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Maintaining Profitability in a Challenging Market Environment Webinar
Whether your goal is to gain more Buy Box share or drive profits, learn how to protect your margins in Q4 with advice from Feedvisor’s CEO, Victor Rosenman.
You can find the transcript of this on-demand video at the bottom of this page.
In the webinar recording, you’ll learn:
- What’s driving consumer purchases in this uncertain economy
- The best strategies for protecting margins as a seller or private label
- How to implement those strategies to maintain success
Maintaining Profitability in Uncertain Market Conditions
Note: This webinar was designed to be watched, not read. We strongly recommend that you watch the on-demand video, which includes charts and visuals, not in this transcript.
- 00:02 – Introduction
- 02:54 – Current Market Environment
- 06:00 – Strategies to Win on Amazon
- 24:26 – Mapping Out the Market Environment
- 28:30 – Integrated Approach to Optimization
- 29:42 – Q&A
Marissa Incitti: Hi, everyone. Thank you for coming. We’re just going to wait a couple of minutes for everyone to join, and then we’ll get started.
Hi everyone. Thank you for waiting. My name is Marissa, and I am the Content Marketing Manager here at Feedvisor.
We’ll be talking today about maintaining profitability in a challenging market environment. I have my host, Victor Rosenman, the CEO, here. But first, a couple of housekeeping items. I want to let you know that this is being recorded, so we will send the recording later.
It should be about 45 minutes with some Q&A at the end, so please feel free to ask and put any questions in the chat. Without further ado, here’s our host, Victor.
Victor Rosenman: Hello, everyone. Thank you for joining the webinar today. Let’s start. So in the webinar today, we’ll cover a very precious topic for all sellers, how you can really maintain profitability in an environment that is far from being certain.
We’ll start by looking at the current market environment. We’ll understand the trends, then we’ll look into the strategies and how to really use these strategies to win on Amazon and how then you can maintain the connection between understanding the market and optimizing.
And we’ll finish with the integrated optimization approach and how it really can benefit all of you. So let’s dive in.
The Current Market Environment
What’s influencing consumer purchases?
02:54 – 05:47
Victor Rosenman: Let’s start with the current market environment. We recently conducted a consumer survey, and we asked people what really influences their purchases.
Clearly, inflation came on top of everything because, obviously, that’s the reality today. You see it on news, you see it on TV, you see it everywhere, but when you look deeper, it’s really the price that has the unique impact on pretty much everything around. It has an impact both on people’s decisions to buy.
It has an impact on people in the way that people look into the actual price. Is it a deal? Is it a discount? Is it a better price? Is it a worse price? There’s a lot of psychology involved here when it comes to how much money people can really spend on a given product.
So price is pretty much the king of all of this. So let’s dive in and understand how price really impacts the purchasing decision. When we look into this, I would say we can split the question into two.
First, we can look at the price versus perceived value in isolation. So looking at product isolation, it would mean basically if you looking to buy a product and if you’re looking to buy a product, there’s no other product that exists.
And then, for that product, you need to decide if you are buying it or not. So that’s where the price versus perceived value comes into play. There’s a certain amount of money you can spend on the product, and as the price goes up, usually, that willingness to buy decreases.
Then when we take one step back, we don’t look at the price in isolation, but we look into the price of your product versus the price of alternatives. And these alternatives can be direct alternatives like substances of a product, and they can also be indirect alternatives.
So if we take an example, let’s say an airline ticket, when you’re buying an airline ticket to fly from here from New York to Boston, then you would look at multiple airlines, they will be the direct substitutes.
But there’s also a train. So train is an indirect substitute, but it still influences the price of what people are really willing to pay. Let’s say the train is substantially cheaper than the airlines will see that people are actually paying less for the airline ticket.
The very same thing happens to prices on e-commerce marketplaces. And when we really come to understand how people are buying, it is pretty much a combination of these two graphs. So obviously, if your product is priced more attractively than the alternatives, more people will buy, so you will see a higher conversion rate at the same time.
Demand place as well because at a certain point of time, people say, okay, you know what? It’s too expensive, I’m not going to buy it. Or there can be a price point where everyone forgets about everything and said to go and buy this product.
Repricing Strategies to Win on Amazon
In a Challenging Market Environment
Victor Rosenman: So let’s look deeper and see how what we have learned before is, is actually influencing the strategies that you have in order to win in the Amazon market. The very basic way to start and plan your strategy is by looking at your catalog and segmenting it into three different groups.
