How to Stop Price Erosion on Digital Marketplaces

Sarah Abel

May 17, 2022

If you’ve ever seen your prices on Amazon or other digital marketplaces like Walmart, Target, or eBay drop below the selling price you’ve set, you understand how frustrating price erosion can be for your brand. On top of that, price erosion hurts your sales and profits—but it doesn’t have to be this way.

At Pattern, we are passionate about helping brands stabilize their prices across all selling channels, both online and in-store. Let’s break down what price erosion is, how it impacts your brand, how it happens, and how to stop it.

What is Price Erosion?

Price erosion is when your product’s prices are lowered by another seller online or on ecommerce marketplaces like Amazon, Walmart, or Target. But price erosion isn’t unique to online sales, the lowered prices also trickle out to your retail partners and brick and mortar customers. You see, as one seller lowers their price to make a quick sale, other sellers are forced to lower their price to compete, creating an uncontrolled race to the bottom.

How Price Erosion Impacts Your Brand’s Sales, Profits, and Brand Equity

Price erosion affects your business on much more than the listing price. Sales, profits, and brand equity are all hit when you don’t take control of price erosion on digital marketplaces.

Price Erosion Impacts Sales

When faced with the option to buy the same product at a lower price, customers will almost always choose the lower price—even if it means putting a product back on the store shelf to order online. Marketplaces like Amazon and Walmart know this and want to always provide the lowest price to attract and keep customers. For example, price plays a key role in Amazon’s algorithm for search rank and Buy Box ownership, giving unauthorized sellers a leg up to convert the sale when they break your price.

Price Erosion Impacts Profits

When customers flock to other sellers who offer a lower price, your brand immediately loses sales, but that’s not where the problems end. If you choose to lower your listed price to regain sales, you will find yourself in a game of price-chicken, with the price lowering until you can no longer make a profit online.

But you still have brick and mortar, right?

Brick and mortar stores are faced with the same dilemma. If they don’t lower the prices of your products they lose the sale, which also erodes their profits. If this problem continues, your retail partners will get mad. Many times brick and mortar retailers start price-matching programs, allowing stores to match online prices while your brand foots the bill for the difference. Unfortunately, this still ends with your brand losing profits in an attempt to capture low price sales.

Price Erosion Impacts Brand Equity

Once price erosion happens, it’s difficult to regain profitably on Amazon and other retail channels, but it may be even more difficult to regain brand equity. Brand equity is the perceived value a customer has for a brand, which determines the price they are willing to pay for products. Brands typically build great margins because of what their brand represents to the consumer.

Brand equity erodes when consumers see your price lower online or other channels. As customers continually find lower prices online, they come to expect the promotional/discounted prices and opt to wait to buy new, full-price items. This hurts long-term sales, margin and profit.

How Price Erosion Happens

Price erosion can happen on any digital marketplace. Let’s talk about how it typically happens on Amazon.

Amazon’s algorithm looks at your product and scrapes the internet looking for a lower price. If Amazon finds a lower price, and if Amazon is the seller (typically 1P), the marketplace will lower the price of your product. This can start a downward spiral or what we call the The Profitability Death Spiral.

But what happens when Amazon is not the seller? Another way price erosion happens is when a 3P (third-party) seller wants to win sales and lowers the price of the product on Amazon to steal the Buy Box. Then, other sales channels, including brick and mortar, are forced to match this price to compete, creating price erosion.

So you might ask, “Why is my product being sold at a lower cost on other channels?” Below are two reasons:

You Have Wide distribution

Wide distribution is generally a growth strategy to grow your brick and mortar channels and revenue. The thought is, more distribution channels equals more sales. Unfortunately, a wide distribution strategy that can increase brick and mortar revenue can cause channel conflict on digital marketplaces like Amazon. Especially if your retail sellers all try to sell the same product. They are forced to compete on price to win. This causes price erosion as we mentioned above.

You Don't Have Price Enforcement

Another reason why price erosion happens on digital marketplaces is not having enforceable pricing policies. Without that, rogue and unauthorized sellers can continue to erode your price without consequences. They have no parameters on how they can price, where they can sell, or how they liquidate extra inventory. If you do have a pricing policy in place but don’t have strong enforcement, sellers won’t take the threat seriously and will continue disregarding your rules.

How to Stop Price Erosion

Unfortunately, price erosion won’t solve itself, you must take proactive steps to stop it through creating a clean channel, identifying unauthorized sellers, and enforcing pricing policies.

