Need some assistance setting prices on your e-commerce site? The right pricing software can help. Software To Set Your Prices
If you use Amazon.com, you will be forgiven for thinking that only billionaires read about the genetics of flies. The book “The Making of a Fly: The Genetics of Animal Design” was recently selling for over $23 million (and it’s only a paperback). This of course does not include shipping and handling. Since its peak price a few weeks ago, the book has been discounted deeply. You can buy a new copy for only $976.98 as of this writing.
Once you’re done reading it, you can sell it back to Amazon for $2.38. Not exactly a good ROI.
What in the world is going on with this pricing? The answer: robots are setting the price.
A niche industry has arisen over the past few years; Companies offer to help small businesses and consumers manage prices for products sold on marketplaces such as Amazon.com and Ebay.com. These companies provide pricing “robot” software that continually adjusts product pricing to reflect market conditions. The adjustments are based on algorithms developed by the vendors. The robots monitor the pricing of competing products and adjust your prices higher or lower to respond to these changes. The goal is to achieve an optimal price that will maximize your overall sales. In many cases this pricing competition is necessary because sellers are offering identical products.
If you sell a few products online, monitoring and managing prices can be done manually. But once you start selling a few dozen SKUs, this becomes untenable. You would have to spend all of your time watching product changes and making minute changes. It’s much better to employ robots.
These robots are the reason why you see odd prices on many books and other products online. A book may cost $17.54 because the same book from a competitor may be selling for $17.65.
In the case of the Fly book, the pricing reached absurd levels due to the use of unsophisticated pricing algorithms used by two sellers of identical copies of the book that simply fixed prices to each other’s book.
The first seller’s robot priced the book to be 99.83 percent of the second seller’s book. The second seller priced their book to be 127.059 percent of the first seller’s book. So as the first book adjusted down slightly, the second book went up dramatically, forcing the first book to increase its price again to a hair below the second. This circular reference led to pricing inflation that rivaled that of Zimbabwe. This pattern was discovered by Prof. Michael Eisen, which he discussed in his blog “it is NOT junk”.
This example however, should not scare you from considering the use of pricing robots. More sophisticated, well-managed ones can be very effective in both price optimization and minimization of sales time, according to companies like Feedvisor which sells algorithms to Amazon.com sellers. This increases your revenues and minimizes your sales cycle. The service also include pricing ceilings and floors to ensure that pricing never reaches ludicrous levels.
Go to the article: Using Robots To Set Your Prices