The first segmentation that you probably would want to do is the segmentation of the demand. There are some products that are popular, they’re being found in searches, and you can see how many searches lead to that product.
You can see the number of orders on Amazon in your sales rank. So there’s clearly a demand. Then there are products that don’t have enough demand. When the products do have a demand, we have two segments, and this is where the Buy Box comes into play.
In one segment, it’s your branded product, and you own the Buy Box. Occasionally you may be competing with someone, but you primarily own the Buy Box, and in other cases, you are fighting for the Buy Box.
All three segments. The segment where you fight for the Buy Box, the segment where you own the Buy Box, and the segment where you lack demand are the three different segments possible.
And what we’re going to do here at the webinar is we’re going to look one by one inside each of these segments and identify what strategy works best to win in that particular segment. Obviously, when you look at the entire product catalog, you can very well have products in all three of those segments. For some products, you will have the Buy Box, and they will be popular. For some products, you will have limited demand, and for some products, you will have to fight to win the Buy Box.
Popular Products Where You Own the Buy Box
So let’s start! We will start with the case where you own the Buy Box. Typically you would own the Buy Box for the product. It would be, in this case, a popular product that is either private label, branded, exclusive, or simply you are the one who has access to these products in general, and you’re the one who owns the Buy Box.
When you own the Buy Box, your main question that you should be asking yourself is, what do you really want to achieve here? Do you want to grow a market share and maybe be more aggressive on prices and appear higher in searches, have better search ranks, or do you want to maximize your profits and maximize your dollars?
So, as we are heading into the holiday season, the second repricing strategy is probably the most common. During the course of the year, very often, you will see people doing the first strategy where you want to grow the market share, get known, get familiar with buyers, and then at that point, they will look into your product and will make a decision when the demand is high, which is basically during the holidays.
So when we have these two different approaches, we have two different repricing strategies. So the first strategy is you want to sell more units, you want to grow your market share, and you want to increase the organic ranking. The right strategy here is revenue optimization.
And the revenue optimization will find the optimal price point where the amount of units sold is maximized. Now, as we will see in a second, it’s not always that when you want to maximize the number of units sold, you need to sell at the lowest price.
Sometimes selling a product at $20 and $21 will result in exactly the same demand, but selling at $22 will have a completely different demand. So you really need to find that demand and pricing point.
For the repricing strategy of maximizing profit dollars, what you want to achieve is you want to find a price point where the overall profit dollars are maximized. You may have slightly fewer units to sell, but your overall price can be slightly higher, and as a result, your total aggregate dollars that you will make in profits will be higher as well.
So let’s look into how it actually works. Right, so we talked before about the fact that you have to deal with pricing. You have to deal with two factors. The first factor is a propensity to buy, which is driven by price. And the second factor is the competitive environment which is driven by the alternatives.
It comes into play when you look now narrowly from the eyes of your own product. You would sometimes see different patterns of demand. And these different patterns of demand are caused by both the propensity to buy and by the fact that your competitors have their own products.
Let’s look at the first graph on the left. This is what’s called elastic demand. Demand decreases as the price increases, and demand increases when the price decreases. So, in that case, choosing the right price is relatively simple. Right. So if you want to have the most units, choose the one on the left, the lower price. If you want to have more of the profit, choose the one on the right, and that will find the optimal point.
Now life gets more complicated in reality, and this is where it becomes inelastic
demand. Elastic demand is when you have a certain product, you raise the price, and you barely sell the same amount of units, give or take. And in that case, it doesn’t make a lot of sense to keep the price lower.
What we actually have seen in a lot of the customers we have been working with is there is an unspoken assumption that if you lower the price, you will always have more demand, and if you raise the price, you will have substantially less demand. And in 70% to 80%, this is not true, you can slightly raise the price, you can raise the price even more, and demand will stay more or less the same. This is the case of inelastic demand.
Now, the third graph is the most interesting and actually the most common. And the third graph is the demand initially is inelastic until it becomes very elastic. And the reason for that is very simple. Let’s assume you now price below what would be the fair price considering the competition. The competition doesn’t have to be priced the same as in the example before. The train and airline tickets are not priced the same.
There are different ways to travel, but they compete. So when you compete against the other products, you don’t have to be priced the same or slightly lower. People know to assign value to the price, and therefore up to a certain point, you would be considered cheap or attractive.