Create a Clean Channel

As we mentioned above, price erosion can be caused by wide distribution and a high number of online sellers. So, the first step to stop price erosion is to limit your marketplace distribution and control the number of sellers who list your product on marketplaces like Amazon, Walmart, or Target. Your goal is to create a clean channel with authorized sellers. To do this, you need to identify and remove bad sellers.

Identify Unauthorized Sellers

After you’ve committed to a clean channel strategy, your goal will be to identify the sellers that are causing issues on Amazon and other marketplaces. This can be difficult, but we know your pain and have built software that can expedite the identification and takedowns of these sellers. Just click the link below to have us run a sellers report. Companies who identify sellers and take a proactive enforcement strategy can achieve a clean channel on Amazon and other digital marketplaces.

Create and Enforce Pricing Policies

A clean channel achieved from limited online distribution needs to come first, but after a clean channel is established, the only way to maintain it is to set and enforce pricing policies. Getting granular with your sellers about how they can price, who they can sell to, and how they can deal with extra inventory sets both them and you up for success.

Pattern works closely with an eControl legal firm, Vorys, to give partners the legal assistance they need to achieve seller enforcement and stop price erosion.

How Pattern Stops Price Erosion

The great news is price erosion can be stopped. Pattern provides the technology, framework, and experience you need through our monitoring software, legal partner, and tested approach to eliminating rogue sellers. If you're feeling the pain of your prices eroding, we would like to help. Just click the link below and we can help you achieve pricing control on Amazon.

Ready to stop price erosion online? Schedule a meeting today & see your seller's report.

Explore Our Ecommerce Resource Library

Find relevant content to accelerate your ecommerce business. Stay on top of industry trends and best practices.

Improve Your Amazon Advertising Strategy With One Simple Metric: True RoAS
Blog

Improve Your Amazon Advertising Strategy With One Simple Metric: True RoAS

The purpose of advertising on Amazon is simple: increase traffic and conversions. But the approach to get those conversions is not always so simple. Your Amazon advertising strategy is based on current ad data and performance results such as your return on ad spend (RoAS). 

At a minimum, your RoAS number tells you how well you’re maximizing your ad spend. The problem is the RoAS you’re getting from Amazon or an advertising agency isn’t always accurate. 

As a top 3P seller on Amazon, Pattern helps brands improve their Amazon advertising strategy and results by providing them with one simple metric: true RoAS.

Understanding True RoAS

To understand why true RoAS is helpful to brands, you need to understand how Amazon and other agencies calculate and present your RoAS.

The key to growing your brand and maximizing your ad spend is to drive incremental traffic, rather than cannibalizing what has already taken place. For example, if you are selling probiotics, and paying for sponsored ads to win the keyword “probiotics for women”, but also organically ranked in the top results with the same keyword, that’s cannibalization. The RoAS score you would receive from Amazon includes that level of cannibalism, which inflates the number, causing you to pay more on ad spend. The best ads drive incremental growth instead of cannibalizing organic sales. 

At Pattern, we’ve created the acceleration software to make sure brands are getting their “true RoAS”. Pattern’s patented tool applies artificial intelligence to advertising to maximize incremental growth or true return on investment. 

Our software helps brands optimize their efforts by providing live and updated information on where your brand is not organically ranking, and what you should be paying for. If your ranking improves in one area, the ad spend will automatically decrease for those words or phrases until the software detects a drop in ranking, signaling that your ad spend should go up again. This dynamic monitoring of ad spend will help you maximize incremental growth and improve your RoAS.

Improve Your Amazon Ad Strategy with Pattern

Knowing your true RoAS is key to improving your Amazon performance. Advertising agencies and marketplace account managers often give you an inaccurate RoAS ratio or value, which only incentivizes you to spend more on advertising, ultimately increasing revenue for the agencies and/or marketplaces.

At Pattern, a 3P partner on Amazon and other marketplaces, we view our brands just as that: a partnership. When you win, we win. You succeed on Amazon by maximizing your ad spend and we have the data and resources to help you do just that. Accurate, transparent data and reporting will help improve your advertising strategy to drive more traffic to and conversions on your products. 

Ready to finally get your true RoAS? Contact us.   

