list of key competitors, but also to identify if new players have entered the market that require closer attention. The dashboard then shows the relative price positioning of each of those key competitors, as illustrated in the (anonymised) screenshot below. We advise you to use this screen both to determine your initial inflation response plans, as to verify responses by your competitors after you have made significant pricing strategy changes. Note that this screen enables you to go back in time as well, so you can compare today’s positioning with that of a week ago, per see. Differentiate in pricing strategies to maximise profit No matter how successful you will be in passing on price increases to consumers, it’s likely that you will have to absorb some of the hit via lower margins in these exceptionally challenging times. Omnia always recommends its customers to be very choiceful in where to be aggressive in pricing, and where to grasp the opportunity to take more margin, but in these inflationary times with margin pressures for all retailers, that matters more than ever. We also believe that this advice not only benefits our customers, but makes the market operate better as a whole. Our recommendation is in-line with what McKinsey advises in their article “Navigating inflation in retail: Six actions for retailers”: “Go granular with pricing and promotion and tailor value delivery to consumers. Instead of implementing broad price increases that may erode customer trust, retailers can tailor their inflationary price response by customer and product segment, considering both margin performance and consumers’ willingness to pay. Raising prices is unpleasant for both consumers and retailers. Retailers that take a surgical approach are more likely to emerge with profitability and consumer relationships intact.” There are multiple ways to operationalise this advice. One of the ways is to make use of the price elasticity classification algorithm that the Omnia platform applies to a large set of historical data in order to arrive at an elasticity classification of categories and products. You could then apply a strategy like “lowest price point of this list of five key competitors” in a highly elastic category while applying “most occurring price point in the market” in an inelastic category. The benefit of this approach is that you leverage the power of machine learning in the automated price elasticity classification, while maintaining the control and the explainability of pricing rules. Price elasticity is not the only way to segment your assortment and differentiate more in pricing strategies. You could also identify Key Value Items (KVIs), for example, based on which products are highly viewed. In order to automate this as well, the Omnia platform can be directly connected to the Google Analytics API which allows you to consider views on product details pages (PDPs) in your strategy. That is a way to implement a high-runner strategy. Both approaches to going more granular will lead to becoming price aggressive on products where it is more important to consumers and it will have more impact on sales volumes and price perception of consumers, and to take more margin on products where price is less of a consideration. From an overall perspective, this is likely to lead to the best combination of the top and bottom line, as well as price perception. Be prepared to move up The Omnia software basically enables you to automate any pricing strategy you can think of. Yet, not all pricing strategies are created equally. In these inflationary times where many retailers feel an urge to pass on at least part of the price increase they are confronted with to consumers, it is especially important to apply strategies that enable you to grasp the opportunities of a market that is moving up. To illustrate: when you are applying a pricing strategy as “price position one in the market,” it's highly unlikely that you will quickly pick up on the trend of “the market” moving upwards as the chance that there is still a “garage box retailer” selling for a low price is substantial. On the contrary, if you apply a basic strategy like “most occurring price point of a certain list of X key competitors” or a more nuanced “market conditions” based pricing strategy, you are much more likely to pick up on those upwards trends. Automatically reflect your purchase price increases Omnia recommends implementing safety rules that prevent you from selling products at a loss (or at too low a margin). Without such rules you might be matching a very deep promotion of another retailer for which that retailer has negotiated back funding from the supplier to (partially) fund such a deep price-off. That would be disastrous for your profitability. By feeding your purchase prices to the Omnia platform, and making sure your pricing strategies end with safety rules as “never go below purchase price + X%”, you are realising that purchase price increases have a real-time impact on your pricing. Also, here there are various ways to implement this. You could configure Omnia to simply set the price to the defined minimum boundary. But it is also possible to configure Omnia to not change the price when you are not able to match the price point of a competitor due to minimum margin requirements. That is where, again, the Market Conditions functionality comes into play. Track your progress It’s always important to track the impact of your pricing strategy changes on your performance in terms of sales and gross margin, and price-ratio vs the market. That is why the Omnia platform brings all of those metrics together in the Performance screen. In these inflationary times with margin pressure and increased importance of pricing, tracking these metrics is more important than ever. Summary While inflation undeniably puts retailers and brands in a very challenging position, understanding and using the full capabilities of a dynamic repricing software can help soften the blow. Combining careful analysis of competitor and consumer behaviour with granular pricing strategies will give you the best chance of walking the fine line of staying competitive in a highly dynamic market while ensuring the profitability of your business.
28.01.2021
Business Guide to Predatory Pricing
In 2010, Diapers.com gained momentum with its combination of e-commerce and pricing. Rumours report that Amazon previously tried to buy the diaper supplier but was denied. Afterward, Amazon aggressively lowered prices...
In 2010, Diapers.com gained momentum with its combination of e-commerce and pricing. Rumours report that Amazon previously tried to buy the diaper supplier but was denied. Afterward, Amazon aggressively lowered prices on diapers and related products. Such tales are related to predatory pricing, a pricing strategy waged by suppliers to gain an edge on competitors. In this guide, you’ll learn: What’s predatory pricing? Is predatory pricing illegal? What are the advantages and disadvantages of predatory pricing? Ways to compete against predatory pricing and gain e-commerce sales What Is Predatory Pricing? Predatory pricing seeks to undercut the competition as part of a larger pricing strategy. While the pricing decision creates short-term losses, the main agenda is to debilitate the competition. Ultimately, a brand introducing predatory pricing makes rivals economically vulnerable, so it gets increasingly difficult for smaller businesses to compete and ultimately exist. A newfound market share makes the initiator of predatory pricing in an economic position to recoup the losses sacrificed. So, predatory pricing is recognised as a two-part process, beginning with a predation phase then leads to a period of economic recovery and eventual dominance. Predation Economic scholars recognise predatory pricing’s first stage of predation as when a brand initially offers a good or service at a below-cost rate. A small-scale strategy by a startup will not influence market price. However, a big supplier can effectively influence market costs with its pricing strategy. Predatory pricing works for large firms because such suppliers can sustain the losses long enough to change the market price (and behaviour of consumers), ultimately depressing the competition’s ability to keep-up or compete at all. Recoupment In the second stage, the dominant brand reaches a state of equilibrium, readjusting prices now that a larger share of the market is taken or a rival is no longer able to compete. The recoupment phase is where economists make the distinction between predatory pricing and competitive pricing. Predatory Pricing vs Competitive Pricing Regardless of intention, all brands seek profits, but predatory pricing differs from competitive pricing. Predatory pricing does not reach equilibrium once market share is gained and the competition defeated. While competitive pricing can benefit the consumer, in the long run predatory pricing only serves to benefit the perpetrator. Once dominance is reached, predatory pricing takes effect and a monopoly becomes a reality. Predatory pricing only benefits the seller - the reason why it is illegal under many laws. However, in practice, it’s somewhat opaque to distinguish competitive from predatory pricing - even in courts of law. Examples of Predatory Pricing In 2010, Amazon, a growing giant of ecommerce, engaged in a price war with Diapers.com, a niche competitor that quickly gained popularity and revenue. Rumours circulate that Amazon tried to acquire Diapers.com but was denied. Afterward, Amazon aggressively lowered prices on diapers and related products. Furthermore, Amazon introduced more ways for customers to save on related products; it launched Amazon Mom, featuring cashback, free shipping, and more discounts. However, predatory tactics do not always prove successful. In a bromine price war, American-based Dow Chemical gained presence within the European market. An established Euro-brand sought to “punish” Dow by offering bromine at below-cost prices to Americans, hoping to ruin Dow’s chances of making profits within its home market. Unfortunately for the European brand, Dow took advantage of that lower cost, bought low, then sold it back to the European market at a profit. Another tale of predatory pricing gone awry involves the New York Central Railroad. In an attempt to outdo Erie Railroad, the NYCR charged a mere dollar per car for cattle transportation. However, the newfangled trend benefitted the Erie Railroad too, for it also began hauling cattle. Is Predatory Pricing Illegal? True predatory pricing is seen as a means to a monopoly. The United States has a history of recognising and punishing predatory pricing. Antitrust laws seek to foster healthy competition while thwarting opportunity for monopolistic business practices. According to American antitrust laws, most “forms” of predatory pricing are illegal. Predatory practices are recognised as instruments of corruption and greed. However, where does greed stop and the need for competition begin within a system that ultimately seeks profits? The Federal Trade Commission seeks to fully analyse any claims of predatory pricing. Moreover, the US Department of Justice recognises predatory pricing as a problem, growing increasingly aware of the unscrupulous pricing strategy. It can be difficult for plaintiffs to make objective claims that hold in court. Successful antitrust suits are based on a plaintiff clearly establishing that a competitor’s pricing will condemn rivals as well as cause a direct and negative impact throughout the market as a whole. Furthermore, US courts define predatory pricing as that “set below a seller’s cost.” However, it is not against the law for a seller to set prices in such a manner if the reason is justifiable and not perpetrated to directly eliminate competition or ultimately monopolise the market. If pricing is set below cost for legitimate purposes, such as to attract a larger portion of the market, it is not predatory pricing. “Catching” a brand waging a potentially unscrupulous pricing strategy is delicate practice. For example, penetration pricing could look and feel like predatory pricing to a rival. However, if the pricing strategy is short-lived and not a long-term plan, it is not illegal and deemed “fair play” within the world of business. The Effects of Predatory Pricing While unlawful conduct is a black-and-white issue, pricing strategy remains somewhat of a murky area. One’s interpretation of “predatory” could be another’s version of “smart business.” Economic theories see possible advantages to predatory pricing. For one, predatory pricing may become a “survival of the fittest” regarding the brands within a given market. While buyers may initially be interested in price points, some argue that price alone will not condemn inferior products and services. Therefore, predatory pricing is merely a speedier means to an end of greater selection for consumers. Furthermore, some see the exit of particular brands as an invite for new and innovative brands to enter the marketplace, challenging behemoth competitors in new ways that ultimately serve the greater good of the market and consumers. Lastly, in regards to seasonal items or perishable goods, predatory pricing may help a brand in a short-term predicament of needing to clear shelves for more stock or to sell items before selling them at all is no longer an option. On the other hand, taking competitive pricing too far becomes illegal depending on government jurisdiction. Therefore, any brand willing to wager a predatory pricing strategy