At a certain point, you are not attractive. So as you consider cheap sometimes. You will see that the demand, you can raise the price, and the demand will stay more or less the same. You will sell the same amount of units, and then suddenly, you get into the area where the price is no longer attractive.
And as you get into this area, then suddenly demand drops, and this drop is very, very significant, it’s very rapid. So again, here it’s super crucial to understand what this point is. What’s the point that drives you the maximum profit, and after that point, you actually drop in demand?
So as we move forward, this is an example of how you operate this in Feedvisor. Feedvisor can define the business objectives. The business objectives can be, let’s say, profit optimization if you want to optimize for the overall profit or revenue optimization if you want to optimize for the overall unit.
You define the floor, and the ceiling prices, which identify the range, and the rest is taken care of by the algorithm. You don’t need to look into this every day, you don’t need to do all the calculations and find the point where the price is optimal, the software will do it by itself.
Popular Products Where You Fight for the Buy Box
So now, let’s move into the second segment. In the second segment, life is a little bit more difficult because it’s not only that you want to sell your product, you also need to find other sellers who happen to be on the very same listings.
Here you get into the Buy Box pricing, and in the Buy Box pricing, very similar to the previous case, you really need to ask yourself the key question. And the key question you want to ask is, do you have an unfair advantage?
What is an unfair advantage? An unfair advantage can be when you produce a product and you have complete control over pricing, allowing you to drive others out by lowering lower and lowering the price, or you have a unique agreement with your vendor. There are also other advantages that I won’t cover today that allow you to drive the price lower but keep a higher profit.
You don’t want to go and drive the price lower and go to the bottom, but you want to drive others out of the market, and then you want to raise the price again. This is the classic retail strategy of domination, and we call it the Buy Box domination strategy.
If you don’t have an advantage, if you cannot really lower the price below your competitors to make it unprofitable for them to sell, then you’re going into the main of the profit optimization. And in profit optimization, you will not be able to achieve a higher share of the buybacks than your competitor because if you raise the price, they will raise the price.
If you lower the price, they will lower the price. But you can play a very sophisticated game, and game is the right word because it’s coming from the game theory, and the game is what is the signal to your competitor that you actually are willing to raise the price.
Maybe some competitors will listen, and some will not. If they do not listen, then it’s tough luck, you will have to go when you can. But in many cases, the competitors do listen, and they see that you win the Buy Box, and then you raise the price, and actually, you’re signaling to them that you are open to selling at a slightly higher price.
They will reciprocate, they will raise the price, and then the interesting things happen because you’re getting the same buyer share, but you’re now all selling at a slightly higher price. The price is still within the same reasonable range as we have seen in previous cases.
So everything we saw before still applies, the prices still need to be such that the alternative products are not way below you, but at the same time, as you face the second front of the competition with the other sellers, you actually signal them to get into the right range.
Combining these two, combining this option of the Buy Box pricing that you can go and define here and have either optimized profit or dominate the Buy Box, combining them with the previous objective of optimizing profit overall and looking into your alternatives, that’s where it really plays out, and this is where you have this unique advantage.
Products with Limited Demand
We spoke about how to deal with the cases where you fight for the Buy Box for the cases where you own the Buy Box, both cases assume they have a demand, it’s a popular product. What do you do if you don’t have the demand?
If you don’t have the demand, you should not play with the price, it’s not going to help. You’re going to lose the margin, and you’re going to have exactly the same results.
What will help in increasing demand for your product? To do that, you need to go and advertise Feedvisor’s 360 Solution provides advertising optimization along with pricing optimization, and advertising optimization includes a variety of areas from sponsored products, which go into the DSP, to sponsor products and sponsored display. When you dig deeper, it’s really about which keywords do you find, how do you optimize your ads to win the proper position on the page, how you maintain your cost of advertising (ACoS) is reasonable, how you manage the budget so you don’t put too much budget in one place and too little on the other, and how you really can take this multi-dimensional action where you connect the pricing action to the advertising in action, so they don’t fight against each other.
For example, if you decide to bring a lot of demand, and then you see that the response of consumers to this demand is relatively inelastic, that means you can slightly raise the price. So if you slightly raise the price, you’re seeing more or less the same conversion rate, but at the same time, you now upset some of your advertising costs with the additional profit margin you created.
You can solve both things at the same time. You increase your demand, and you have to set the cost, the advertising cost of increasing demand through slightly raising the price. And maybe if you raise the price too much, the demand disappears, and then you spend time and money advertising, and it goes nothing because your conversion rates fall down.
