Algorithms feeding unsustainable price cuts online | Retail Dive

While consumers and sellers alike may think that Amazon itself is driving price competition, it’s now often third-party marketplace sellers, on Amazon and Walmart, that initiate price-based skirmishes, according to the report. Dynamic pricing algorithms have enabled retailers to detect every online price change, including temporary promotions, and that’s, “leading to race-to-the-bottom behavior and permanent drops in Average Selling Price,” Profitero said.

Consumers are benefiting from as well as abetting the practice. Aided by their smartphones, 54% now habitually suss out prices, even shopping in store. And, while not as speedy as machines, they’re now conditioned to not only search out the best online price, but also to wait for price drops, Profitero said.

Brands and retailers are also getting caught up in price-matching schemes that trigger price declines based not only on shelf prices but also “irregular” prices like rollbacks, coupons, combos like buy one get one (which get matched on a per unit basis) and special in-cart prices. Furthermore, some third-party sellers are offering low prices on merchandise from liquidation channels or gray markets, without regard for brand equity, pricing strategies or economics — yet those prices are still being matched, Profitero warned.
And while Amazon is keen to meet or beat Walmart’s prices, some items priced too low could end up in Amazon’s crosshairs, according to the report. Amazon has a method of cutting off sales of items priced too low to be profitably shipped, labeled “CRaP” or “Can’t Realize any Profit.”

Read complete article here:

Algorithms feeding unsustainable price cuts online | Retail Dive.