Slowing Inflation is Music to Consumers’ Ears
Blog

Slowing Inflation is Music to Consumers’ Ears

**Instrument Pricing Changes Tune Amid Record Inflation** Compared to 2022, consumers should expect to pay more for musical instruments, but the rate of inflation shows signs of slowing. **The backstory:** America’s most popular musical instruments saw a notable price increase in 2022 compared to 2021, but the rate of inflation eased in Q4 ’22. **Why it matters:** Slowing inflation within this product category could indicate economic pressures like increased demand, rising labor costs, and supply chain disruptions are easing across the consumer landscape. **What we’re seeing:** The average cost of musical instruments increased 7.5% from 2021 – 2022; however, when analyzing individual increases year over year, some instruments saw price increases as high as 21%. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-02Lwk" src="https://datawrapper.dwcdn.net/02Lwk/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones experienced a 21.73% increase compared to 2021 * Trumpets +20.08% * Flutes +18.6% * Recorders +16.13% * Saxophones +13.63% * Clarinets +10.55% * Drums +5.41% * Ukuleles +5.17% **However:** Inflation among these same instruments was significantly less in Q4 ’22 compared to Q4 ’21. In some cases, prices decreased from Q4 ’21 – Q4 ‘22: <iframe title="Price Change for Instruments — Q4 2022 vs. Q4 2021" aria-label="Bar Chart" id="datawrapper-chart-6X6GZ" src="https://datawrapper.dwcdn.net/6X6GZ/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones +11.23% * Flutes +10.41% * Saxophones +5.94% * Clarinets +5.59% * Trumpets +3.10% * Recorders +2.85% * Drums -2.59% * Ukuleles -8.46% **Moreover:** Certain instruments saw inflation reverse in 2022. On average, prices for melodicas, guitars, and violas saw their prices decrease by 4.41%, 3.19%, and 0.97%, respectively. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-0Tefk" src="https://datawrapper.dwcdn.net/0Tefk/3/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="259" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> **Diving Deeper:** Inflation was more significant when comparing Q4 ’21 to Q4 ’20 than when comparing Q4 ’22 to Q4 ’21, indicating a slowing down of price increases for consumers. <iframe title="YOY Q4 Price Change for Instruments — 2020 – 2022" aria-label="Stacked Bars" id="datawrapper-chart-p6iqt" src="https://datawrapper.dwcdn.net/p6iqt/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="206" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * In Q4 ’21, average prices for all instruments were up 8.89% compared to Q4 ’20. * When comparing Q4 ’22 to Q4 ’21, the average price for all instruments only increased by 2.65%. **The takeaway:** While consumers should expect to pay higher prices for instruments this year, overall inflation impact within this product category appears to be slowing down. With National Ukulele Day coming up on February 2, now is a great time for ecommerce brands to take advantage of slowing economic worries and reach new consumers. * Want Pattern’s data science team to power your brand with consumer insights like these? Contact us to [request more information](https://pattern.com/contact-us/) today.

Slowing Inflation? What Musical Instrument Pricing Tells Us
Blog

Slowing Inflation? What Musical Instrument Pricing Tells Us

It’s safe to say consumers and brands alike are eager for a change to the pattern of rising inflation, steadily increasing in many ecommerce categories . Pattern’s internal team’s data scientists analysis of instrument pricing shows a glimmer of hope that inflation may be slowing, which would be great news for brands selling online.

At Pattern, we’re interested in and monitoring trends and news related to pricing since price is a key factor in a brand’s profitability (as explained in the Ecommerce Equation). When brands are able to optimize their price, conversions, and traffic, they can optimize their profitability. And profitability leads to better allocation of resources, better brand control, and gives leaders the ability to expand their presence to new markets worldwide.

YoY Instrument Pricing Increased at a Slower Pace

When analyzing the pricing changes of instruments from 2021 to 2022, our teams found that prices increased, but at a slower rate than from 2020 to 2021.

As shown below, the year over year Q4 changes show quite a lower rate of increase.

Inflation Improvements Raise Profitability

Because inflation impacts online shopping behaviors, lower inflation can lead to better overall profitability for brands. This idea, of course, is nuanced, but Pattern’s Ecommerce Equation can help illustrate the general principle.

When inflation rises, consumers change their spending habits. Shoppers spend more time researching products, forego premium, higher-priced brands, and buy more in bulk. Brands tend to see a loss of loyalty as they’re forced to raise prices.

Price is a key variable in the Ecommerce Equation: price x conversion x traffic = profitability. As inflation lowers, brands can expect better performance in all of these areas—more traffic as spending habits return to normal, higher conversion from returning customers, and price that better fits consumer demand. As inflation lowers and these variables stabilize, brands will see profitability increase.

Raise Your Profitability with Pattern

As an ecommerce accelerator, Pattern is obsessed with gathering data that helps our brand partners succeed. We’ve created best-in-class technology, models, and analytics to understand changes on the horizon and inform our decisions. With an incredible team of data obsessed Pattern employees, we see what makes the difference in truly great ecommerce performance and apply those learnings for brand partners. 

Ready to improve your profitability? Contact us here.