Who’s eating your lunch?
How to build Sales Momentum on eBay?
Pricing your products competitively is crucial to your success on eBay. When you see the exact same products with a range of different prices, under the ‘Trust and Safety’ of eBay, which one do you choose? I always choose the cheapest, for sure – why wouldn’t I?
In this article, we explore the strategies and options available to you as an eBay seller to ensure your product prices are always competitive, so that you can build your sales momentum and never miss a sale because of price – don’t let anyone “eat your lunch”!
Proactive Dynamic Repricing is the key to building sales momentum and market share in a competitive market where prices are fluid.
The prerequisite to Dynamic Repricing is Price Monitoring which provides quality data and gives you the ability to establish rules that differentiate your products from the competition, not only by price points but also by country locations, handling times, quantities and other parameters.
There are several options for implementation of Price Monitoring, including using dedicated in-house staff, outsourced partners or software solutions. Given the time and effort required, Price Monitoring of eBay stores is practically impossible and best left to software. This avoids reactive repricing when products have already started losing sales to competitors, by which time it is too late.
Price Monitoring software solutions apply technology in different ways. Some are passive, only recognizing competition when you manually input the Item IDs and keywords. Others are proactive and use Artificial Intelligence (AI) to automatically identify and track the competition.
Most importantly, you need to ensure that Dynamic Repricing is going to fit in with your day-to-day operations and workflow, integrating seamlessly with your eCommerce platform, running in the background and reporting regularly, alerting you only when necessary. The system must make sure that your data is completely in-sync across all platforms and take care of pricing, allowing you to focus on driving your business forward.
1. Why is price so important on eBay?
When buyers come to eBay, they expect a bargain.
“It’s the price, stupid.”
Years ago when I began selling on eBay, I was a snob. From a corporate background where we didn’t get out of bed for anything under 50% margin, when my competitors discounted I would flatly refuse to price match.
Why should I? If you want to deal with me you’re going to have to pay more because my listings have better photos, I am a PowerSeller, I have 100,000+ feedbacks and I am a nice guy to deal with, and so on.
This pride and stubbornness saw my sales momentum decline and forced me to change my pricing approach.
I experimented with being the 3rd cheapest, the 2nd cheapest, the average of the lowest 5 active prices, the average of sales made in the last 7 days – you name it, I tried it all.
But no matter what I did, my sales kept sliding. My competitors kept growing. Every sale I lost was a win for them. I could almost imagine them high-fiving each other every time they stole a sale from me! I was motivating them, feeding their egos, giving them cash flow (oxygen!) and profits.
Then one day when I was shopping on eBay myself, I realized that after deciding the brand and model of the product I was looking for I subconsciously clicked “Sort : Price + Postage: lowest first”.
That was the moment of revelation!
If that’s how I shop on eBay – why wouldn’t all my customers be doing exactly the same thing?
So I changed my pricing to match prices exactly, dollar for dollar, against my competitors.
My sales doubled overnight.
Yes, I was making less margin overall, but I was not complaining. Online retailing is the new world order. I preferred having the turnover. I needed the scale to build volume for the business so that I could be more efficient and achieve a lower overall per-transaction cost and better freight rates from carriers.
eBay wants buyers to shop branded merchandise – at the lowest price.
It has also been eBay’s strategy in the last couple of years to position itself as the marketplace for “Big Brands. Big Savings”.
Amazon’s higher fees make it less competitive for a seller offering branded goods.
With eBay’s Item Specifics, catalogue and the recently released “Group Similar Listings”, here’s what it looks like when searching for Beethoven’s 5th symphony:
eBay is now grouping identical products for customers so that they can easily pick the one with the lowest price. In addition, their one-sided, ultra-protective ‘Trust and Safety’ policies favouring buyers who action returns and refunds, is removing the risk when choosing between a good or bad seller. If the product is the same and the choice of seller is practically risk-free, there is no compelling reason for a buyer to pay any more than the lowest price.
2. Dynamic Repricing
Be proactive and maintain your sales momentum. Revise your prices competitively.
Have you ever plotted your competitors’ prices on a graph to see how they change over time? If you superimpose their sales onto this price graph, it provides an excellent view of price sensitivity in the market.
It is even more fascinating if you plot how your competitors’ pricing reacts every time you change your prices.
Every seller reprices from time to time. The question is:
How do you ensure competitive repricing?
There are many reasons to reprice; changes in supplier costs, discount levels, spot deals, freight rates, expenses, eBay and PayPal fees and even your target profit level.
Access to lower costs from your suppliers or carriers allows you to be more competitive, giving you “room to move”. So if the price of an item has moved lower, but after price matching you’re still within the target profit level, it would be sensible for you to consider a price revision and take the gap.