Finding the right price point that will go together with your advertising requires this multi-dimensional action. And this is how typically advertising optimization is reflected in the Feedvisor interface, you can see all your campaigns, and you can see for every product what’s the impact of the actual advertising.
It’s not only how your campaigns. If your campaigns are fantastic, that’s great, but guess what? The product doesn’t do not move. So it’s really important to understand how your products are actually impacted by advertising. How are your margins are impacted by advertising? Which campaigns are doing better, and which campaigns are doing worse?
In the context of that particular product. Again, it’s all crucial to making the very same decision on finding the right price point, finding the right level of demand, either organic demand or the sponsored demand for advertising, and making sure that it all acts in a synchronized and highly optimized manner.
Summary of Pricing Optimization Strategies
We spoke a lot about a lot of topics here. So I want to take one step back and run you through this kind of one-page summary of how to make these decisions. So you start by looking at your catalog.
As we discussed, you limit or split your products into three different buckets. The popular product that you fight for is in the Buy Box, the popular products where you own the Buy Box, and the ones that have limited demand.
If you fight for the Buy Box, your main question is, do you have an unfair advantage? If you do, go ahead, use the domination strategy, win the Buy Box, show others out the door, and raise the price. You will have amazing profits.
If you don’t have an advantage, not a problem. You can go with the profit limitation strategy. You will be able to signal to others that you are not only willing to win the Buy Box, but at the same time, you are open to winning it and sharing it at a higher price, making profits better for everyone.
If you own the Buy Box, now you need to decide if you are going for the market share, or as we spoke before, during this period of the year, you may want to go for the profits and dollars depending on that, you choose the right strategy. If you want to improve units, go with revenue optimization. If you want to increase profits, go with profit optimization.
Now you have the limited demand that’s tough but position to be, especially before the holiday season. Unfortunately, everyone has these products, so how do you deal with that? You also need to ask yourself a very honest question: do you really want to keep that product? If you want to keep that product, go ahead and advertise.
If it’s a losing product, don’t spend time on losers because that’s the best way to destroy your holiday season. And when we’re working with customers, we always advocate for them to ask this question to themselves very honestly: if this is the product you want to keep? If you don’t want to keep the product, you have a strategy called liquidation.
The liquidation strategy will try to get rid of this product as soon as possible, so maybe even at loss, maybe at no profit, so you don’t need to deal with it, and then you can focus on products that are winners.
Focusing on projected winners is actually a strategy that drives the most profits all the time.
Mapping Out the Market Environment and Making Timely Business Critical Decisions
Making Timely Business Decisions
Victor Rosenman: So we spoke about the optimization aspect, and as we speak about the optimization, it’s also very, very important to always assess the market and always understand where you stand versus the competition, where you stand versus Buy Box, where you stand in your profit, where you stand in your inventory.
And this is where Feedvisor came up with a feature that we call offering that is called integrated analytics. Integrated analytics enables you to connect the configuration of the pricing and advertising engines to the actual performance you’re seeing in the market.
So you can go and look at the various aspects of demand generation, such as the advertising view. You can see how much demand generate you generate, how much do you spend to generate this demand, and through which campaigns?
In the performance view, it enables you to look into the overall performance of your product, including advertising, and returns. This will help you understand which products are really trying the performance, which is selling the most, which are the most profitable, and where you need to put your focus.
If you see that certain products do exceptionally well, maybe you want to advertise them more so you can see even better results. Maybe for these products, you want to become more aggressive, you have enough profit margin, but if you maybe slightly lower your floor price, you can have even more profits, and again it will create a substantial increase for your overall performance.
Profitability is the key. This whole webinar is about profitability, not understanding profitability, and not understanding where your money is being spent. Obviously, you sell the product, but you need to know how much it costs you to sell the product.
And the cost is not only the cost of goods, it’s also Amazon fees, it’s also various fulfillment fees, but it’s also the cost of advertising. So you need to understand that you buy advertising by creating demand, you’re really improving the profitability of the product.
And then you can obviously go and see the returns and say that you want to focus on the products that have lower returns rather than those that have high returns. Because for example, we have seen this in multiple cases with our clients when suddenly a customer would put a lot of attention into more and more advertising, spend a lot of money, and drive the sale, just to see most of the products being returned.
So the products with a high level of returns are something that you need to take into account while you’re building this strategy. So all these views together, they naturally combine with the optimization engines.