runs the risk of legal repercussions and attracting legal suit. Furthermore, predatory pricing does not escape the perception of consumers. In some cases, aligning your brand with “cheap” prices could have a negative effect. An overall impression of frugality may turn some consumers away. In worse scenarios, consumers view your brand as a selfish, predatory entity, ultimately existing to gain the most profit regardless of what’s best for the market or its consumers. Advantages of Predatory Pricing Provides an opportunity to overcome barriers in entering a new market. For those already with market share, it may prevent rivals from entering a market. It exposes rivals to economic vulnerabilities. A competitor that is unevenly regarding economic risk, invites the possibility of greater devastation if they cannot amass market share. Predatory pricing invites the potential for total market dominance once it effectively changes consumer perception and behaviour. Disadvantages of Predatory Pricing It attracts potential lawsuits or deemed illegal, depending on jurisdiction Brands using predatory pricing run the risk of ultimately losing money if the minds of consumers are not affected or monies lost in the initial phase are not compensated in the recoupment stage. In some cases, a predatory pricing brand may be sowing the seeds for a rival’s eventual return to market, for at times, defunct resources can be renewed. For example, the Washington Post went bankrupt in 1933 only to later become the biggest newspaper in Washington. Predatory Pricing in the Present - A Look at Amazon It’s difficult to pinpoint how dominant Amazon is regarding ecommerce, but it’s estimated that it accounts for 40% of US retail sales (Some believe the market share is somewhere closer to 50%.) Many smaller brands find it undeniably necessary to access Amazon’s Marketplace, with some estimating the marketplace is the sole source of income for a whopping 37% of its third-party suppliers. Moreover, Amazon’s marketplace is not the only place the company reaps profit. Amazon Web Services, offering cloud resources, also adds to its coffer. Amazon’s share within the infrastructure market amounted to 33% for the second quarter of 2020. That’s equal to the combined share of three of its largest competitors. As with goods purchased on the Web, the pandemic has not had a negative impact on Amazon’s ability to sell. Cloud infrastructure service revenues eclipsed $30 billion in the second quarter of 2020. There’s no debating that Amazon can easily afford to cut prices in the short-term in exchange for ultimate dominance. Amazon can influence prices, consumer behaviour, and the existence of the competition. Many businesses understand that you don’t beat Amazon. You join them. However, a number of strategies help smaller brands compete in niches and make headway in particular ecommerce markets. Here’s how they are keeping up with ‘the Amazons’ of the business world. Ways Businesses Compete with Predatory Pricing Many entrepreneurs and small business owners want to make money, but they want to do it by building a reputable and longstanding business model. While no brand is going to be sad about debilitating the competition, most find legitimate and law-abiding ways to success. Branding Starbucks coffee isn’t cheap but that doesn’t stop its penetration of the coffee market, reaching a net revenue of $26.5 billion in 2019. It sees year-over-year increases for the last decade. There was once a time when consumers would certainly balk at Starbucks price point. Now, they can’t seem to resist taking out their wallets regardless of the attached price. Retention What’s the economic benefit of retaining existing customers versus taking the marketing risk at attracting new ones? According to research, 58% of customers switch brands. For many, retaining customers is less costly than acquiring new ones. Do what you can to express appreciation to existing customers, for there’s a 70% chance of selling to a repeat customer. However, those odds drop as low as 5% when attempting to sell to a new one. Ecomm SEO Search engine optimisation is no secret weapon. It’s an undeniable component of digital marketing strategy. Ensure your site’s pages are optimised for targeted keywords. This requires strategic keyword research, effective product descriptions, as well as paying attention to user experience and site architecture. The first organic result aligned with a Google search has an average click-through rate of 28.5%. And, the average CTR falls dramatically after position one. A study found the second result to get a 15% CTR, and the third, 11%. By the time a user gets to the tenth result or estimated bottom of the first page of results, the CTR drops to 2.5%. Sales Funnel How are your website visitors behaving? An analysis of analytics can reveal insights related to the sales funnel. A study finds that about half of ecommerce visitors look at product pages but only about 15% add items to site shopping carts. However, a mere 3% actually go ahead with the finalisation of purchase. Target troublesome areas of the sales funnel, identifying needs for improvement and finding why some consumers are not buying from you. As mentioned, only 3% buy what’s loaded in their cart. What’s the reason for your shopping cart abandonment? Shipping We live in a world of online shopping and online shoppers don’t like added costs. Therefore, added costs, such as cost of shipping, remains a top reason for shopping cart abandonment. An additional percentage of customers abandon carts after finding the delivery will take too long. 9 out of 10 customers agree that free shipping is a premier incentive. 93% of online buyers will buy more if free shipping is an option. Moreover, 58% add more items to a cart to qualify for free shipping. Pricing A consumer survey reveals that 82% identify price as a very important reason for making a purchase. Low shipping costs come in second as 70% of respondents find it important. Therefore, there is no denying that pricing is a main concern for smaller ecommerce brands that compete with online competitors like Amazon as well as need to combat the ROPO effect (researching online but purchasing offline). Yes, there is no denying the importance of pricing. However, implementing a pricing strategy proves difficult for many suppliers who lack the resources and time for proper devotion. Yet, some have adopted dynamic pricing software, an automated way to set prices and stay competitive. Predatory Pricing vs Dynamic Pricing Automated pricing software allows for a dynamic way to go about cost strategy. What if a business could apply a dynamic pricing strategy at scale, regardless of offered goods and services? Agile Pricing Dynamic pricing’s algorithm provides an agile way to implement pricing. Gather data and enjoy the freedom of setting prices at a rate that works best for your company’s short and long-term goals. Set Rules Automated pricing software allows for your company to set pricing standards. Implement your own “pricing rules” and get as general or as granular as you would like regarding every product or service offered. Price Sensitivity Automated pricing software accounts for each product and service offered, so the price of each item appropriately compensates for sales volume, number of items, time of day, etc. Every product is considered and automatically assorted according to optimal price. Total Automation Total automation allows for complete pricing analysis of the market, including competitor pricing. Dynamic pricing software gathers competitor data, internal metrics, market prices, consumer behaviours, and then provides optimised price suggestions. Market Awareness Dynamic pricing software does not work in isolation, making pricing suggestions based on mysterious precedents. The software provides reasoning for price suggestions, so users can grow market awareness as well as manually override when they see fit. Conclusion Predatory pricing is an illegal practice but it would be naive for smaller and burgeoning ecommerce businesses to deny predatory-like behaviours exist. Given the growing popularity of ecommerce and its explosion over the last decade, established and new brands need the knowledge and tools to compete with Amazon, Target, and Walmart as well as local vendors. In the short-term, predatory practices and giant competitors, like Amazon, are not going away. If you’re not going to beat them, then you must find a way to join-in and “match” competitors. Solutions such as dynamic pricing software level the field of competition and help small ecommerce brands succeed regardless of the size of rivals and aligned pricing strategies. Other Pricing Articles: What is Value Based Pricing? What Is Penetration Pricing? What Is Cost Based Pricing? What Is Odd Even Pricing? What Is Charm Pricing? What Is Psychological Pricing? What Is Bundle Pricing?
06.01.2021
What is MAP Pricing?
A fundamental part of e-commerce (or really commerce itself) is the idea of competition. Competition is healthy and is the key thing that protects consumers — when companies have to compete to sell products, it...
A fundamental part of e-commerce (or really commerce itself) is the idea of competition. Competition is healthy and is the key thing that protects consumers — when companies have to compete to sell products, it automatically drives prices down. So what does competition have to do with MAP? Well, quite a lot, actually... Curious what MAP stands for in retail, and how it helps or hinders competition? This article will give you a clear overview of what MAPs are, who uses MAP pricing, and why they’re so important to many retailers. But as a disclaimer, this piece is by no means legal advice. Instead, this is a purely educational tool meant to give you a broad understanding of MAPs. If you’re curious about the legal side of things though, feel free to reach out to Martijn van de Hel at Maverick Law — you can check out his blog post about MAPs here. MAP pricing definition So, what actually is MAP pricing? MAP stands for Minimum Advertised Price. MAPs come in the form of policies, created by the manufacturer or brand of a product. These policies stipulate the lowest price point that retailers may use when advertising a product. In other words, as Mattew Hudson writes, “In its simplest form, minimum advertised pricing (MAP) is the lowest price a retailer can advertise the product for sale. To clarify, this does not refer to the lowest price they can sell it for in their store—just the lowest that they can show online or in an advertisement.” There are MAPs for almost every product on the market, depending on where you are in the world, and these policies are extensive. Brands and manufacturers invest a lot of time in creating these MAPs, and have highly vested interests in monitoring the market for MAP violations. Set up MAP Pricing for your online business? Request a free demo What is a MAP pricing policy? A MAP policy is a policy any legitimate brand will have a retailer agree to before a brand sources products to the seller. The definition of “advertising” varies per supplier. In general though, “advertising” means any advertising off-site. So, if you advertise at the MAP and pull people to your website, then advertise on-site at a lower rate, you may be within the bounds of the agreement. However, some brands and suppliers may see on-site advertisements as a violation of the policy. And to make it even more confusing, the definition of advertising can vary by product. Some brands may even make special allowances for MAP. In these cases, retailers may be able to advertise a lower policy to special groups, like active-duty military service members or veterans, for example. The retailer would need to prove that only these exempt groups could benefit from the MAP reduction. Another example of an exemption would be based on seasonality. Some brands may allow retailers to advertise below the MAP on Black Friday or during the holiday season. All this is to say that every single MAP policy is unique. You should check your MAP policy carefully to see what is and isn’t allowed. IMAP pricing vs. MAP pricing iMAP stands for Internet Minimum Advertised Price. It is a MAP policy that brands draft specifically for products sold online. These policies generally outline MAP guidelines for webshops that advertise online. Traditional MAP policies have focused largely on offline advertising such as catalogues, newspaper advertisements, billboards, TV commercials, and more. But since e-commerce is so vastly different from these other forms of media, manufacturers needed to create a separate type of policy to cover the market dynamics. “There generally is not much of a difference between iMAPs and MAPs,” says Brandon Smith of Whitefield Capital. “But again, this can vary by manufacturer, product, and store location.” MSRP vs. MAP pricing MSRP stands for Manufacturer Suggested Retail Price. It’s also known as the SRP (Suggested Retail Price) or the RRP (Recommended Retail Price). Regardless of what you call it, the end-result is the same. MSRPs are different from MAPs because MSRPs provide guidance on the actual sale price for a product, not just the advertising price, and they are not binding. Often retailers will actually sell below MSRP because pricing in the market typically decreases over the product lifecycle and the margins that retailers make on product allows for this. One of the biggest differences between MAP and MSRP though is the legality of the price. MAP pricing is legal in the US, but most likely