Are you making money?
The next question when repricing is: What should be the optimal price point?
The answer depends on your objectives, which we will discuss later, but first and foremost you must remain profitable. It sounds obvious, but you will be amazed by how so many sellers, large or small, forget to realise this. They either don’t know, or don’t want to know, whether or not they are losing money at their chosen price levels.
If an item costs you $60 and you sell it for $100, are you making a handsome profit of $40? Don’t forget the 3 most important cost components of a sale: Cost of Goods, Freight and Staff:
Cost of Goods must include the true landed cost, handling fees, warehousing costs, opportunity cost of money tied up, write-offs, provision for obsolescence, and GST/VAT/Sales Tax, amongst other things.
Freight is relatively straight forward when your products are small and light enough to utilize the flat-rate delivery services. Most sellers estimate non-flat-rate freight costs conservatively.
Staff costs are commonly underestimated. In my eBay business, I expand the definition of “Staff” into “Logistics”. The simplest method of estimating Logistics is to add up all your staff employment costs, rent, outgoings, repair & maintenance costs, materials, insurance, accounting & legal costs, etc. and divide the total by the number of transactions you expect to do over the period. If you, or your family members, work in the business, you should also take those salaries into account.
Upward vs downward pressure on price
Now that you know your costs and have set your floor prices, you are ready to address the issue of optimal price point.
This depends on whether you
a) are selling branded products, and/or
b) want to apply price pressure in an upwards or downwards manner.
- a) Selling a branded product that is easily searchable and identifiable via codes such as the UPC (Universal Product Code) or EAN (International Article Number) means your choices are limited. If your price is out, your chances of success will be slim, whereas if you are selling a unique or exclusive product you can afford to charge whatever price you think the market is willing to accept and pay.b) Regarding price pressure, if you must price match, there is a chance for you to send a signal to your competitors. An exact price match is a neutral signal – you are forcing the buyers to choose the better person to deal with. If you have higher quality photos, a more professional layout and other intangibles, that may be all you need.
Undercutting, irrespective of the magnitude, is aggressive and will invite a combative response, even though it is a proven formula to win short-term sales before your competitors react. If you undercut, the pressure on price is downward.
My favourite tactic is to price match with a $0.50 premium. Although the $0.50 is negligible to most buyers, it does a good job of maintaining upward pressure on price. When competitors see you win business at a price that is not lower, there is usually no knee-jerk reaction of dropping the price, since you are making the statement “I don’t have to be cheaper than you, but I still beat you.”
There is an upside, just don’t reprice only when it’s too late
Just when you think it’s all about lowering the prices, Dynamic Repricing also works to lift the prices. This came as a pleasant surprise to me when I began but, when you think about it, it actually makes perfect sense. If your competition is out of stock or absent, shouldn’t your prices go up to where they were?
Dynamic Repricing is a tedious task, requiring dedicated staff for an average eBay store with a few thousand SKUs. The actual reprice is the easy part, involving a few clicks and keying in a number. It is the systematic gathering, cross referencing and analysing of data that is the real task, allowing you or your eCommerce platform to make the reprice decisions. A Price Monitoring process is an essential component of Dynamic Repricing.
Since it takes a lot of time and resources to do Price Monitoring properly, most sellers only do it sporadically and randomly, perhaps only even when they suddenly realize the product is not selling any more, by which time it’s too late and they have lost sales momentum.
3. Price Monitoring
How to systematically gather, cross reference, and analyse data. Quality data gives you options.
Price Monitoring is a mundane task, but a necessary evil.
Any seller can do it using an Excel file or, if more tech savvy, a database.
Making the right decisions about your pricing requires quality competitor data. Since the objective is to win sales for your products, you need to examine each one individually and know exactly how it is selling or not selling.
Collect as much information as you can about your competitors, looking beyond price at quantities and locations, for example:
Where are your competitors based and where are they shipping the products from?
– An overseas purchase is always deemed to be more risky than a local purchase.
– Delivery lead time makes a difference.
– GST/VAT/Sales Tax thresholds for goods coming into the country become significant for high-value items.
The more detail you collect, the more options you have to reprice. For example, you may choose to have a country-based price differential as a premium over your overseas competitors’ prices which allows for a higher profit because you have the stock in the country for immediate delivery.
Free Market Research from Price Monitoring
Instead of being a defensive manoeuvre, Price Monitoring can also be used to gain market share. Whenever someone is competing with me, I don’t just look at the products we compete on. I always look at what else they are selling; their products, prices and quantities. My competitors are effectively conducting free market research to help me grow my business through Price Monitoring.
