The E-commerce Leader

[00:00:00] Kyle: automate your pricing plan. There are tools that allow you to test your price points for a bunch of different factors.
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[00:01:05] Michael: Ladles and jellyspoons. Welcome back to the call-in show for the e-commerce leader. We’re here with our usual expert panel over two sides of the pond. It’s a big old pond. It is. So we’ve got Kyle Hemer and, , Jason Miles over in the west coast, Chris green on the east coast, and then on the east coast, bit of a different continent, we’ve got, , In London, England.
[00:01:24] Love London. England just makes me laugh every single time, but I guess London, Ontario is not quite the same. So they were talking about price gouging versus price optimization and e-commerce, it almost feels like a sort of, it makes me think about the sort of Soviet area of Russia. When you know, people would get a shot for profit here.
[00:01:42] It’s not another phrase that it’s come up for a long time, but suddenly it’s a thing. So very interesting. Very topical area. So gents, welcome to the debate. Let’s get cracking with this one. , Jason, what are your thoughts on, what is the difference between price gasoline price optimization in e-commerce?
[00:01:58] Yeah.
[00:01:58] Jason: I wish I had a technical answer for that, but I don’t, but, , I think at a personal level, I’m going to describe it this way. I wrote a little bit. A few years back called pricing power. And the first principle there’s 12 principles. The first principle is you need a pricing strategy for your business.
[00:02:16] And if you have a pricing strategy, then you have something that’s a guide rail for your own operational practice. And I think the guidance. Would be the thing that would prevent you from gouging. Now, a pricing strategy generally comes in three flavors vanilla, chocolate, or strawberry. Just kidding.
[00:02:35] You’ve got luxury pricing, you’ve got neutral pricing, and then you’ve got the low cost leader or the low price leader. They people also call it penetration pricing. Those three kinds of trajectories or very common for business. And I would say you’re optimizing your pricing.
[00:02:53] If you’re following your plan and sticking to your, your approach and you’re gouging, if you’re just throwing your plan out the window and saying, I’m going to go nuts with my pricing strategy here in the short term, because I think I can make a buck. So I don’t know if that helps frame the topic at all, but there you go.
[00:03:11] That’s my 2 cents.
[00:03:12] Michael: Interesting. So that’s a self-defined by the entrepreneur rather than by the market or governments or anyone else by the sound of it. Okay. Chris, what are your thoughts on this August topic?
[00:03:23] Chris: All right. I got good thoughts because I’ve dealt with this. And then press catchy has a definition.
[00:03:29] And I think that’s what people forget. And there’s tons of words in the English language that people don’t realize actually have definitions and they use them improperly. And if you’re saying in the Amazon, the arbitrage, retail arbitrage, online arbitrage world, where people are price scouting, when they’re buying toys at know Walmart and target, and they’re selling them in Q4 at Christmas time for three, four or five times the price, and they accused them of these sellers of.
[00:03:55] That’s not price gouging, literally by definition because toys at Christmas time are not a necessity. So there are laws against price gouging, and they have to deal with things like gasoline during clean up from a hurricane. You can’t just say, oh, we’re going to price our gas at $20 a gallon.
[00:04:10] No, you can’t do that. The government will stop that because at that time, gas is a necessity. Now we’re dealing with. Not just on Amazon, but nationwide this baby formula shortage. I don’t have kids that are owned by baby formula, so I’m not as affected by it. So I’m not following it that closely.
[00:04:25] But if you think of oh, this is shortage and there’s demand, wait a minute. That means the price is going to go up. And if I can find this product and I can make a profit now, funny profit products and making a profit is totally, that’s capitalism, right? But baby formula is a necessity. Amazon is going to take steps to prevent price gouging as they should.
[00:04:44] And we saw this during the beginning of the pandemic with hand sanitizer and wipes and things like that. And at the time those weren’t classified as necessities because we’d never really lived through a pandemic where there didn’t know what we needed and all this stuff. But as it became obvious that they work in necessity anyway.
[00:05:01] Price gouging pricing way through. I got in trouble. Some people lost Amazon accounts. People got into a pretty big trouble for it. So I want people to remember there is a difference depending what you’re selling and if you’re being accused of price gouging, which sometimes Amazon customers do in the review section and be like, I can’t believe you’re selling this toy.
[00:05:17] Yeah you don’t have to buy it, it’s not a necessity. So it’s by definition selling at over retail prices on Amazon is not price gouging. Now I will give some insider information from Amazon. Of course anybody selling your name is on for any period of time, knows that Amazon has kind of price controls in there of the warranty of your price too high, or even if your price is too low.