not in the EU. Providing a MSRP, on the other hand, is a completely legal practice in both regions. Why do brands enact MAP policies? MAP policies are most often seen with brands that rely heavily on their brand identity, such as luxury goods. These companies know the value of their brand, and have a vested interest in maintaining a certain level of exclusivity. Pros of MAP pricing MAP policies help protect brand (and retailer) perceptions - One of the biggest pros of MAPs is the amount of control it gives brands over their price perception. MAPs only affect advertising, not sales - MAPs may have a bad reputation for affecting sales, but these policies are not meant to affect the final sale price. Instead, MAPs focus solely on the advertised price; retailers are free to sell the product at whatever price point they like. MAPs level the playing field - MAP policies standardize price expectations across all marketing channels. MAPs may protect retailer margins - If MAPs are standard in a market, it provides an effective “floor” for the market. Some argue this could hinder competition, but on the other hand this floor can prevent a race to the bottom. Cons of MAP pricing MAP limits the amount of control retailers have over product price - MAPs come directly from brands or manufacturers, which some argue may limit the freedom a retailer has in creating a unique marketing and advertising strategy. MAPs may influence market competition. -“MAPs may decrease price fluctuation,” says Travis Rice, a Digital Marketing expert. “It’s certainly not the only reason that there could be less price fluctuation in a market, but it could be a factor.” The European Commission to agree. MAPs are most likely illegal in the European Union for this reason. A 2015 notice from the commission stated: “Under European antitrust rules, MAPs will likely be restrictive of competition within the meaning of Article 101(1) TFEU. While efficiency defenses under Article 101(3) for such clauses are in principle not excluded, it will be very difficult for companies to demonstrate in a particular case that pro-competitive effects of the clauses outweigh the negative effects. These principles are beneficial for European consumers. They ensure competitive markets with low prices and a wider choice.” Administrative workload - MAPs are primarily used in the United States, which can add a layer of administrative work if a retailer or brand wants to operate internationally. Is MAP pricing legal? MAPs are legal in the US, but there may be some variation from state to state. Most legitimate brands will have a policy in place that you will need to sign if you want to be an authorized reseller of the brand’s products. The same is not true for Europe. “This practice is probably illegal in Europe,” comments Sander Roose, CEO of Omnia. “In Europe, pricing decisions, both in-store/online as in advertisements - remain at the sole discretion of a retailer.” How to enforce map pricing Enforcing MAPs comes down to two actions: monitoring the market for violations, then acting on those violations. MAP pricing monitoring - So retailers, how do you make sure that you don’t violate the MAP? One way is to set the MAP as your price floor in whatever dynamic pricing system you use. When you add safety rules into your pricing strategies, just set the MAP as the absolute minimum price. Brands can also use pricing intelligence to monitor their MAPs. (How to enforce MAP pricing). With automated data collection, brands can track prices for all their products across every single authorized retailer. With this knowledge, a brand can then discover if a retailer is operating below the MAP. MAP enforcement - MAP policies are strict. As one retailer stated in a tour of his warehouse, “[brands are so strict about MAP policies that] we could possibly lose our account forever over one penny.” Most MAP policies clearly outline their methods of enforcement. If a retailer does violate the MAP, brands in the US are allowed to retaliate. MAP pricing enforcement means consequences for retailers are high. Some of the consequences of a MAP violation could be exclusion from future promotional deals terminations of partnerships. Brands can even put retailers in “timeout” and can avoid selling to a retailer for a period of time. The high risk of a MAP violation is enough to keep most retailers in-line. It also creates an environment of self-policing. Retailers are likely to report MAP violations to brands and suppliers because they know that the violating party will be offering the lowest price on the market...and reaping the benefits as a result. Can you enforce map pricing on Amazon? - Amazon does not enforce map policies on its platform, but that doesn’t mean brands don’t have any power. Many manufacturers may assert Intellectual Property complaints against Amazon when they find a MAP violation. You will have to monitor Amazon yourself for MAP violations. If you do spot a violation, you will have to identify the Seller and send a cease and desist yourself. One way to overcome this obstacle is to join Amazon directly as a brand and use it as a new sales channel. Conclusion MAP policies can be somewhat controversial. On the one hand they give brands and manufacturers more control of their price perception, but on the other hand they take away some of the freedom that retailers need for free competition. Regardless of where your opinion falls, MAPs are an important concept to know and understand, especially if you operate in the United States. These policies can significantly impact the way you do business and should be at the top of your mind for your pricing and marketing initiatives. Curious to learn about some other pricing strategies? Check out some of our other articles below. What is Charm Pricing?: A short introduction to a fun pricing method What is Penetration Pricing?: A guide on how to get noticed when first entering a new market What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. Here’s What You Need to Know About Psychological Pricing (Plus 3 Strategies to Help You Succeed): Modern day pricing is so much more than a numbers game. When thought about correctly, it’s a powerful way to build your brand and drive more profits. How to Build a Pricing Strategy: A complete guide on how to build a pricing strategy from Omnia partner Johan Maessen, owner of Commercieel Verbeteren.
19.11.2020
Holiday Playbook 2020
E-retail sales eclipsed $3.5 trillion in 2019 and Cyber Monday sales hit 9.4 billion. The ecommerce trend continues to dazzle retailers who are excited to offer goods yet struggle competing with behemoths like Amazon....
E-retail sales eclipsed $3.5 trillion in 2019 and Cyber Monday sales hit 9.4 billion. The ecommerce trend continues to dazzle retailers who are excited to offer goods yet struggle competing with behemoths like Amazon. In the US alone, Amazon’s hold on the ecommerce market has risen from 33.9% a few years prior to 38.7% in 2020! Amazon continues to dominate ecommerce as well as dictate related trends followed by medium and smaller competitors, especially during the holiday season. Black Friday falls on Nov. 27 in 2020, but the associated sales have already begun. Amazon is offering deals on popular products, even matching Prime Day prices. Walmart’s holiday promotion period began much earlier this year, even before November 4th promotions. Anxious shoppers are beginning to see more signs that they don’t have to wait for Black Friday or Cyber Monday for deals. It’s a message for online suppliers too - don’t wait for the holidays, for 2020 holiday pricing strategy has already begun. Thanksgiving weekend, the once official “start” of the holiday shopping season has been abandoned for online shopping opportunities that can’t come too soon and are too good to let pass. Understanding how to compete and pivot pricing has never been more vital for businesses. Read our 2020 holiday pricing playbook: Learn how previous holiday shopping trends inspired the current state of 2020 holiday shopping Better Understand 2020 holiday shopping trends - the who, what, and how Get actionable tips on gaining traction in your market and attracting more sales this 2020 holiday season. There has never been a better time to be an online supplier yet your products and services will get lost in the 2020 holiday rush without proper strategy. Get the right insight to not only compete but crush the competition. Previous Holiday Shopping Strategies We studied 2017 and 2018 holiday shopping trends, and conducted a full analysis of what happened in the 2019. The top 150 sellers experienced a major price drop compared to the week before Cyber Week. The prices of top products dropped by (at least) 50% compared to the Friday before Cyber Week. Many products (not in the top 150 sellers) also had attractive price drops: The data shows large fluctuations in price during Cyber Week, a great time for consumers to take advantage and suppliers to price strategically. 2020 Holiday Shopping Outlook Covid-19 has impacted the world in countless ways this year. Distancing regulations has propelled many more shoppers to seek regularly purchased and one-off goods online. 36% of consumers now shop online in a weekly fashion. That’s a 28% increase compared to times before the pandemic. 72% of consumers will spend the same or more this holiday shopping season as compared to 2019. More than a third will do (almost) all of their shopping online compared to 25% in 2019. 62% of US consumers will start shopping early to avoid crowds and 33% want to complete holiday shopping much earlier this year. So, being visible and setting prices right are just two of a broader list of concerns for retailers accommodating 2020 holiday shoppers who are not waiting for Thanksgiving weekend this year. Holiday Pricing Strategy 2020 Figure a Minimum Price Considering major brands like Amazon and Walmart have begun adjusting ecommerce prices for the 2020 holiday season, you’ll need to pay attention to the depth of associated discounts if you want to compete for popular items. Making pre-holiday buying more appealing to consumers, some suppliers offer storewide promotions, slashing prices throughout a physical location or ecommerce site. In 2020, major e-tailers are not waiting for the end of the month to start holiday pricing strategies. That means competing with promotions that are deeper, widespread, and longer than before. The following questions help figure your minimum pricing to help compete with competitor promotions. Does holiday shopping trends of 2020 influence my costs for shipping, raw materials, agreements with supplies? Can you benefit from making bulk purchases this season? Do I need to pay seasonal staff? For holiday overtime? Are third-party (dropshipping) prices fluctuating during the holiday season? What are the costs of shipping in 2020 vs prior years? What is the importance of digital marketing this year given the pandemic and YoY increased trust in e-shopping trends? Create Great Experiences 67% of customers are willing to pay more for a better experience. And, if they have a good experience, 72% of customers will tell their friends. Great experiences spread through social networks like wildfire...but so do negative ones. 62% of customers share negative experiences with others, and 57% of consumers have switched to a competitor company that offers a better experience. Form a customer journey map to identify pain points and highlight particularly enjoyable ones. Use the feedback in sales and marketing material. Here are simple yet effective questions to ask customers: How did you first hear about our brand? What problems are you trying to solve in relating to our product/service? Have you made a purchase with us? What was the deciding factor? Offer Free Shipping 62% of US shoppers say they'll start 2020 holiday shopping earlier to avoid crowds. Retailers need to rethink the usual timelines for Cyber Monday and Cyber Week to help shoppers who are already looking for special offers and deals this October. In a holiday survey, 72% of participants said they plan to take advantage of free shipping. 44% plan to take advantage of easy returns and 42% are in it for price matching. The same survey found the top three reasons participants chose to shop online over in-store were convenience, saving time, and free shipping. To confirm this sentiment, a 2017 holiday survey showed 21% of consumers claimed free shipping will have the biggest influence on their holiday shopping decisions. Make It Easy for First-Time Online Shoppers 69% of US shoppers plan to shop online for the holidays, with more people going online to browse and buy for the very first time. Due to the trend toward online shopping, 2020 retailers will need to be ready to offer helpful, frictionless holiday shopping experiences for an increase in first-time online shoppers. In March 2020, 88% of online shopping orders were abandoned. Automotive had the highest cart abandonment rates out of all measured categories with an 96.88% abandonment rate. One thing you can do to ensure customers make a purchase is to reduce their level of stress or fear. One study found that about 60% of ecommerce sites ask “unnecessary” questions that induce feelings of discomfort. It’s a matter of perception. The question may be valid but that reason must be evident to the user and/or later addressed by the seller. Expand M-Commerce Options In 2021, 53.9% of all retail e-commerce is expected to be generated via m-commerce. As of February 2017, Amazon was the most popular shopping app in the United States with a mobile reach of 40%, ranking ahead of local competitors Walmart and eBay. The average value of smartphone shopping orders in the United States as of fourth quarter 2016 amounted to 79 U.S. dollars, compared to 98 U.S. dollars per online order via tablet. Being unique while offering similar products is a struggle for many ecommerce sites. However, infusing more mobile commerce options helps new brands appeal to audiences who embrace easy ways to transfer money, make contactless payments, etc. Consider the following mobile-commerce-friendly options: Allowing for mobile money transfers Integrating your site with mobile banking Offering contactless payment and in-app payment options Offering location-based offers Providing mobile coupons and e-loyalty cards Prepare to Be Seen for the First Time With a third of US shoppers having purchased from a brand that was new to them during COVID-19, shoppers are ready to discover new brands and retailers as they shop for what they already know. To connect with new or repeat customers, retailers should get their products front and center with shoppers on the lookout for ideas and inspiration. Social media is a far-reaching and immediate way to make an impact. 