You spend a lot of time creating your brand. After all, your brand tells your company story. Through your logo, website, social media and advertising strategies, you craft the vision for customers and provide added value to your products. A significant component of your branding is product pricing. Your MSRP conveys product value to customers. A high price can indicate quality, exclusivity, and craftsmanship. A low price may indicate a bargain and accessibility. Whatever factors go into determining product price, you expect that price to be honored by retailers.
Often, traditional brick and mortar retailers do honor your pricing. But online, it’s a different story. Many product manufacturers discover that their products are being significantly underpriced on marketplaces like Amazon and eBay. This poses a threat to traditional retailers, whose customers are checking out the product in the store but making the purchase online, a practice called showrooming.
Additionally and perhaps more importantly, the under-pricing of your products online can lead to customers devaluing your products. If the MSRP is $50 but on Amazon, the product is $35, why would the customer pay more? Soon, the customer starts to believe that the product is worth $35, and not the MSRP value assigned.
The product price, which once demonstrated product worth, now devalues your brand.
How does this happen? Usually, this occurs when unauthorized or “rogue” sellers obtain your product, often from distributors. The Amazon marketplace is competitive. To gain sales, sellers will often start a “race to the bottom” with price. One seller drops and the rest soon follow.
To understand why a seller would lower price and decrease their margin, check out our next blog post Demystifying the Buy Box.