Amazon Price Wars: The Discounting Dilemma.
Across online marketplaces, like Amazon, discounting runs rampant creating an all out price war over the coveted "buy box" where the lowest price wins. While consumers reap the benefits of online discounting, it's the manufacturers that ultimately suffer. We talk to countless manufacturers here at Stylogenic who come to us with the same daunting questions: Who is selling my product(s)? How are they getting my inventory? What is the integrity of the products that these unknown sellers are distributing (i.e. expired, counterfeit, etc.)? And how can they can sell my product for less than what it costs for me to produce it? But along with these questions, there's a much bigger concern: What exactly are these discounters doing to my brand's integrity?
One thing that marketing experts always emphasize is that a product's price point is as integral to its branding as any other factor. According to Gordon Pincott, Chairman Global Solutions at Millward Brown, "Price is a source of meaning and identity for a brand, not a separate countervailing factor." Therefore, anytime someone offers a discount on your product(s), they are taking the focus from the value your product provides and placing it squarely on the price. There is no way to escape that. To maintain pricing standards, you have to instead be adept at selling value, discounts erode your ability to do that. Any reduction in prices can damage your price integrity. Once prices have been degraded getting the same customer to stop thinking about discounted prices and to re-evaluate product value can prove difficult.
"Price is a source of meaning and identity for a brand, not a separate countervailing factor."
Beyond that, studies show that discounts actually reduce the effectiveness of whatever is being discounted. In a buyer's mind, the discounted eye cream simply does not perform as well as it did at full price. That may sound crazy, but double-blind studies using prescription drugs and over-the-counter health products, cosmetics and other products have shown this to be true.
Discounting on Amazon can also lead to dissatisfaction and loss of business with your brick and mortar retailers. Discounts can lead their customers to ask why they should purchase from them when they can purchase the same product, for much less, on Amazon? Today's consumers are savvy and cell phones have made it super easy for them to find the best deals anytime, anywhere, and with Amazon's quick and free shipping for Prime Members, making it extremely convenient, as well!
So what can be done about discounting on Amazon to protect your brand integrity? Some feel the solution is to take extreme measures and not sell on Amazon at all. However, by doing this, you cut off a potentially huge revenue stream for your business. For others, the solution is to have as many sellers as possible selling your product to saturate the marketplace. Although this equation works well in the world of brick and mortar, it doesn't fare so well on Amazon's retail environment. In the Amazon world, the following holds true: fewer sellers = greater brand + pricing integrity = increased sales at higher margins.
If discounting is an issue for your business you can, of course, take on the time consuming and complex process of trying to police your listings while monitoring pricing and sellers yourself, or entrust an authorized representative, like Stylogenic, to vigilantly guard your listings, pricing and ultimately protect your brand integrity for you. Contact us today for more information.
1.) Gordon Pincott (2011) Brand Equity What's Price Got to Do with It? [Blog Post] Retrieved from https://www.millwardbrown.com/docs/default-source/insight-documents/points-of-view/MillwardBrown_POV_Brand_Equity_and_Pricing.pdf