In this blog we expand our understanding of the pricing strategy that we see across major online retailers around two additional pieces of research:
- Understanding what percentage of a given market major retailers like Amazon lead in price
- Analyzing the quick response to price changes.
COVID-19 has had a polarizing effect on online businesses. While some businesses have seen dramatic increases in sales, others have experienced chronic supply chain breakdowns and others have completely closed all operations .
The global online marketplaces like: Amazon, Walmart, Target, Catch, Kogan, stand to make the most of the COVID-19 impact. These businesses have mature online systems, sophisticated pricing mechanisms and extensive warehousing and delivery systems. Their ability to deliver the end-to-end online purchasing experience is a significant competitive advantage in 2020.
Amazon Commercial Services (Amazon’s Australian e-commerce operations) doubled revenue last year to $562M while increasing their product range to more than 125 million products.
This broad range of products allows major online businesses like Amazon to simultaneously compete with different parts of the market. Our analysis focused on household items ranging from food, furniture, electronics, health and fitness.
With increased unemployment and decreased job security, attitudes to spending have rapidly changed as a result of the current pandemic. In our last blog we examined the purchase of a USB-C adaptor to assess the market. This exercise highlighted the value of automated pricing tools that ensures major players maintain price leadership.
Undoubtedly, price leadership is a cornerstone of staying ahead in a competitive environment. Gaining visibility into the market landscape, through price scraping, enables major players to rapidly adapt to competitor price changes.
An introduction to automated pricing tools
The mechanisms for monitoring the pricing strategies are relatively simple. The big players in the space run a range of bots that conduct low and slow reconnaissance of products across the internet. These bots are designed to look like humans. They scan the competitors’ product catalogue and record price changes. This data is then used by the automated pricing tool to adapt the products in the marketplace.
For example, there are no limits on the number of merchants that can use the Amazon platform, thus multiple sellers can offer the same item. Advanced competitive intelligence is notably a major selling point for in terms of attracting re-sellers. This introduces internal competition for price positioning. The automated pricing tool enables merchants to compete for access to the “buy box” which is used for more than 80% of sales.
More importantly, for competing retailers, automated pricing tools offer a “competitive external price” setting feature. This gives the opportunity to monitor and respond to the price of competing products across the internet.
This offers great advantage to re-sellers. The pricing of a product can change multiple times a day based on various factors, including inventory levels, sales volume or competitive pricing. It maximizes the probability that they guarantee the best price at the exact time that customers wish to buy their products.
What percentage of the market do major retailers lead in price?
We analyzed the pricing of 100 items that are commonly purchased due to the COVID-19 lifestyle changes: work office equipment, grocery items, entertainment, electronics and books. Our analysis focused on two subsets: the established e-commerce marketplaces and the traditional bricks and mortar brands for each item.
For 90% The of items, Amazon achieved or matched the cheapest price. This level of price dominance for one platform is incredible, although perhaps not surprising given Amazon’s dominance as a corporation overall.
According to previous research we conducted, 90% of top websites can’t differentiate between human and synthetic traffic. Read the full report here.
How quickly is the response to price changes?
Next, we worked with a number of customers to gain visibility into price change surveillance. We instructed our customers to make minor changes to a subset of their products. Specifically, to position the price to be less than the competitive offerings elsewhere in the marketplace. In total, we changed prices of 50 products, spread across 15 brands, we then measured the response time.
80% of the time, the price changed on other major retailers' marketplace within 1-4 hours. Moreover, 20% of the time, some retailers failed to respond to our price change - indicating that these resellers were not using the “competitive external price” feature.
Observations & take-aways
Amazon bots are well designed. They use relatively sophisticated evasive techniques that will be undetected by the vast majority of bot mitigation solutions. With Amazon holding price leadership in 90% of the categories we reviewed, and the ability to respond to price changes in 1-4 hours 80% of the time, you either need to be with them, or protect yourself from them.
To help you navigate this new reality, we got this
The team at Kasada has been able to help e-commerce marketplaces and online retailers protect against scraping fraud. This allows our customers to protect their price position at a time when every dollar is critical. Our software uniquely recognizes bots amongst human traffic, and neutralizes them.
What’s more, we deploy remotely and quickly, our time to value is less than 30 minutes.