[00:05:36] And if you’re priced way too high and it varies by category and by item, they will suspend or suppress the buy box offers and make it harder for customers to find you. They can still find you and buy products from you if they really want to. But Amazon does not want customers looking at Amazon as a high price destiny.
[00:05:54] And this is the behind the scenes info where Amazon has said, look, we don’t need to be known as the lowest price destination, but we do want to be known as a low price destination. And this came about because there was an article where people were selling like some special edition frosted flakes for $40 a box.
[00:06:10] And people are like, I can’t believe Amazon is selling it. And they don’t know the difference between Amazon and third-party sellers. And Amazon is not going to be participating in over retail price, single price gouging, but third-party sellers in the marketplace. Sometimes our customers don’t know the difference.
[00:06:22] So Amazon is going to put rules in place. So that’s a long answer for price gouging, but I think people need to really understand that there’s a difference. There is a definition of price gouging, and you need to use it appropriately and properly.
[00:06:33] Michael: I like that. I have to say as the linguist and. I hadn’t as my wife would be the first Italian that I really like proper definitions of words.
[00:06:40] So thank you, Chris. That’s very reassuring to me personally. Kyle, your thoughts?
[00:06:44] Kyle: Yeah. I think there’s a number of things. Laid it out pretty well. There is definite laws on the books for price gouging in particular industries, but it’s not universal across the board. And, but then certain states do have definitions of what price gouging is.
[00:06:59] So if you live in a state, you better be sure of how you are your own laws, where you live in ordered, when you’re thinking about your pricing now I’ve heard a lot of definitions around it and even on Amazon I’ve seen where if you are respond, if you’re moving your prices based on an external stimulus meeting, if it’s COVID related and you add hand sanitizer and your hand sign and your hands, and it there’s no 350.
[00:07:28] More expensive on your listing. You’re probably going to get an, have an issue with Amazon through the price gouging. What I’ve seen is about a 20 per anything above a 20% swing. You need to be mindful of, at least in my experience. Now you can gradually grow your price up, but if you Jack your prices.
[00:07:51] By 20, over 20% that has a tendency to be in, in my experience on Amazon, a flagging action, right? That’s going to be something that’s going to raise some eyebrows, particularly if you’re in an industry that is hypersensitive to it. So I think fundamentally though, it comes down to the question of, is, are you selling a necessity, for example, baby formula, Chris mentioned.
[00:08:14] And then at what point, just because you can price them. At a certain level and people might write. Is it still the right thing to do is like ethically the right choice to make. Do you ethically say I can maximize my profit and squeeze everything out of it? Or do I say no, this is a fair price for the, for my products, I’m making a profit.
[00:08:32] Like where do you draw the line there? I think that’s a more fundamental question of what you got to decide as a business. Are you going to squeeze every last cent, every last shilling out of your out of your potential. Or are you going to still leave them on the table, be competitive and, part of that’s going to be what the market around you, your competitors are doing.
[00:08:52] Cause you’re not setting prices in a vacuum, right? That’s the other thing people have to keep in mind is that you should be setting your price, based on what your competitors are doing, either going above them or below them, depending on your strategy and where your product sits in that spectrum of goods.
[00:09:06] But the, I think the big question is what do you decide to do at thickly?
[00:09:10] Michael: Yeah, a lot of interesting thoughts there. So it seems to summarize so far, there’s an internal guide rail. That’s more about business, rational thinking, I guess from you, Jason, there’s the Amazon regulations and government regulations about properly defined price gouging.
[00:09:24] Thank you, Chris and Kyle, you’re saying about the sort of internal. Guidance that one gets, as the entrepreneur or the business owner or somebody involved in running the business. For me, I’m interested in the external guidance guide rails given by governments, because for starters, they are much harder or the kind of fluffy, a bit harder, which is to say governments can take ages to be clear about stuff, but it may mean jail time.
[00:09:46] If you really go mad. Whereas Amazon account suspension is pretty major. If you only sell on Amazon. That’s very relevant in the UK right now, because a lot of the world, , the types of commodities, this applies who is really shifting and the famous one at the moment is that we’ve got BP and shell headquartered here in the UK, , in London.
[00:10:04] And. They have had a lot of profits this year because of oil price going crazy. And there’s been talk about a windfall tax, the government, the chancellor who’s as well as liberal markets, , has said initially that will be in this incentive to make profits, which would be true, of course, but it seems that a lot of people are waving.