321 million new people joined social media in 2019, which brought the total from 3.48 billion to 3.8 billion social media users (an increase of 9%) in 2020. But, don’t assume making a great impact comes easy. 80% of companies online are under the impression they deliver exceptional social media customer service, while only 8% of their customers agree. Conversely, customer happiness is at the core of Amazon’s success. Amazon developed a strong brand based on convenience and pricing. A 2019 survey of 2,000 US shoppers found 89% were more likely to buy products from Amazon versus any other e-commerce provider. 66% start their search for new products on Amazon, compared with 20% who start on a search engine such as Google. When consumers are ready to buy a specific product, 74% go directly to Amazon. Take Advantage of Dynamic Pricing Some suppliers easily compete with larger players via dynamic pricing. In general, automated software allows for smaller-scale operations to compete with an Amazon or Walmart by reflecting sale prices in real time. Amazon shapes ecommerce pricing trends as more retailers seek to keep pace with Amazon’s fickle price changes. However, historical trend data helps you know which products people search for in the weeks leading up to the holidays. Start your holiday pricing strategy well before the holidays through data analysis and identifying which of your products will be popular on Black Friday. Plan strategies for these products and spend Black Friday monitoring performance. Take that data a step further with automation tools that provide automated price checks and automated price updates. These tools save valuable time and allow for increased focus on strategy than manual labor. The Larger Picture of Pricing Strategy Amazon strategic pricing is a global issue for competing e-retailers. The company’s goal is to capture as much consumer data as possible, and Amazon’s reach is limitless. Our research suggests Amazon adjusts its prices on a per-country basis. Last year, we looked at the top 100 Amazon best sellers across 300 categories and discovered the American company had the lowest prices on 27% of the market in Germany and 42% of the products in the Netherlands. An analysis across 300 categories showed: Prices in the UK are 3% higher than the Netherlands Prices in France are 2% higher than the Netherlands Prices in Germany are 7% lower than the Netherlands Amazon dominates in terms of market share. The company has 47% of the market share in the United States, 47% of the market share in the United Kingdom, and 31% of market share in Germany. Since Amazon NL launched, it dominates comparison shopping engine Tweakers. In fact, Amazon NL has more than double the number of out-clicks on Tweakers as Bol.com, its next biggest competitor. We also looked at the number of price changes on Amazon NL vs. other Dutch retailers. Amazon.nl’s average number of price changes is represented by a dark orange line — the one that far outpaces any other retailer in the Netherlands. We also looked at Amazon NL’s average price ratio compared to the rest of the market. Amazon NL (the dark orange line at the bottom of the graph) dominates. Conclusion With Covid-19 as catalyst, Deloitte predicts e-commerce holiday retail sales to grow between 25% to 35% from November through January 2021, reaching $182 billion to $196 billion. The undeniable national and global momentum of ecommerce sales makes a holiday pricing strategy imperative in 2020. But the larger picture depicts this once seasonal shift in pricing strategy and demand for ecommerce supplies becoming more of the norm throughout the entire year. Moving forward, retailers need to compete with the pricing strategy of Amazon while continuing to differentiate between the nuances of what makes a brand unique and what is lucrative in offering in 2020. 77% of US holiday shoppers say they intend to browse for 2020 gift ideas online, not in-store. With more purchase decisions being made online, retailers will need to bring the best of their store online and be ready to help customers complete their purchase. About Omnia Omnia was founded in 2015 with one goal in mind: to help shops take care of their assortments and grow profitably with technology. Today, our full suite of automation tools help stores save time on tedious work, take control of their assortment, and build more profitable pricing and marketing strategies. Omnia serves more than 100 leading brands and retailers, including Philips, Decathlon, Tennis Point, Bol.com, de Bijenkorf, and Feelunique. Omnia scans and analyzes more than 500 million price points and makes more than 7 million price adjustments daily.
15.10.2020
Webinar: Adapting To A New Normal After Covid-19, A Retail Perspective
In this webinar you'll learn: How consumer behavior has changed during the corona pandemic What the retail response has been How retailers can adapt to the new normal What the world of retail will look like at this time...
In this webinar you'll learn: How consumer behavior has changed during the corona pandemic What the retail response has been How retailers can adapt to the new normal What the world of retail will look like at this time next year How pricing strategies can protect margins, stock levels, brand perception, and sales.
09.07.2020
Adapting To A New Normal After COVID-19: A Retail Perspective
How has the coronavirus permanently changed retail? In this webinar, Omnia Retail’s Founder and CEO Sander Roose uses data to show what’s happened across the market and where we’re headed in the future. Based on this...
How has the coronavirus permanently changed retail? In this webinar, Omnia Retail’s Founder and CEO Sander Roose uses data to show what’s happened across the market and where we’re headed in the future. Based on this market analysis of 2020, Sander explores: How consumer behavior changed during the corona pandemic How retailers have responded What the world of retail will look like at this time next year How your business can respond with commercial strategies This recording is approximately 50 minutes. No time to watch? No worries. You can download: PDF version of the slides Get the key takeaways from the presentation Listen to a conversation with Sander about the webinar on Spotify.
19.03.2020
A Letter to our Customers and Partners
Dear customers and partners, You have millions of things to worry about right now. I am here to assure you that the Omnia pricing software is not one of them. Before I launch into business, I want to take a moment to...
Dear customers and partners, You have millions of things to worry about right now. I am here to assure you that the Omnia pricing software is not one of them. Before I launch into business, I want to take a moment to recognize the gravity of this current pandemic. I know this touches everyone in a deeply personal way. As a father of two very young children, I understand and share your concerns on all levels. Maybe your partner is a healthcare worker. Maybe your parent is a school teacher. Maybe your sibling is a member of the government. Maybe one of your family members is sick. Regardless of where you are, our hearts at Omnia go out to you, your family, and your loved ones. To those of you whose family members are helping fight this virus, please give them a warm “thank you” from me personally. To those whose family members are sick, we are sending you all of our strength. We cannot extract the human element from the coronavirus pandemic. As a company, we’re taking the responsibility for the health of our employees and their families — but also the responsibility for the broader society — seriously. Starting last week, we changed our policies and required that all employees work from home. We also restricted travel, business events, and in-person contact with customers and partners. We are lucky to be a tech company that already had a fully flexible working from home policy, so all the tools and processes were already in place and the transition to fully remote work was smooth. Our team is operating at 100% capacity, and you can trust that your service will be uninterrupted. The impact of the COVID-19 virus on business is still largely unknown, and the situation changes almost daily. But this week we wrote a full blog post about the effect the coronavirus is having on retail, and I have reason to be hopeful for the future of our industry. There are several indications that the current global situation will lead to growth in e-commerce. According to McKinsey, the impact on Consumer Goods is likely to be relatively short. On the longer term it could even have a net positive effect. We also see that virtually all signals indicate that Corona will increase the adoption of online shopping and further accelerate e-commerce. As this early analysis by Bain shows, online purchases of consumer goods dramatically increased in China, the region first hit by Corona. In the short — and maybe even mid-term — all retailers may need to close their stores and transform into pure e-commerce players. My opinion is that in the short term, there will be a surge in e-commerce traffic. That extreme surge won't last, but it will accelerate a habit change towards online shopping in many categories. As consumers grow more accustomed to buying online, the role of e-commerce will grow. After this crisis is over — when stores can reopen their physical doors — I expect that e-commerce will occupy a new level of importance. While consumers will return to regular brick-and mortar shopping, the balance between e-commerce and brick-and-mortar may remain forever changed. As we’ve seen before, when industries move to e-commerce prices tend to become more dynamic. Because of the combination of increased price fluctuations and the need to constantly adjust pricing based on stock, we expect that automated pricing will be more important than ever. We would like to reiterate our belief that pricing is one of the quickest levers you can pull to impact your bottom line KPIs. As buying behavior changes, market prices swing, or stock levels become a necessary consideration, properly adjusting your commercial and pricing strategy will remain crucial to succeeding in this environment and contributing positively to society. Additionally, though we trust that no retailers plan to commercially benefit from this pandemic through price gouging, there is also plenty of opportunity to be found in the recovery. One thing we urge you to consider is using stock-based pricing rules to mitigate the supply chain challenges that will come for some products. You already have this capability in your Omnia portal. All you need to do is map your stock levels in the import mapping section of the portal. To help you navigate this, we recorded a video today that explains stock-based pricing and how to set up a strategy in the Omnia portal. Our customers and partners received this video in an email communication. Besides your strategy, I also want to touch on the negative impacts of unintentional price gouging. Not only is this practice — whether intentional or not — unethical, it also stains the name of our industry. To prevent unfair price spikes, I strongly encourage you to cap all prices in Omnia at the Recommended Selling Price. You also might find it useful to create some extra reports during this time. Some example reports you might want to make could be reports for products that suddenly stopped selling, products almost out-of-stock, or products that are highly viewed and almost out-of-stock. If you aren't sure how to implement these reports in Omnia, feel free to reach out. As we move forward and adopt a new way of working, we’ll continually provide updates on the industry, our work, and more. So while the times are changing, the good news is you don’t have to navigate those changes alone. If you have questions, reach out to your Customer Success Manager or Customer Support for answers. As always, we are here to help. Thank you for your business, and I wish you the best during this difficult time. Sincerely, Sander Roose Founder and CEO of Omnia Retail
19.03.2020
How the Coronavirus Will Affect Retail
The impact of COVID-19 on business is still largely unknown. The situation across countries continues to change almost daily. But one thing is clear: the new coronavirus will have both short- and long-term influences on...
