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What Is Price Erosion and How Can You Avoid It?
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Price erosion happens when you are forced to lower your price to compete with unauthorized sellers or sellers who have violated any pricing policies you may have in place, such as a minimum advertised price (MAP) policy. Price erosion, which involves a consistent loss of product pricing over time, is typically synonymous with the deterioration of your product’s perceived value, as well.
Many brands and their authorized sellers lower their prices in specific circumstances to win the Buy Box, which can result in reduced margins and an altered consumer perception of your brand’s value. Given the potentially detrimental outcomes that can result from price erosion, how can you proactively avoid it? In this article, we highlight four key ways you can prevent your catalog, and overall brand presence, from losing equity and validity.
1. Leverage pricing technology to avoid price wars.
It is more important than ever to have a competitive and sophisticated pricing strategy on Amazon. Without one, you run the risk of losing out on profits, experiencing price erosion, and worse — entering a “race to the bottom” price war with competitors. To avoid price wars, you can leverage AI-driven price optimization technology to help you find the optimal balance between demand and price.
Feedvisor’s platform, for example, takes into account other factors, such as if competing products are exact matches or just similar, as well as marketing expenses. Instead of focusing solely on making your product the lowest priced to outbid competitors, Feedvisor’s technology experiments with raising the prices and monitors how the market — including consumers and other sellers — adjust. By avoiding price wars, you will effectively be able to preserve your margins and overall brand perception from consumers.
2. Establish and enforce MAP policies.
Once you have established MAP policies with your key retail partners, put a plan in place to ensure enforcement throughout the year. Communicate your brand guidelines clearly and inform your partners that you will be policing the marketplace on an ongoing basis to ensure their pricing for ASINs in your catalog is competitive and fair. Building your business with trusted sellers this way will help you preserve your brand and credibility.
You should be consistent and thorough in your MAP monitoring and establish a regular cadence to which you do so. If you have the resources, monitor the marketplace daily via automated software that flags MAP violators to you and provides data and insights at both the brand and vendor level. Be sure to include information in your policies regarding how you will penalize or terminate sellers that are in violation so the message is clear.
With MAP policies in place, you will be able to demonstrate your long-term investment and commitment to your brand’s value, ethos, and pricing across your entire retail channel as well as preserve the premium nature of your brand.
3. Join Amazon’s Brand Registry program.
By enrolling in Amazon’s Brand Registry, you will have greater influence and control over your brand’s product listings on Amazon. You will receive accurate brand representation and proactive brand protection, as the program removes suspected infringing or inaccurate content, which in turn helps you protect and improve your overall brand experience on the marketplace.
4. Identify unauthorized sellers with intelligence software.
With a combination of MAP policies and marketplace intelligence, you will be able to identify and eliminate unauthorized sellers and can, therefore, provide consistent pricing across all of your sellers. Feedvisor’s marketplace intelligence reporting, for example, sheds light on what your third-party (3P) footprint looks like across your seller network and puts a strategic plan in place to address unauthorized sellers that may be taking sales share.
Protecting your price position is critical to a successful brand experience on Amazon as well as most other modern marketplaces. Not only will a competitive pricing strategy draw consumers to your product, which can lead to increased demand and conversion, but a comprehensive, well-thought-out pricing policy will also serve to protect your brand’s equity, your profit margins, and your customers’ experience interacting with your brand.