[00:10:21] Cause they’ve now going to have to pay out in crazy amount of money, , to see off the massive price hikes in. As we call it in gas, as you would call it, which is to say natural gas, you heat your home with and a gasoline or petrol at the pump, both of which have gone up about 50%, , in the last few months.
[00:10:37] So I think, , it’s worth keeping an eye on the regulations, obviously in the states you have states, state governments, which makes life considerably more complex. How that interacts with Amazon. I don’t even begin to know, but I think it’s worth keeping an eye on the government, but also then popular.
[00:10:52] , within your specific market, which doesn’t mean to your point, Chris, the AOD ranty person raving with one star review on Amazon. That’s going to happen anyway. It doesn’t mean angry people on Facebook and Twitter, but if there’s an overall groundswell of opinion, Either across the nation or within a state or within a particular market, I think it’s worth keeping an eye on that.
[00:11:10] , she, isn’t quite an ethical point. It may become a legal point, but it’s also a question of brand and your relationship with your audience as well, I think. Yeah. Yeah. So some thoughts, second rounds thoughts in response to that? Anyone desperate to jump in Jason?
[00:11:22] Jason: Yeah. There’s two other factors that we haven’t really mentioned, which is.
[00:11:26] All business operators are going through an intense process of rediscovery of pricing on their cost of goods, side, and a cost of goods that go nuts. And that’s a factor. That means you’re either gonna adjust your price. Or you’re going to create, or your profit margin. Those are, or become more efficient as a business.
[00:11:46] There are only a few levers to pull that’s definitely a factor. So whether you need to or can raise your prices by 10, 20, 30% might not be a function of capitalist, desire and greed. It might be a function of, I have to make a profit to keep my business going. Therefore I’m raising my prices.
[00:12:04] I told Michael the other day that. My mentor has a restaurant tour and he has Manet’s packet. So he gets, and the box of Manny’s packets went from a box for him as a big item $11 for the box to $36. So they. And those are a giveaway thing for him.
[00:12:23] He’s not monetizing. I just, it’s just out on the counter type thing. That’s the reality for many business operators. They’re looking at how to redeem the mess they’re in by raising prices. Point number two, I just mentioned is some businesses have pricing power and some don’t you’re in a good business when you can raise your prices and nothing bad happens in terms of consumers.
[00:12:44] Or behavior and the optimal path in that regard is to raise your prices systematically in keeping with the times and running your business effectively, leveraging the pricing power, That’s the smart move. That’s not socialism that’s capitalism, but you don’t want to be, out of whack with it, but it’s just a reality.
[00:13:04] Some businesses have better pricing power and to not identify that and understand it in your business is to make a massive error. And so I think those two things are important to keep in mind. It isn’t just the egalitarian thing too. Raise prices are not raised prices. There’s brutal reality for business operators in the back end, which we all of course realize as we’re running our businesses.
[00:13:24] So I don’t know if that helps at all, but there you go.
[00:13:27] Michael: Yeah. Interesting. Isn’t it. It’s a, there’s often a perception amongst consumers who in the same breath, we’ll go round and ask their boss for a 10% raise twice a year of inflation’s going crazy. Hey Chris, any thoughts on.
[00:13:40] Chris: I think we really haven’t talked about how time sensitive price gouging is because price gouging really, it’s very strongly connected.
[00:13:47] Two times there’s gonna be times where you can price. Gouger where you can sell it. And over retail price. And some of those times are just like, Hey, it’s Q4, it’s Christmas time. And I got my hustle on and I’ve got all these products and yes, I am going to make a profit from the parents where.
[00:14:00] And able to pay a premium for these hard to find toys. It’s because it’s not a necessity, but at the same time, we’re throwing around words like capitalism, monopolies competition. These are all things that affect the market, ineffective, the price. If someone’s price gouging, if someone’s making too much money, someone’s going to come in and compete, or time is going to change and go by and be like, Hey, that demand is not there anymore. Everybody that wanted that $99 toy for $400 now. So that part of the demand curve is now gone. Now you’re down to the 300 and the two fifties and the two hundreds and things are going to change. There’s a famous quote from Jeff Bezos that I think everybody’s remember, especially Amazon sellers, especially the arbitrary.