The impact of COVID-19 on business is still largely unknown. The situation across countries continues to change almost daily. But one thing is clear: the new coronavirus will have both short- and long-term influences on retail (and the broader world). We wanted to go through some of the latest research and break down what these changes might be. But before we launch into the business of this, I want to take a moment to recognize how serious this virus is. Regardless of where you are, our hearts at Omnia go out to you, your family, and your loved ones. To those of you whose family members are helping fight this virus, please give them a warm “thank you” from me personally. To those whose family members are sick, we are sending you all of our strength. There’s no way to extract the human element of this, but it’s worth taking a step back and evaluating what this outbreak means for retail as a whole. In this post I’ll give my perspective. How has the novel coronavirus affected retail? In a recent briefing from Bain & Company, analysts broke down the coming storm into three different phases: Phase 1: Consumers begin to stock up on essentials Phase 2: Governments take restrictive actions Phase 3: Recovery While there is no way to know if this is the exact path the virus will take, it seems like a logical trajectory. Bain created this analysis based on what happened to China, the first country hit by the coronavirus. It’s an interesting framework to evaluate what is happening in the rest of the world at the moment. Phase 1: Consumers stock up In Phase 1 of the coronavirus outbreak, the virus is present but doesn’t have high visibility. Consumers know the virus is coming though and will stock up on key essentials. In much of the west, we’ve already passed Phase 1. If you’ve been in a supermarket in the past few days, you’ve probably seen the evidence yourself. Phase 1 will put the heaviest strain on supermarkets and health retailers as people panic-buy basic supplies. This has actually drastically increase sales performances at different supermarket chains. The demand will initially occur in physical locations, but over time will transition to the online world. Bain noted that, “[a]s the crisis grew, 80% of Chinese consumers expressed a preference for online grocery.” Conversely, during Phase 1, non-food retail will take an economic hit as consumers restrict discretionary spending. Chinese luxury retailers expect a 60%-95% decline in sales in sales during the lockdown period compared to the previous year. We can expect the same to happen in western countries as well. Phase 2: Government regulations During Phase 2, governments across the world will step in and impose harsher regulations meant to mitigate the disastrous effects of the new coronavirus. As governments steps in, retail will take hits in several key areas: Closed brick and mortars Whether self-imposed or government-mandated, many brick and mortar retail locations will close to prevent the spread of COVID-19. Some of the bigger brands and retailers to do this include Apple, Nike, Lululemon, Levi’s, and Patagonia, and de Bijenkorf. If they don’t shut down completely, many stores are restricting their operating hours. Some 24-hour Walmart locations will limit hours to 6 a.m. to 11 p.m., for example. These restrictions (especially for bigger box stores like Walmart) are intended to help the store stay clean and sanitized and allow employees to restock shelves. Disrupted supply chains Remember how Bain said more than 80% of Chinese consumers said online was their preferred method for buying groceries as the crisis grew more serious? Well, only half of those people could purchase groceries online because of a lack of supply. Supply chain will be a huge challenge for most companies that sell online. Regulations that restrict regular travel or shipping networks will create “logistical bottlenecks” that retailers need to overcome. Additionally, loss of labor will have a huge influence on supply chain. In China, production and distribution centers slowed down because of forced extended holidays for workers or quarantined employees. Since many retailers use just-in-time manufacturing models, a broken or weakened supply chain could dramatically affect stock levels. Supply chains are at a great risk, and this pandemic will be a test of supply chain resiliency. This will force retailers in the front end (their shops) to quickly adjust to these back-end (supply chain) interruptions. Phase 2 doesn’t mean doom and gloom for retailers: coronavirus and e-commerce During Phase 2, retailers will be under increased pressure. And with physical stores closed, the economic impact of the COVID-19 virus could be huge. But, retailers may not experience plummet as they would have in previous pandemics. Today’s global marketplace exists both online and offline and total consumer demand will remain constant, at least in most categories. And while offline channels may struggle during this pandemic, online sales may skyrocket to replace the offline component. In the short term, there will be a huge surge in the number of online orders. This is already happening. There is already evidence of this trend. Insights platform Contentsquare analyzed more than 1,400 websites, 1.8 billion user sessions, and 50 million transactions in the UK. Found that online grocery purchases grew by 20% while shoppers spent 26% more time on grocery websites. This trend isn’t limited to grocery stores alone. The same study found that sales of underwear, lingerie, and sex toys rose (by as much as 35%). In the Netherlands, retailer Coolblue had to “reinvent itself” overnight to handle the increased number of online orders. Some of the more popular products they’re selling include articles to work from home (computer monitors and webcams) and household items (notably freezers). The company has customer service working “en masse” from home and is still operating delivery services. Amazon also announced this Monday that they were going to hire 100,000 additional workers to help fill the increased number of online orders. The impact of the COVID-19 virus and the move to e-commerce will vary by category. Some retailers will face a slower transition; for others the transition could be fast. All have to be very adaptive to the new situation and continuously reassess their strategies and operations to assure their long term success. Mid-term, and in a more negative COVID-19 scenario, all retailers may become online pure players. While we don’t know what the coming months will bring, if physical store closures last, many retailers will be forced to accelerate digitally. Without the luxury of leaning on a large bulk of online revenue, shops will need to invest heavily in the proper tools to compete in an online-only marketplace — one that is fast paced, dynamic, and price-transparent. Longer term, I think that the forced accelerated habit change caused by coronavirus will simply change how consumers shop. And that is perhaps the more interesting aspect to consider as we think about the recovery phase. Phase 3: Recovery The COVID-19 virus will undoubtedly change the world, and it will be a long time before we can return to “business as usual.” And the reality is that we may need to confront a new “normal” after all of this is over. My opinion is that in the short term, there will be a big surge in e-commerce traffic (during Phase 2). That extreme surge won't last, but it will accelerate a long-lasting habit change towards online shopping in many categories. As consumers grow more accustomed to buying online, the role of e-commerce will grow. After this crisis is over — when stores can reopen their physical doors — I expect that e-commerce will occupy a new level of importance. While consumers will return to regular brick-and mortar shopping, the balance between e-commerce and brick-and-mortar may remain forever changed. How retailers and brands can prepare and cope The COVID-19 virus is here, and retailers and brands need to get creative in how to manage the coming months. Protect people Above all, retailers and brands need to create policies that protect people. As a sector that has many embedded points of human contact, the safety of employees, customers, and anyone else on the supply chain is of the utmost importance. If possible, encourage employees to work from home. If employees have functions that simply cannot be done from home, consider implementing a “red team, blue team” approach. With this approach, teams should split in two (a red team and a blue team) that operate on segregated schedules. If someone on one team gets sick, the other team will still be able to function. Protecting people goes beyond employees. It also includes protecting the public at large. Price gouging during this emergency is simply unethical, whether it is intentional or unintentional. The practice also stains the name of our industry. To all retailers out there reading this, no matter which pricing software you use I encourage you to cap all prices at the Recommended Selling Price. Optimize distribution networks In the coming months, supply chains will likely be the greatest obstacle for retailers. The demands of each supply chain will vary enormously depending on category. Bain & Company has several actionable checklists for the following categories: Fresh produce Packaged food and household essentials Seasonal non-food categories Continuous replenishment products Consider stock levels As supply chains come under pressure, retailers need to pay more attention to stock levels when they manage prices. If you’re running out of product, you might as well maximize your margins or revert to the recommended retail price. But again, this goes without saying, do not price gouge. Remember this is an emergency, and as an extremely visible face of the crisis, your brand could face backlash. Omnia customers already have the ability to add stock levels into their pricing strategies. If you use a different pricing tool, you might want to ask your software provider how to incorporate stock into your strategy. Because of the combination of increased price fluctuations and the need to constantly adjust pricing based on stock, we expect that automated pricing will be more important than ever. Without it, companies will struggle to keep up with the market and increase their risk of insult pricing. Final thoughts As we move forward and adopt a new way of working, we’ll continually provide updates on the industry, our work, and more. So while the times are changing, the good news is you don’t have to navigate those changes alone. There’s no way to be certain about what the future holds. But I am confident that one outcome of this pandemic will be a growth in the importance of e-commerce. No matter what though, as retailers and brands we need to remember the human element of our work. We should do everything we can to prevent the spread of this disease.
10.03.2020
What Happened on Day One of Amazon NL?
It finally happened — Amazon.nl made its debut on March 10, 2020. The much-anticipated moment certainly brings a new era to Dutch e-commerce. But unlike many other markets Amazon has entered, the Netherlands already has...
It finally happened — Amazon.nl made its debut on March 10, 2020. The much-anticipated moment certainly brings a new era to Dutch e-commerce. But unlike many other markets Amazon has entered, the Netherlands already has a highly-developed e-commerce sector. Amazon doesn’t have the first move advantage in our country, and this makes a huge difference on its impact on the market. We were curious about how Amazon’s debut would influence the market, so we did what we do best: crunched some numbers. Amazon’s early influence on the Dutch market: what happened on Day One? Day One is an Amazon philosophy that founder Jeff Bezos pushes relentlessly. The idea is that in order to succeed, Amazon can never stagnate. He stresses that everyone in the company should maintain a “Day One” mentality — a mindset that’s customer obsessed, agile, inventive, and innovative. So what happened on Day One of Amazon's launch in the Netherlands? On Amazon’s first day in the Netherlands, we analyzed the top 10,000 products in the electronics category (according to popularity). We evaluated how many were present in Amazon’s product offering and the top four Dutch retailers in this category. The retailers we analyzed (aside from Amazon) were: Bol.com Coolblue Mediamarkt Wehkamp We were also curious about how Amazon.nl differed from Amazon.de, which had previously been available to Dutch consumers. To evaluate this, we took a snapshot of the Dutch market on March 9th, 2020 (the day before Amazon.nl’s launch). We refer to this throughout this piece as Day Zero, and used it as a baseline for what happened in the Dutch market the day Amazon launched Amazon.nl (which we refer to as “Day One”). In the end, we looked at all this data through three major lenses that echo Amazon’s proposition: Assortment size (measured by the number of EANs offered) Price (measured by price comparison) Strategy (more specifically Amazon Prime) Number of EANs offered: Day Zero vs. Day One On Day Zero, Amazon.de had 5,885 of the top 10,000 products (in the electronics category) in its assortment (59% coverage). By comparison, Bol.com offered 7,003 (70%). Bol was followed by Coolblue (42% coverage), MediaMarkt (26%), and Wehkamp (20%). In total, the five webshops combined (Amazon.de, Bol.com, Coolblue, Mediamarkt, and Wehkamp) had 8,931 of