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A Stock-Market Pricing Strategy for Selling Online

How the data-driven future of e-commerce will bring a shift to commodity trading

Looking back over the 10 years I’ve been working in Internet-based retail, it’s intriguing to see how the industry has progressed as technology and trends have evolved.

Retailing is easier, faster, more efficient, and products are more attractive and accessible to consumers. Consumers are able to make improved buying decisions with more information at their fingertips, with far more buying options than ever before.

From a seller’s position, it’s now easier than ever to launch an e-commerce store and market products online. Marketplaces such as Amazon.com allow even the smallest retailers to market to millions of consumers with a buying experience that is arguably better than any larger retailer’s e-commerce site.

Sellers who have access to an ample supply of high demand products no longer need a multimillion dollar advertising budget to compete with big box stores.

Unless your strategy is to build an e-commerce brand to market exclusive inventory as your own supplier, like Gap.com or Victoria’s Secret, the future of e-commerce should matter to you. There will be more competitors, and prices will decline. This is a fact of supply and demand economics.

No wonder Best Buy’s founder, Richard Schulz, is searching for answers after analysts recently dubbed his billion-dollar chain a “showroom for Amazon.com.” For pure e-commerce sellers, I see this as an exciting prospect, as a large proportion of e-commerce has truly evolved into a commodity-trading marketplace.

I believe smaller pure-play e-commerce sellers are in a better position than their brick-and-mortar competitors. They are far more nimble, efficient and poised to adapt to new technology, and can service a new wave of highly efficient transactions where cost savings are translated to more competitive prices for their customers.

Increasing competition breeds new tactics

We live in a data-driven world of Yelp restaurant reviews, Zillow property listings, Kayak flight searches and consumer-focused data transparency.

What is certain is that e-commerce will grow, with more sellers competing to deliver products to consumers more efficiently

In turn, e-commerce retailing is changing to adapt to consumers’ increasing demands. The future is data focused, and at its catalyst is more efficient supply. For retailers to be successful, they must see the future, adapt and embrace new strategies to become more efficient at delivering merchandise.

Understanding data, pricing dynamics and optimal strategies to trade products in a commodity-centric marketplace are all essential ingredients for e-commerce retailers to succeed as competition increases.

At Teikametrics, we work with very successful e-commerce stores that have grown rapidly inside the Amazon ecosystem. Many of our clients have built their e-commerce businesses from scratch with a foundation that embraces the data-driven future of e-commerce.

It’s only a matter of time until we see more marketplaces driven by consumer demand—consumers demand more choice and buying options, resulting in a need for more data. Who will join Amazon? Maybe it’s Google Shopping or perhaps its Walmart’s Marketplace, Buy.com, eBay’s push toward fixed-price listings, or even Best Buy’s efforts to develop a marketplace that will aim to emulate the success of Amazon.

What is certain is that e-commerce will grow, with more sellers focused on competing to deliver products to consumers more efficiently. So, if you’re a smaller retailer looking to grow your e-commerce business today, what does this mean for you? What does the future hold? What do you need to do?

I believe if you’re a small retailer it’s a fantastic time to be starting an e-commerce strategy.

You’ve got a lot of things working in your favor. Stale brick-and-mortar retailers will continue to struggle with the concepts of dynamic adjustment of prices, per product gross margin analysis, and are sluggish and pinned down by tremendously high fixed costs tied to their existing operations.

A brand-neutral future

In contrast, small retailers can embrace technology to become extremely nimble and dynamic. For example, a pricing strategy of adjusting prices multiple times a day based on supply and demand to capture maximum demand on Amazon can drive thousands of dollars of revenue per day without any marketing investment.

To be successful as an e-commerce retailer in this type of environment, I believe sellers need to adopt a distinct perspective on their retail strategy. I call it a brand-neutral commodity trading approach.

The idea of thinking of products as numbers in a portfolio matrix scares many traditional retailers or marketers who are focused on building an e-commerce “brand,” but this analytical approach is the future of high-volume retail online.

Although I’ve built a number of successful e-commerce retail brands, I believe the new wave of e-commerce is largely brand agnostic. Consumers care more about what they want to buy rather than where they buy it. The sellers who are focused on data will thrive, and those swayed by a need to brand and market without analytics will die.

Think about your catalog as a portfolio of trades at variable profit margins instead of a group of products driven by marketing to create demand

Sellers who understand this strategy shift will benefit by viewing themselves as commodity traders. Sellers can think about their catalog as a portfolio of trades at variable profit margins instead of a group of products driven by marketing to create demand.

That is, capture the existing demand via a marketplace like Amazon, rather than aiming to create it.

A pricing strategy focused on the net return

Over time, market prices may decline, but sellers will continue to strive for efficiency. Sellers who rapidly adapt to this system will observe how dynamic trading of each of their products should be used to capture demand, despite potential declines in profit margins.

When selling on Amazon, the strategy of dynamic pricing and variable profit margins really matters. For example, if you try and sell all items at a 50-percent gross margin, you may be missing hundreds of sales from a very hot item, as another retailer is willing to lower its price to a 40-percent gross margin.

Should you go down to 40 percent, too, or perhaps 20 percent—or even 10 percent? After all, 10-percent gross margin from a $100 product selling 50 units a day is far better for the bottom line than a $10 product selling at 50-percent gross margin, selling one unit per day.

A successful Amazon retailer who is focused on this type of dynamic margin analysis can execute a pricing strategy that will result in a portfolio of returns as his or her total bottom line profit. In many ways, this is similar to a stock market trader who trades a large portfolio of stocks at different quantities and profits, but ultimately is focused on a net return across his entire portfolio.

Price and speed win the day

I hope you can see how data analysis is at the core of this pricing strategy and is central to the future of commoditized retail. In 2002, a big focus of e-commerce site design was to address customers’ concerns of retailer legitimacy. The goal was to build a branded site that looked legitimate to market products.

Ten years onward, with Amazon providing customers with satisfaction guarantees, purchase protection and the ability to review audited feedback on seller performance, price and speed of delivery have become the primary factors that determine a purchaser’s buying decision.

As Internet technology evolves to provide consumers with even more efficient tools to make educated purchasing decisions, I see a future that will continue to focus on efficiency and competitive pricing.

It’s not a question of whether things change, but rather who will be able to compete as data-focused retailers. Embrace your data and start thinking of your catalog as a commodity-trading portfolio if you want to thrive in the next decade of e-commerce.

About the author

Alasdair McLean-Foreman
Alasdair McLean-Foreman is the CEO of Teikametrics. In 2001, he founded an e-commerce company in his Harvard dorm room that grew into a multimillion dollar company selling high-end sporting goods. After selling the sporting goods business, he founded Teikametrics in 2011. Based in Boston, Teikametrics provides Amazon repricing, marketplace optimization solutions and e-commerce consulting services to some of the largest retailers in the Amazon marketplace. He also founded the weight loss and fitness company Traineo, and has built and provided e-commerce solutions to large organizations including Newscorp, The Times of London, L'Oreal, and The New York Marathon. Alasdair earned a Bachelor of Arts in Economics at Harvard University. Opinions expressed here may not be shared by The Online Seller and/or its principals.



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