And here you have, I would say, a schematic representation of optimization in action. So the optimization starts by listening to signals, it starts by looking into promotions, competition, demand, various characteristics of your product, various trends in advertising campaigns, and cost per click. All this information is being processed and submitted to the AI. AI learns this information, called features of the machine learning model. So it learns all these features and makes taking action. The actions we make are the pricing actions and repricing actions, and it’s making the actions simultaneously.
And that’s what we’re really proud of in Feedvisor is because we’re the only software today that is capable to make these two actions simultaneously in the way that their impact is maximized. That leads to increasing orders.
Then you can use Feedvisor’s analytics, the integrated analytics, to understand if the performance is profitable and align with the strategy you selected. And therefore, if necessary, you can go, you can adjust the optimization parameters, and come back and again, repeat and repeat this process.
Integrated Approach to Optimization
28:30 – 29:41
Victor Rosenman: Basically gets us to our final slide. And this is what Feedvisor is all about. We start by looking at and analyzing inventory velocity. We look at inventory availability. We help you execute the advertising optimization and drive more demand, and we execute the price optimization to ensure conversion and impact profitability. The analytics gives you 360 views, and you really can, at any given point in time, adjust your strategy and refocus.
And this is why Feedvisor has been so successful. This is why more than 10% of Amazon’s top sellers have adopted Feedvisor. This is one of the largest advertisers on Amazon, using Feedvisor to drive hundreds of millions of products every month.
This is why we manage more than $100 million in monthly ad spend and we manage more than $6 million in annual GMV. So I think that’s about it from my side, happy to take questions.
Question & Answer
29:42 – 33:22
Marissa Incitti: Yes. So just real quick, thank you, everyone, for tuning in today. We’re very excited. We have an exclusive offer here for you. We have a 20% off coupon for a year of Feedvisor’s award-winning repricer. Just scan the QR code.
We’ll get you all setup, and we’ll get a meeting ready for you. So, Victor, you had some really timely points made in there, and we do have some questions here from the audience. Real quick, why would I choose a revenue optimization strategy over a profit optimization strategy?
Victor Rosenman: Sure. So, as we discussed, revenue optimization helps you to focus on units and the market share, and profit optimization helps you to focus on increasing the overall profit. Depending on what your objective is, that’s the strategy you should select.
Marissa Incitti: All right, next one up here. Can I use more than one repricing strategy at the same time?
Victor Rosenman: That’s a great question. The answer is no. You should never use more than one repricing strategy at the same time. And the strategy should really be driven by your business objective. You look at your catalog, you’re looking at your products, and you understand what your objective is. You’re hitting the holiday season. You probably want to go and improve the profitability. After the holiday season, you’re introducing new products. You may want to build their search ranking. You may want to focus on units. You’re looking into the Buy Box domain. You have an advantage, go ahead, dominate. You don’t have an advantage, go for the profit. It would very rarely require you to mix those at the same time.
Marissa Incitti: Thank you. Is there an ideal profit margin I should be aiming for or can expect?
Victor Rosenman: The answer is it varies for the category, for the subcategory, for the different periods of the year. So there is no really golden standard, and even if there is one to be in a particular category, it varies from month to month.
Marissa Incitti: Right. How much time should I give each strategy before switching? We get this a lot.
Victor Rosenman: I would say that you should only switch to strategy when your business objective changes. For example, if you compete for the Buy Box and you suddenly have an unfair advantage, then you should immediately switch to the dominate you will see better results. If your business objective doesn’t change. If you have the same situation, there’s no reason for you to switch. Strategy stays the same. You can switch floor price, you can switch ceiling price, you can go and change floor price and change selling price. You can go and increase the advertising budget, it’s all good, but you probably wouldn’t change the strategy itself.
Marissa Incitti: Okay, and last question here, how can I know which price is ideal for each strategy?
Victor Rosenman: That’s exactly where it’s very hard for humans to understand what’s the right price. Because as I showed before, you need to take into account all these multiple variables, and these multiple variables are really the ones that influence. You need to let the AI do the work and find the right price at any given moment.
Marissa Incitti: All right, thank you so much, Victor. And thank you again to everybody here for tuning in with us. You will get a recording in your email probably this week. We’re hoping to get it out on the website. So stay tuned for new information, and hope you guys have a great Cyber 5.
Victor Rosenman: Thank you. Goodbye, everyone.