the top 10,000 EANs. Day Zero: Amazon.de compared to top 4 Dutch retailers Webshop Number of top 10,000 products offered Percentage of top 10,000 (rounded) Amazon.de 5,885 59% Bol.com 7,003 70% Coolblue.nl 4,223 42% Mediamarkt.nl 2,599 26% Wehkamp.nl 1,994 20% This data tells a clear story. While Amazon.de had great coverage of products on Day Zero, the Dutch market was able to fight this giant marketplace. In fact, Bol had significantly more product coverage than Amazon.de. But how does that compare to Day One of Amazon.nl? On Day One, the five webshops combined had 8,805 of the top 10,000 EANs. Amazon.nl only offered 4,560 of the top 10,000 products (46% coverage), a full 1,000 products fewer than Amazon.de offered the day before. Day One: Amazon.nl compared to top 4 Dutch retailers Webshop Number of top 10,000 products offered Percentage of top 10,000 (rounded) Amazon.de 4,560 46% Bol.com 7,143 71% Coolblue.nl 4,305 43% Mediamarkt.nl 2,628 26% Wehkamp.nl 2,019 20% This number is not surprising, and Amazon NL even stated that it takes time to build an assortment. This number is likely to rise as more Dutch companies begin to sell on the platform. It is important to note that Wehkamp’s performance in this analysis appears lower than the company’s actual performance. The reality is that Wehkamp is a fashion-focused company. Wehkamp does have some electronics items, but unlike the other companies in this analysis, electronics are not a major part of its commercial strategy. Price comparison: Day Zero vs. Day One According to Simon Kucher & Partners, 44% of Dutch consumers will only buy from Amazon if the price is 10% lower (or more) than their favorite local hero. If Amazon can make market prices more attractive (which it most likely can) consumers will understandably use the platform. We wanted to know if Amazon could reach that 10% mark, and wondered how Amazon.nl’s prices compared to Amazon.de’s. On Day Zero, and on the products that Amazon.de offered that Dutch retailers also offered, Amazon.de had a lower price for a whopping 73% of the overlapping EANs (3,645 of the shared 4,942 EANs). Day Zero: Amazon.de vs. Dutch retailers Amazon.DE vs... Number of EANs offered by both Number of EANs where Amazon offers a lower price Number of EANs where NL retailer offers a lower price Number of EANs where NL retailer and Amazon.de offer same price Bol.com 4,307 3,228 998 81 Coolblue.nl 2,980 2,459 480 41 Mediamarkt.nl 1,650 1,239 373 38 Wehkamp.nl 1,214 913 286 15 Top 4 Dutch retailers combined 4,943 3,645 1,190 108 To contrast, at least one of the Dutch retailers offered a lower price on 24% of these shared EANs (1,190 of the total shared 4,942 EANs). In some cases, Amazon and another company may have offered the same price on a product, and that price was the lowest on the market. In this situation, this EAN was separated into its own category: “Number of EANs where NL retailer and Amazon.de offer the same price”. This only occurred on 2% of EANs that the companies shared (108 EANs in total), which is likely the result of a localized pricing strategy. After looking at the Day Zero data, we compared this to what happened on Day One with the launch of Amazon.nl. Day One: Amazon.nl vs. Dutch retailers Amazon.nl vs... Number of EANs offered by both Number of EANs where Amazon offers a lower price Number of EANs where NL retailer offers a lower price Number of EANs where NL retailer and Amazon.de offer same price Bol.com 3,447 2,257 899 291 Coolblue.nl 2,203 1,684 361 158 Mediamarkt.nl 1,146 770 255 121 Wehkamp.nl 794 532 168 94 Top 4 Dutch retailers combined 3,852 2,416 1,061 375 Again, the overall numbers were lower, and so were the percentages. Of the 3,852 shared EANs across the entire market, Amazon offered a lower price on 2,416 (64%) of these products. Dutch retailers offered a lower price on 27% of the shared EANs, a slightly higher number than compared to the German counterpart of Amazon. It is worth noting though that, at least for Bol.com, the price difference wasn’t that large. Our analysis showed that Amazon’s products were only 3% lower on average than Bol’s prices. The close proximity of price is only one piece of evidence that shows Amazon is clearly taking a localized pricing strategy. More evidence? Look at the number of products that were the same price on Amazon.nl and across the top 4 Dutch retailers. It’s nearly more than double the number of products that Amazon.de and Dutch retailers shared on Day Zero. Even more evidence? Take a look at the screenshot below. You can see there is a large price difference for the same product on Amazon.de and Amazon.nl. Overall, Amazon is pricing itself much more aggressively in the German market, and prices in Germany are roughly 7% lower than the Amazon.nl store. Lowest price on the market After establishing how prices compared across retailers, we wanted to know who offered the lowest price on the market for products. Day Zero: Amazon has lowest price on 42% of products On Day Zero, of the 10,000 popular products we analyzed, either Amazon or one of the top four Dutch retailers carried 8,931 of these products. For 7,809 products, at least two retailers offered the same EANs in their stores, meaning there was inherent competition on price. For 1,122 products though, only one retailer offered that EAN in their store, making that store the lowest price by default. We looked at the 7,809 products to see who had the lowest price point: Amazon.de or a Dutch retailer. Of those 7,802 products, Amazon.de had the lowest price on 42%. This far outpaces the next most price-competitive retailer (Bol.com), which had the lowest price on 22% of the products. However, what’s more interesting is the percentage of each store’s offers that were the lowest. Looking back, on Day Zero Amazon 5,885 EANs in its electronics assortment. Of those 5,885, it was the lowest price for 3,753. This means that Amazon was the lowest price point for 64% of the entire section of its assortment that we analyzed. Day Zero: who had the lowest price on the market? Retailer Number of EANs in top 10,000 Number of EANs that were lowest on the market Percent of EANs offered that were also the lowest price point Amazon.de 5,885 3,753 64% Bol.com 7,003 1,957 28% Coolblue.nl 4,223 757 18% MediaMarkt.nl 2,599 778 30% Wehkamp.nl 1,994 557 28% For Day One, 6,295 products had inherent price competition. Again though, it’s more interesting to compare what percentage of each shop’s assortment was actually the lowest price on the market. Day One: who had the lowest price on the market? Retailer Number of EANs in top 10,000 Number of EANs that were lowest on the market Percent of EANs offered that were also the lowest price point Amazon.nl 4,560 2,791 61% Bol.com 7,143 2,801 39% Coolblue.nl 4,305 946 22% MediaMarkt.nl 2,628 1,024 39% Wehkamp.nl 2,019 678 34% In this second data set, both Bol and Mediamarkt’s numbers look much higher, but this is influenced by the elimination of Amazon.de data on the Day One analysis. Amazon’s Day One strategy: Amazon Prime There were several indications of Amazon’s strategy on Day One. The most notable is Amazon Prime. Amazon Prime is, in many ways, the key to Amazon’s strategic success. The project was so important that Jeff Bezos pulled team members from other high-value projects during the busiest time of the year back in the Winter of 2004. In fact, it was so important that Bezos announced it at a Saturday morning meeting in his boat house with the starting team — it couldn’t even wait until Monday. Prime was a gamble, and many in Amazon didn’t see how the economics of Prime could work, but Bezos pushed forward with the initiative. And it paid off. According to a recent survey by Consumer Intelligence Research Partners (CIRP), more than 100 million people in the United States have an Amazon Prime account, and Prime members spend double the amount of non-Prime members — an average of $1,400 per year. Prime is Amazon’s most lethal weapon, and the company seems to be luring Dutch customers in with the service from the start. Dutch customers can try Prime for free for 30 days. After that it only costs €2.99 per month. In most markets, Amazon costs somewhere in the range of €8 per month. High-runners Amazon also seemed to pick fast-movers for deep promotions. This is called the high-runner strategy, and is in line with what Amazon has done in the past. We saw this on several products today, including some Sony headphones, which are the number one selling electronics product on the Dutch market. The truth is that we expected this. What was far more fascinating today was the market reaction to these changes. Bol.com, for example, also dropped its price on those same headphones. How Dutch retailers can react While consumers may stay loyal, Amazon will change the Dutch market significantly. It’s our expectation that local players (like Bol, Coolblue, and Mediamarkt) will interact with this new player. Bol.com’s fast response on the Sony Headphones will become the new norm. Dynamic pricing To start, you can expect the market to become more dynamic and competitive. Pricing is incredibly important to Amazon. The company uses a high-runner strategy, so it adjusts prices to appear more attractive to consumers. With this strategy, Amazon prices aggressively on highly-elastic items to draw traffic to the site. Once on the site, Amazon will sell these elastic products at a discount, but will often bundle them with other products that are less-elastic and sell at the full price. This strategy is advantageous in that Amazon makes profit on the non-elastic items. But it also helps solidify Amazon’s price perception as the e-commerce outlet with the lowest prices on the market. The high runner strategy comes with a high frequency of price changes. To keep up, retailers and brands need to invest in their ability to update prices at a similar rate. Bol has already proven itself capable of responding to Amazon’s price changes and strategy by dropping prices on high-runner items. If you can’t beat them, join them If you don’t want to compete against Amazon, another option is to use the marketplace to your advantage. Amazon is a great channel that draws tons of consumers, so it might be an interesting place to sell your products. To learn more about selling on Amazon, check out the Complete Guide to Selling on Amazon in 2020. Key lessons for selling on Amazon If you want to sell successfully on Amazon, you need to think about how you can make the customer’s life better while also serving your business goals. As some parting advice, here are some steps to help you get into that mindset. 1. Define your commercial objective: Your commercial objective is an explanation of why your company exists and what your overarching goals are for the company. Your commercial objective extends beyond your products, and touches every single area of your organization, from your hiring all the way to your pricing. It’s similar to a company’s mission statement and is something you should consider carefully to set yourself apart from the competition. To define your commercial objective you need to analyze the market, think about your goals, and design a plan to achieve those goals across your entire organization. 2. Create a harmonious strategy How can you achieve your goals while also giving customers the best experience possible? Discovering the right balance for your company is the recipe for Amazon success. The commercial objective only works well if you can make it actionable. After deciding what you want to do, you need to consider how you’re going to do it. 3. Think from the consumer’s perspective Amazon is, first and foremost, a company that’s obsessed with the consumer. You should do everything in your power to give consumers an above-average experience. 4. Use tools to keep your products aligned with your strategy Tools can make or break your experience on Amazon, especially if you want to sell a high volume of items. Consider competitor intelligence tools to track product prices and repricing tools to keep your prices up to date. Tools can also be consultancy; if you’re an individual seller it might not make sense to hire an Amazon consultant, but if you’re a larger company that wants to learn more, it might be worth investing in consulting help. Conclusion Amazon’s launch in the Netherlands was not as grand as we expected, but that may be a strategic move. Day One demonstrated that Amazon.nl does have the power to influence the market, but also that Dutch retailers can fight back with the right technology. We’ll keep monitoring what happens with Amazon over the next few weeks and provide regular updates on how the Dutch e-commerce market changes, and provide more commentary as we go Curious to read more Amazon related content? Check out some of our other articles below The Strategies Behind Amazon's Success: Learn how Amazon became 'the place' to buy products online. The Complete Guide To Selling on Amazon: In this guide we answer some of the top questions we hear about Amazon and give helpful hints on how to succeed on the platform. How Does Amazon's Search Algorithm Work: Find out how Amazon connects their shoppers with relevant products as quickly as possible.
06.12.2019
What 3,903 Products can Teach us About Cyber Week Discounts
While Black Friday has traditionally only been the last Friday of every November, an increasing number of retailers and brands are starting sales much earlier. This trend of starting sales as early as the Monday before...