[00:14:35] Is that your margin is someone else’s opportunity. So if you’re making good money or if you’re making too much money, someone’s going to come in and say, you know what? I can do that. And I’ll do it for less. And that’s where the market’s kind of come to equilibrium. And especially when you’re on a marketplace like Amazon, where Amazon retail is a player to come in and say, I’ll be Amazon tracks, Walmart and target.
[00:14:53] They know what that box of cereal. At Walmart. And if they look and they’re like, wait a minute, we are not competitively priced. Our third party marketplace is not supplying this product at a competitive price for our customers. Remember it doesn’t have to be the lowest price, but it does need to be a low price destination.
[00:15:10] That’s when you’re in trouble and Amazon retail comes in and undercuts you, Amazon retail will come in and say, look. You guys are not providing this at a competitive price. We will do it ourselves and Amazon retail doesn’t want to do that. I in a perfect world market equilibrium, Amazon retail only sells loss leaders because the third party marketplace supplies, everything else at a competitive price.
[00:15:30] Amazon will leave you alone if you’re at a competitive price, but if you’re flipping your target brand products for three X on. Amazon’s going to notice, and they’re going to suppress the buy box and they’re going to bring it. They’re going to do things about it. So there’s times where yeah, you can make money flipping like retail, retail, arbitrage products, Q4 type stuff, stay away from the price gouging, but it’s a complicated system and you gotta remember, you’re here to provide value to a customer.
[00:15:55] And if you’re not doing that, you’re going to go out of business. Eventually time’s going to go by and your opportunities are going to disappear.
[00:16:02] Michael: Yeah, I like that. Just to come in on that, I think, , the idea that markets get back into equilibrium I think is correct. Am I a free market liberal?
[00:16:08] I dunno that the reality is that most markets are way more controlled by governments than anyone free markets, hardcore person likes to admit, including, I must say the U S so Milton Friedman has probably been more. It, implemented in the UK than in the U S I would argue particularly under Thatcher onwards, but nevertheless, , even if you don’t interfere with the government, there’s going to be an almighty from gap between, , the high price and then the correction.
[00:16:31] So they say that the solution in the oil industry, the solution for high prices is. So in other words, your prices are high. Lots of people enter the market and supply stuff. More supply means that the price comes down that can take a very long time with certain types of products. And I wonder whether that means that there’s going to be such a painful gap and it’s going to last for so long that we’re going to see quite a lot of changes in regulation, whether by Amazon, which is a Quayside governmental body, for anyone who sells on it or actual governments.
[00:16:57] And they, if anyone’s got any thoughts on that, Kyle, obviously you, and that you had to have a say yet,
[00:17:01] Kyle: No. I think just summarizing it. I, you have inputs in your own business, right? Jason mentioned with inflationary pressures. And I think that’s a completely reasonable, and I think if you’re not raising your prices or evaluating your prices, you’re going to shoot yourself in the foot.
[00:17:17] Like you’re going to be losing. At the same time to Chris’s point price gouging specifically is very time-bound and it’s usually driven by some other external factor. So in this case with the baby formula stuff, there’s just a shortage. And so people are buying it, and hoarding it and then turning it around and.
[00:17:36] On Facebook marketplace or whatever right. Or offer up. And so they’re trying to try and make a buck out of that. And I think the difference between, I guess for me around price gouging and optimization comes down to choices for the consumer. If the consumer doesn’t have a choice, right?
[00:17:52] Like for example, I read this article about this lady whose baby requires a specific type of formula because of allergies. It needs to be this hypoallergenic. They have to have that. And if they’re given the nutsy only option they have, and people are like buying it up in bulk and then trying to flip it for 400% of what they bought it.
[00:18:13] Like she doesn’t, that person doesn’t have a choice. They don’t, they can’t be like in the toy market on Q4 and be like, oh, I actually, I have, I can just go buy this other. I have all them an alternative. So I think that should be weighed into it for sure. But I do think that you have to optimize your prices.
[00:18:27] You have to be aware of that. It doesn’t happen in a in a vacuum. Like your pricing is effected by the marketplaces you’re on and to Chris’s point too. I would say this like Amazon, even if you were a third party marketplace seller and you have a newer product and you’re selling on Amazon and it sells on Walmart, they’re actually looking at the price on Walmart and other, in other marketplaces as well.
[00:18:51] And you will actually get, you’ll actually lose the buy box to what’s called a pricing error on Amazon. If your price is not matched to your Walmart pricing and you can get in repricer wars, even with yourself, even if you were the, even if you run the listing on both of them, or maybe you’re using a wholesaler and they’re selling it on one of these other platforms, you can actually get an, a pricing battle with yourself with your own products across those those platforms and actually losing sales on Amazon because now the buy box is no longer available for people to buy.