Implementing Price Monitoring
The options to implement Price Monitoring depend on the size of your inventory:
If you have 100-200 SKUs in your store, manual in-house Price Monitoring is perfectly feasible. A simple Excel or database program will do just about everything you need. It does take up time, but so long as it is done regularly, at least on a weekly basis, it will keep your store bulletproof from price ambush.
Outsource Partners who specialise in online retailing is an excellent option for Price Monitoring. Most of them have trained overseas staff and they deliver ultra cost-effective packages that include additional support services. The practical limit for manual monitoring is around 3,000 to 5,000 SKUs. Above this, automated software is required.
The repetitive nature of Price Monitoring, plus the data processing, cross referencing, and analytical aspects, make it a perfect candidate for automated software. There are many solutions available; some are specifically designed for eBay only, others can handle multiple marketplaces like eBay, Amazon, etc. simultaneously. Some work as a standalone solution, whereas others are modules of a bigger platform.
4. Technologies and Workflow
Passive or active, it’s all in the scan.
If you are looking for automated software, you should spend more time evaluating the Price Monitoring modules, since that’s where the heavy lifting is done. Dynamic Repricing then becomes relatively straightforward when it is applied to quality data.
Choosing the right technology
The Price Monitoring checklist:
Passive Vs Active Scanning:
Can the software ‘learn’ your product lines and automatically identify your competition with no manual input?
Whereas Passive Scanning requires entry of eBay search keywords for each of your SKUs and the Item IDs of your competitors’ listings, Active Scanning, implemented with Artificial Intelligence (AI) algorithms, analyses your store to determine what products you are selling before proactively searching for their competition on eBay.
Manual Vs Auto Identification:
Does the software offer automatic identification of products on a suspect list?
Unless you specify all competing products by their Item IDs, any keyword or active scanning will result in a suspect list for you to manually identify. Software based on AI algorithms offers automatic identification of these suspect items, when it is sufficiently confident that they are indeed your competition, however, some manual identification is usually unavoidable.
Do you have a clean and intuitive user interface that provides full information on all SKUs in your store?
It should be easy to use and everything you need at your fingertips to make your decisions and set your rules.
Are you able to look at other best selling products that your competitors are offering?
Ability to identify potential new stock lines. This feature may well be what convinces you that it is definitely worth using Price Monitoring in your eBay business.
The Dynamic Repricing checklist:
Update and Price-Sync Options:
Once the software has determined the dynamic price updates, does it update your eBay store directly, or would you prefer all update requests to go to your eCommerce platform to maintain data integrity?
This determines your workflow and productivity. When it comes to the options for updates, connectivity and synchronization, the more the better. You should look for software that integrates directly and works automatically with your eCommerce platform such as Neto, Magento, ChannelAdvisor or Shopify.
Can you store your pricing policies using different sets of parameters as “rules” in the software?
Reprice your entire inventory, or parts of it, at any time by reassigning it to preset “rules”.
Instead of exact price matches, do you have the ability to select different tactical options?
These may include:
– different price points (e.g. Lowest, 2nd Lowest, 3rd Lowest)
– price-point offsets (e.g. +$0.50, or -5%)
– country-based and quantity-based mark-ups and adjustments
Trend Based Pricing:
Can the software be used to apply upward or downward price pressure based on the run rate (“trend”) of your product?
For example, if your product has been trending down, some software allows you to price dynamically at, say, $0.50 below so you can quickly build up your trend and its Best Match ranking on eBay. Once the product is trending positively, it can switch automatically to price at, say, $0.50 above, in order to maintain the upward pressure on price.
In an increasingly price-driven and competitive market, every serious eBay seller needs to be able to react instantly and reprice when the market changes, in order to build and maintain sales momentum.
Effective repricing requires quality data. Price Monitoring, a tedious and complex task, is best done by software which is capable of processing and analysing the volume of data faster and more efficiently than any manual operation.
The best solutions incorporate Artificial Intelligence that can automatically scan, identify and lock onto competitors’ products before applying pre-set Dynamic Repricing rules.
Given the solutions available, there is no reason why anyone should be able to “eat your lunch”. In fact you should consider Dynamic Repricing an opportunity to grow your business and take it to the next level.
About the Author
Cardy Chung founded StreetPricer in 2016 after 13 years in online retailing and developing software for exclusive use in his eBay and online business. Prior to online retailing, Cardy was an executive in the IT industry and Board Member of an publicly listed technology company in Australia. He holds a B.Sc. (Hons) Computer Science (1st Class) with a major in Artificial Intelligence.