While Black Friday has traditionally only been the last Friday of every November, an increasing number of retailers and brands are starting sales much earlier. This trend of starting sales as early as the Monday before Black Friday is known as “Cyber Week” or “Black Friday Week.” The sales are getting bigger, the week is growing longer, and consumer anticipation of the event is growing. And the tactic seems to be working. BBC reported that Black Friday 2019 gave retailers a “welcome boost” this year. As reporter Ian Westbrook writes, Barclaycard, which processes nearly £1 of every £3 spent in the UK, says that sales volumes from 25 November to 2 December were up 7.1% compared with 2018, while sales value rose by 16.5%. The UK isn’t the only country where records shattered this year. In the United States shoppers spent 7.4 billion dollars, the most ever on Black Friday and the second-highest spending record ever, only slightly trailing 2018’s Cyber Monday record. So while Black Friday’s popularity is clearly growing, and Cyber Week becomes more important, many consumers want to know...are the deals actually that great? We were curious, so we dug into our data and analyzed almost 4,000 popular products throughout Cyber Week to see how prices actually changed. This data set compares the lowest price on the Friday before the start of Cyber Week (November 22nd, 2019), to the lowest price point during Cyber Week itself (anytime from November 23rd-29th). The results were interesting, but not altogether surprising. Keep reading to find out what we learned about the Cyber Week market. The top 150 products had a price drop of more than 50% during Cyber Week The first data point we found was that the top 150 sellers on the market experienced a major price drop. At some point during Cyber Week, the price for these products dropped at least 50% compared to the Friday before Cyber week. Brands that were in this category include Nintendo, Samsung, Canon, Max Factor, Lego, L'oreal, Maybelline, Fisher Price, Intel, and more. However, many products that were not in the top 150 sellers also had attractive price drops. Take a look at the table below to see some popular products that had steep price cuts: Apple MacBook Pro (15" 512GB) - 32.35% drop Apple iPad mini (Wi-Fi, 64 GB - 19.54% drop Sony FDR-AX100 4K Ultra HD Camcorder - 20.03% drop Samsung C27FG73 (27 inch) Monitor - 57.73% drop Nintendo Switch Lite, Standard - 58.56% drop FIFA 19 - Standard Edition - 30.83% drop Mario Kart 8 (Standard Edition) - 26.82% drop Xbox 360 Wireless Controller - 25.74% drop Canon LEGRIA HF R806 Camcorder - 25.12% drop Football Manager 2019 (PC) - 24.49% drop Samsung SM-T580 Galaxy Tab - 22.43% drop Amazon Echo (2nd Generation.) - 27.50% drop Canon IXUS 190 Digital Camera - 27.31% drop Microsoft Surface Pen Platinum Gray - 21.18% drop PlayStation4 - Console (500GB, black, slim) - 12.76% drop Canon EF-S 18-200mm - 81.52% drop The data shows that the market does change significantly during Cyber Week. There are large fluctuations in price, and opportunities for great savings. But is the price cut really that great? When you compare Cyber Week prices to those of the Friday before, the price slashes seem enormous. But if you zoom out and look at historical prices, are the discounts really that great? Take a look at the graphs below. Each graph shows the historical price of a different product, each of which was advertised heavily on a major retailer’s website during Black Friday. You can see the average price of these products week-by-week for September, October, and November. Finish All-in-One lemon-scented dishwasher tablets Finish All-in-One Grease Fighter Tablets, 100 pack Oral-B Genius Electric Toothbrush You can probably already see an interesting trend: the prices at the end of November during Cyber Week certainly dip...but they don’t dip too far below the three-month average low. This trend is also true for longer periods of time. Look below at the analysis of Gillette Fusion Proglide + 6 razorheads from June to the end of November. The price during Cyber Week is actually somewhat higher than the price in late August! Gillete Fusion Proglide + 6 razorheads This means that Cyber Week promotions for these products weren’t that much different than regular promotional periods during the previous months. So while buying on Black Friday is advantageous, the discount might not be “special” for consumers. Artificial inflation Another trend you can see across all of the above products is a price increase in the weeks leading up to Cyber Week and Black Friday. This means that certain retailers may artificially inflate prices before Cyber Week to make the discounts seem steeper. In other words, a “50% discount” during Cyber Week may not be accurate for average market price of that product throughout the rest of the year. This is a sales trick, and it may be intentional for many retailers. It pushes people to buy because consumers feel they are getting a better deal during Cyber Week than at any other point during the year. However, many retailers may not do this intentionally, but instead don’t know the historical average price for that product. Without access to historical data trends, retailers and brands simply don’t know how a product has been priced over the previous months. Instead, they follow market prices to keep up with the Black Friday frenzy...and don’t understand the discounts they give are not that steep. This presents both a problem for retailers and consumers. Consumers can quickly lose trust in retailers who engage in this practice. And it’s become a large part of the news cycle every year to “debunk” the actual savings around Cyber Week. But for retailers and brands who don’t know whether they’re offering a good discount or not, the effects can seriously damage the bottom line. If your store understands how steeply you can discount, you can plan a much better game in the week itself. Final thoughts While price drops can be huge during Cyber Week, the price slashes might be more of a marketing trick than a real saving. However, just because price discounts aren’t as steep than regular promotional periods doesn’t mean shopping on these days is a complete waste. These are promotional prices - so it’s worth taking advantage of the discount. Additionally, many retailers combine promotions with different perks like free shipping or buy-one-get-one-free offers. If you’re a consumer, the best way to prepare for Black Friday is to start price-watching ahead of time. If there is a specific product you are searching for, keep your eyes open for price drops in October and November.
05.10.2017
Omnia Retail Targets International Growth with Capital Injection
Omnia Retail supplies retailers with algorithm-driven software for dynamic pricing and dynamic online marketing. With this Software-as-a-Service (SaaS) platform, Omnia Retail is the market leader in the Netherlands....
Omnia Retail supplies retailers with algorithm-driven software for dynamic pricing and dynamic online marketing. With this Software-as-a-Service (SaaS) platform, Omnia Retail is the market leader in the Netherlands. Omnia will use Connected Capital's capital injection to finance its international growth ambition. Omnia Retails' software enables retailers to automate their pricing and online marketing campaigns in a simple and effective way. The software gives category and marketing managers superior insight into their product range, prices and marketing efforts. This enables them to effectively make strategic choices and automatically process these at a high frequency. Omnia Retail scans and analyses more than 500 million price points every day. Based on this, the system makes more than 7 million daily, automated price adjustments to its customers' product ranges. For each client the individual, optimal price point is calculated, taking into account factors like price elasticity, logistics costs and purchase price. In addition, factors such as weather forecasts and product-related promotional activities are analysed. In order to optimise online marketing, Omnia analyses and prioritises more than 2 billion options a day on Google Shopping and many other marketing channels. The result is that clients benefit from a strong growth in turnover and revenue. From our office in Amsterdam, Omnia Retail services more than 80 retailers among which are leading online and offline players such as Bol.com, Wehkamp, Nextail and Decathlon. “We have the luxury of being the only company in the world with a system that provides integrated pricing and online marketing information based on advanced algorithms,” says Sander Roose, who founded Omnia Retail together with Herman de Jager. “Large international retailers are starting to contact us, which makes international upscaling both easier and necessary. With Connected Capital's investment and strategic support, we can enlarge our team and further develop our product.” Technology increasingly important in retail Technology is quickly replacing location as a success factor in retail. Instead of a few times a year, prices are currently adjusted several times a day. The tried and tested promotional folder has been overtaken by real-time auctions for spots on online price comparison websites. With these numbers and adjustment frequencies, regular manual category and price management are no longer sufficient. Software that combines raw calculating power with a price and marketing strategy is an absolute must for today's retailer, both online and offline. The advent of big data and artificial intelligence, which are already being used by players like Amazon and Alibaba, has led to a strong growth in the demand for this type of software both in Europe and elsewhere. Talk to one of our consultants about dynamic pricing. Contact us Rock-solid product with great potential for growth Omnia Retail is in a perfect position to meet the future demand of retailers with regard to dynamic pricing and dynamic online marketing. Connected Capital's investment will mainly be used to substantially enlarge the team, the services, and the product portfolio in order to reach Omnia's growth targets. In addition, Omnia will start partnering with international consulting partners and online marketing agencies. Apart from capital, Connected Capital will offer hands-on strategic and operational support to Omnia Retail's management to help further growth. Connected Capital's team has a varied background in venture capital, private equity and in top-tier strategy consulting and thus brings extensive and complementary knowledge and expertise to the table. Geert van Engelen, partner at Connected Capital: “Herman and Sander are very strong and experienced and lead a team of talented developers and sales consultants. Together they have built a rock-solid company with an extremely attractive growth potential in a highly innovative market. The company fits the investment philosophy of our fund and we look forward to using our knowledge, network and energy to help Omnia Retail reach its growth ambition.” About Connected Capital Connected Capital is an independent growth capital investor focusing on innovative technology companies that contribute and respond to increasing digitalisation in the Benelux and Germany. Apart from capital, Connected Capital also offers intensive support with regard to evaluation and implementation of growth strategy, globalisation and general management support. Connected Capital has a professional and complementary team of six experienced professionals with a background in private equity and strategy consulting. www.ConnectedCapital.nl
15.06.2017
Dynamic Pricing is Also Possible in Physical Stores: Here’s How
More and more e-commerce players use dynamic pricing to automate pricing to grow sales and contribution margin. This leads to frequent price changes on their entire stock with some products even getting repriced...
More and more e-commerce players use dynamic pricing to automate pricing to grow sales and contribution margin. This leads to frequent price changes on their entire stock with some products even getting repriced multiple times a day. For physical stores, the process of printing and changing a single price tag in a physical store takes several minutes and physical stores carry many thousands of products. How then can omnichannel retailers keep up with pure e-commerce players, for whom changing prices is a completely digital event taking at most milliseconds, and therefore are changing their prices multiple times per day? This is a question we often get from omnichannel clients and omnichannel retailers considering implementing dynamic pricing. In our many years of experience in implementing dynamic pricing at omnichannel retailers, we have learned that dynamic pricing for omnichannel retailers is certainly possible. We present an action plan for implementing dynamic pricing, ranging from tips to create political momentum in often quite traditional retail organizations to technical considerations, such as electronic shelf labels Step 1: Building the business case for dynamic pricing Before e-commerce, retailers had to operate under the “shelf space is limited” constraint. E-commerce has introduced virtually unlimited shelf space: they are only limited by the size of their warehouse. Drop-shipment even removes that constraint. Many omnichannel retailers have also grasped this opportunity provided by e-commerce. They have a core product assortment which is carried both online and in physical stores, but they also have a considerable web-only products. For omnichannel retailers we, therefore, recommend a pilot period during which dynamic pricing is used solely for the web-only products. This provides them with a solid business case to prove to management that dynamic pricing also has a huge impact on sales and contribution margin at their retail format, not just for Amazon. If an omnichannel retailer does not have web-only assortment, it could decide to run a pilot on a subset of the omnichannel assortment that is so limited that it doesn’t have a significant impact on store operations. In that case, it is still crucial to make sure that the stores are aware of the importance of the pilot and to make sure store execution is optimal. This prevents the risk of drawing the conclusion that dynamic pricing does not have an impact while it was caused by poor store execution. If both alternatives for the pilots are not possible, omnichannel retailers could use the 10-20% average contribution margin increase that Omnia Dynamic Pricing users see as input for their calculations. It should be noted that there is huge difference in the performance of a well implemented value-based dynamic pricing system and a poorly implemented rule-based dynamic pricing system. The latter can even be margin eroding. Step 2: Store rollout by electronic shelf labels or reduced frequency of changes Once the business case has been established, the omnichannel retailer needs to plan a roll-out for their entire range of products. The retailer needs to make an important decision at this point on whether to implement electronic shelf labels (ESLs). Over the last couple of years there have been great improvements in performance of electronic shelf labels, mainly driven by e-ink technology, and costs are continuously decreasing. Several providers of digital shelf strips are sesimagotag, Pricer, and Displaydata. Considering an average store carries thousands of products, electronic shelf labels will still be a significant investment. Typical payback periods of ESLs are 18-24 months. It is, however, important to stress that the impact of dynamic pricing is not just driven by “smarter price points” but also by increased frequency of price changes. Electronic shelf labels help to increase frequency of price changes and thereby returns on dynamic pricing. Some omnichannel retailers decide on a middle ground, implementing electronic shelf labels only for fast moving products with a high frequency of price changes. The route of implementing electronic shelf labels primarily has technical challenges, however. The ESLs need to be placed in the stores, there needs to be a communication network and the system needs to connect with the retailers' ERP system. From the perspective of this article, it is, however, the most straightforward implementation as – after implementation – the retailer has complete flexibility in frequency of price changes. If the business case for implementing ESLs does not (yet) seem feasible, the retailer needs to take a different approach. The retailer first needs to decide whether to couple the frequency of online and offline price changes. The advantage of coupling the frequency of price changes is that there can never be price differences between online and offline purchases, which is of course an important consideration for omnichannel retailers. However, in this approach the retailer does not exploit the ability to have as high a frequency of price changes in its webshops as its e-commerce rivals. This would make the retailer competitive on all online touch points where shoppers carry out their research, such as Google Shopping and comparison shopping engines. An alternative approach for the retailer therefore could be to have a (much) higher frequency of price changes online than in the physical stores. We would recommend retailers taking this approach to have the policy that – when shoppers note a price difference between online and offline – they always get the lowest advertised price. In any case, the retailer will have to operate with a relatively low frequency of price changes in the physical stores. Most of our clients start with once a week. Once store operations get used to the new process, this could be increased; for example to twice a week. Final thoughts We believe the approach without electronic shelf labels to be an intermediary option, which of course is still a great improvement versus not doing dynamic pricing as omnichannel retailer. Ultimately, we expect all omnichannel retailers to fully adopt ESLs. The shift to online orientation for products, increases in frequency of price changes and developments in ESL technology will accelerate this trend. What are your thoughts on (implementing) dynamic pricing in physical stores? Please let us know!