[00:19:22] And and you have to go through a couple of other steps to actually buy the product, which kills your conversion. So you have to be aware, it all happens. There’s a lot of inputs that are occurring into it. I think it goes down. What’s the best for your customer and what’s the best for your business, because if you’re all through trying to serve and balance that out, I think you’re going to be in a good place.
[00:19:40] Michael: they sound like a very simple but healthy questions. And to your point, Chris, if you’re not creating value, then ultimately the market will punish you. And that’s the ultimate corrective mechanism. And that reminds me of another Jeff Bezos quote, which is we should be aware of our competitors.
[00:19:53] We should fear our customers. And as an Amazon seller, I can absolutely attest that he has succeeded in creating an environment where I fear the customers because of their power to give a one star review, which kids, destroy an entire as an account. I’ve seen that in a friend of mine. , months to come back from that.
[00:20:09] So in the end, I guess that’s probably where the power should be right with the consumers. , so Gents, I would suggest a practical takeaway rather than a quick round, what are practical takeaways for e-commerce e-commerce operators to try and get their heads around price optimization versus price gouging.
[00:20:24] And e-commerce let’s get with you, Jason.
[00:20:26] Jason: Yeah. I’d say have a pricing plan for your. And stick to it and articulate it, write it down, share with your team go deep into your own plan and monitor your own costs very carefully. That’s my best suggestion.
[00:20:39] Michael: Excellent suggestion. Chris,
[00:20:41] Chris: I would remind all sellers to just be aware of the market price and the difference between necessities and Don necessities when it comes to over retail pricing versus price gouging, because over retail. Big deal. Someone can not buy something and buy something else. But if you to if you get busted for price gouging on Amazon, you can lose your entire business.
[00:21:02] Especially if you have very heavy on Amazon, it’s not worth it. Just free to know, squeeze a few bucks out of a single AC. At one point in time, it’s not worth it in my opinion. And some people may have to learn that lesson the hard way.
[00:21:14] Michael: Yeah, agreed with that. And just one little point on top of that, I use Uber a lot, which has surge pricing, just as thing that, that airlines have these days and the brand relationship.
[00:21:23] I find myself and my wife having with it. My wife uses it a lot more than me is not great. I think if you have violent swings in pricing, at least two from the consumer, this is very unscientific. But I think it can lead to a poor relationship with the brand from the consumer. So that’s one reason I think that Amazon quite rightly steps in and says, we don’t want to see those extremes fluctuations, which isn’t quite the same as high or low price.
[00:21:44] , some kind of stability to pricing I think is important, , as well. , Kyle let’s take it home practical, , practical
[00:21:50] Kyle: advice, automate your pricing plan. So Jason says, have a pricing plan for your business, but when possible automate it. What I mean by that there are tools that allow you to test your price points for a bunch of different factors.
[00:22:03] You can optimize it for conversion rate. You can optimize it for ideally profitability because there’s going to be a range in which the conversion rate your customer wants to buy and maybe your price too low. Outside of other external factors around a supply chain, but maybe you just, your price in the market is too low and you need to raise it.
[00:22:23] A quick example of this is a few years ago, , in our Amazon business, we had a, , one of our sketchbooks. I was like, oh, we’re really competitive. We’re price competitive. Two competitors, are we actually too cheap? And so we ran a split test and we ended up actually making more money and more sales at a $2 higher price point than what we did when we were at actually a lower price point.
[00:22:46] And so we actually literally added $2 per unit in profit to that sketchbook for every single sale. And the only way we got that data, so we actually tested it and we test. Automatically we’ve set it up to run. We let it do its thing. It tested different price points within a range that we set it for.
[00:23:02] And we optimized for the ideal price point for profitability. I would encourage you to do that in your own business within all possible.
[00:23:08] Michael: Absolutely love that. I, what I really liked to answer. So I think we’ve come up with some quite rational responses to what can be very emotive subject, which is super important for any business owner.
[00:23:17] We’ve got to keep our heads screwed on while all around us are losing theirs and blaming them on you. That’s a quote from Rudyard Kipling. There you go. Very British way to bring this to a close. So folks, if you have enjoyed the e-commerce leader hot takes show, and even speaking this today, then do come and check us out on the nearest.
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