C&B Notes

When A Price Is No Longer A Price

A perhaps initially unforeseen outcome of the price transparency that e-commerce promotes is dynamic pricing competition.  Many web retailers are forfeiting control over incremental price changes to algorithms, which makes it difficult to manage to gross margin and other profit targets.

The fast-moving Internet pricing games used by airlines and hotels are now moving deeper into the most mundane nooks of the consumer economy.  Deploying a new generation of algorithms, retailers are changing the price of products from toilet paper to bicycles on an hour-by-hour and sometimes minute-by-minute basis.

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The most frequent price adjustments are occurring among Web stores selling products on Amazon, which encourages ruthless competition between retailers vying for the top spot among search results.  Sellers such as children’s clothing store Cookie’s use software to change prices every 15 minutes in order to stay on top of Amazon rankings.  The store’s owner, Al Falack, said he often sells clothing cheaper on Amazon than at his bricks and mortar store in Brooklyn, N.Y.  “We’re finding that we’ll receive something fresh and new in the season and before we give it a chance to sell, we are selling it for less than we wanted,” Mr. Falack said.

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Mercent Corp., the company that provides the software used by Cookie’s, says it changes the price of two million products an hour.  Mercent says it makes price decision based on a variety of factors such as competitors’ prices, competitors’ shipping prices, manufacturer price restrictions and seasonal sales. Retailers pick their settings to determine how frequently prices are adjusted, which products are tracked and which competing websites are ignored.

The most frequent changes are for consumer electronics, clothing, shoes, jewelry and household staples like detergent and razor blades.  “The long-term implication is that a price is no longer a price,” said Eric Best, chief executive of Mercent, which tracks prices for more than 400 brands.

For vendors that sell on Amazon, having the lowest price on a product is the quickest way to get space in the coveted “buy box,” Mr. Best said.  A product in the buy box, or the default box that adds a product to a shopping cart, is picked more than 95% of the time by shoppers, he said.