07.12.2016
What does Amazon’s Increased Focus on the Netherlands Mean for Pricing in the Dutch Market?
After launching amazon.nl with an assortment of Dutch Kindle e-books by the end of 2014, Amazon recently made a second step in entering the Dutch market. Last week it added the Dutch language to their German website,...
After launching amazon.nl with an assortment of Dutch Kindle e-books by the end of 2014, Amazon recently made a second step in entering the Dutch market. Last week it added the Dutch language to their German website, amazon.de. While parts of the website have not yet been translated and there is no iDeal payment option yet, this is a clear sign that Amazon is starting to focus more on the Dutch market. It is becoming clear from comments on articles in the trade press about this move by Amazon that opinions vary wildly as to what this impact will be on pricing of products in the Netherlands. Some claim that “all margins will shrink to zero”, while others claim that Amazon is not priced aggressively at all. What does the data show? Of course, Omnia has access to pricing data of amazon.de. Amazon.de advertises on a major Dutch comparison site, so it is included in the Dutch Omnia Pricewatch data. However, this mainly covers electronics. It is also possible to source pricing data from all major German comparison shopping engines via Omnia's Pricewatch Module. This will expand insights into Amazon pricing in categories beyond electronics. For this analysis we looked at a large set of electronics products, found on amazon.de and 5 large Dutch electronic retailers, bcc.nl, bol.com, coolblue.nl, mediamarkt.nl and wehkamp.nl - all 6 of which were advertising on this major Dutch comparison shopping engine. In Omnia Pricewatch and Omnia Dynamic Pricing, price ratio and price position are key performance indicators reflecting your price position versus key competitors. The chart below shows the price-ratio and price position of amazon.de and the 5 key Dutch retailers mentioned above, both against the average of these six retailers in total. Looking at price ratio, amazon.de indeed has the lowest prices. However, the difference compared to mediamarkt.nl is small. Looking at price position, is seems that amazon.de is not pricing efficiently, because - although it has the lowest price ratio - its price position is one of the worst. This seems counterintuitive, as Amazon is known as one of the most advanced retailers in terms of dynamic pricing capability. The logical explanation for this is that Amazon does not have localized pricing for the Netherlands. The amazon.de pricing advertised in the Netherlands are simply their German price points and these price points are fully based on the German market. This may lead one to conclude that amazon.de only has a minor impact on pricing the Dutch market. However, this – unfortunately for Dutch retailers – is not the case. It’s precisely these German prices that cause amazon.de to undercut the lowest priced Dutch retailers by a very large margin in many cases. Except maybe in promotions, a Dutch retailer would never undercut its lowest priced Dutch rival by such a large margin. The chart below shows the price ratio of amazon.de versus the 5 key Dutch retailers. Each bar represents the price ratio on a single product. This data shows that amazon.de is undercutting Dutch retailers by a very large margin (up to 50% below the average of the 5 key Dutch retailers) on a significant portion of the product assortment used in this analysis. Conclusion Our expectation is that the greater focus of Amazon on the Dutch market will lead to further margin pressure in this market. The key reason for this, however, is not Amazon’s aggressive pricing in general, but the fact that it does not localize its pricing. Amazon is operating in the Dutch market with German pricing. And because Omnia as of right now has pricing data in 32 markets, including Germany, we know that - in general - pricing in the German market is more competitive that in the Dutch market. Omnia is a supplier of competitor pricing data and software to automate your pricing strategy in the most optimal way. Of course, Omnia is a software supplier and the choice of pricing strategy is always up to the retailer. Below are some suggestions in terms of pricing data and the use of Omnia software, considering the increased focus of the world’s number 1 retailer on the Dutch market. 1. It all starts with data. To decide about competitive pricing compared to amazon.de, it is crucial that you have access to amazon.de’s pricing data. With regards to electronics assortment, the pricing data of the Dutch comparison shopping engines will probably suffice. If you need data coverage on products outside of electronics, then you will need data of major German comparison shopping engines and/or data from the German Amazon Marketplace itself. If you’re interested in this, please contact Omnia. 2. Determine the impact of amazon.de on your product categories. The lack of iDeal payment option, and the longer delivery times make Amazon’s offers less attractive in the Netherlands. However, if the price differential is sufficient we see that many Dutch consumers will choose amazon.de over its higher priced Dutch competitors. The click-out reports of major Dutch comparison shopping engines may provide an indication of the impact of amazon.de on your product categories. 3. Determine whether you want to adjust according to amazon.de pricing. The answer on the previous point should, of course, be an important input to this decision. If you don’t want Omnia’s core algorithm to adjust to amazon.de, you can set the competitor weight to zero. 4. Omnia strongly advises always using a margin protection. Based on the dynamics of your business this protection can be set at zero percent, or at some percentage above or below zero. This has always been our advice, but considering a retailer is now offering goods at a 50% discount versus key retailers in the market, this has become much more important. 5. Use intelligent pricing methods. If the increased focus of amazon.de indeed leads to further pressure on margins in the Netherlands, then it becomes even more risky to apply a dynamic pricing strategy as “position X in the market”. The urgency to move to a more intelligent dynamic pricing strategy based on price elasticity product becomes even greater.
10.03.2016
Important Update: Google Tightens their Requirements for EAN / GTIN Codes
We would like to inform you of an important update by Google concerning the Global Trade Item Number (GTIN) requirements, and show you how you can utilize Omnia to give your products the appropriate GTIN format. In 2015...
We would like to inform you of an important update by Google concerning the Global Trade Item Number (GTIN) requirements, and show you how you can utilize Omnia to give your products the appropriate GTIN format. In 2015 Google made GTINs obligatory for the products of 50 specified brands. From now until May 16th 2016, it is mandatory for advertisers to supply the correct GTINs and the corresponding brand for all new products for which a GTIN code has been assigned by the manufacturer. What is a GTIN? A GTIN makes a product identifiable anywhere in the world. Plainly speaking, the GTIN is the barcode of a commercial product. In Europe it is popularly known as the European Article Number (EAN) or the International Standard Book Number (ISBN) for books. If there is a GTIN available it will be shown below to the barcode on the package. The length of the GTIN depends on the product type and where the product is sold. For Europe, the EAN (in Europe/GTIN-13) is a 13-digit number underneath the barcode. Why this change? Providing GTINs is essential for Google to recognize your product and supply their users with the most accurate and complete information. If Google knows exactly what you are selling, then they can help you improve the performance of your advertisements by adding valuable information and showing the ads in a relevant way. In addition, it allows Google to match different retailers' offers for the same product. This result is better visibility, improved targeting and more ads being setups. Therefore, you should add GTINs for all of your products in the feed. If there is no GTIN for a product in the feed, it is denied and will not show up in Google Shopping results. There is no point in creating a fake GTIN because has connections with all GTIN-databases and will immediately recognize if there are fake GTINs in your feed. Google reports that retailers that added correct GTINs to their feed had an increased conversion rate of up to 20 percent. What does this mean for you? When you target Australia, Brazil, France, Germany, Italy, Japan, The Netherlands, Spain, the Czech Republic, the United Kingdom, the United States, or Switzerland, starting May 16th 2016 you have to provide correct GTINs and the corresponding brands for all new products that are in stock and where a GTIN is supplied by the manufacturer. If you sell products that are made-to-order, hand-made or vintage products, these changes have no influence on you. In this case, you could improve your results by providing unique product IDs. Don't have GTINs? Your suppliers should be able to help you with all required GTINs. If not, then you can contact the manufacturer, or check the barcode on the packaging. For the latter, you can use a barcode-scanner app. Alternatively, some GTINs can be found in a GTIN database such as icecat.nl (this particular site is mainly for electronics). Correct GTINs are important for the optimal use of the Omnia Modules Providing correct GTINs for your products is very valuable and will pay off in both the areas of pricing and marketing. The GTINs form the basis of the Pricewatch and Dynamic Pricing modules in Omnia. Without GTINs we are not able to compare your products with competitors and it is not possible for the Dynamic Pricing engine to incorporate market prices in its calculation of optimal price points. Additionally, GTINs are the basis for the optimal performance of all marketing channels at a product level. Products with GTINs will have improved exposure on marketing channels, resulting in a substantial traffic increase for these products. Moreover, they allow the marketing channels to categorize products and expand the content of advertisements. Because of this, the consumer will be exposed to more information, and those who end up on your website will therefore convert to buyers more frequently. How do I adapt my feed in Omnia? The GTINs are entered by the Omnia user in their input feed. For each product there is a field for the correct GTIN code. In the ‘mapping’ section, Omnia has a function called ‘MakeEAN’, which will add zeros at the beginning of the GTIN code to reach the necessary 13 or 14 digits (if applicable). For example, the function will change “87263517” to “000087263517”. Moreover, the function checks to see if the GTIN is indeed an official GTIN. You are able to easily perform the same check with this tool. If the GTINs (EANs) are correctly entered in Omnia - Connect, then Omnia will automatically make sure that the right format will be supplied to marketing channels. When are these changes occuring? Google started warning advertisers February 8th 2015. Since this date you have seen a warning at the product level in the tab ‘Diagnostics information’ for products that do not meet the requirements. Update these products in accordance with the warnings. Starting May 16th 2016 Google will be enforcing this change. From this date you will see denials at the product level in the tab ‘Diagnostics information’ for all products that do not meet the requirements. After this date you have to adhere to the GTIN-requirements to be able to keep showing advertisements for your products. Want to know more? Do you want to know more about how to correctly provide GTINs to your marketing channels? Reach out to one of our Omnia consultants via email: info@omniaretail.com or call +31 (0)35-699 02 22. Good luck!
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