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How retailers and brands can avoid the race to the bottom in online pricing

How price competition drives down price Furthermore, due to the ongoing price wars, the largest retailers like Amazon, Walmart and Costco use their retail distribution power to squeeze brand manufacturers for cost savings, often asking these brands to reduce their wholesale prices significantly—else risk being de-listed or not carried in stores anymore. This phenomenon further perpetuates and escalates the price wars across retailers. Good for consumers, potentially bad for business Lower prices will always be a good thing for consumers, so why is this a bad thing for business? Doesn’t this mean retailers and brands eventually converge to the market price of a given product? The answer to that question is “maybe.” What is certain is that retailers and brands can’t take margins for granted and will need to be ready to serve customers profitability at a low gross margin while focusing more and more on contribution profits . In addition, “market price” doesn’t need to simply be the cost of a product plus a small or incremental change. When these situations are identified early enough, an intervention is possible. If no action is taken, a product’s price could bottom out or flatten at an unprofitable price. On average, this leads to a 3.9 percent loss in revenue on products where a price war has started. However, if an intervention takes place in time, retailers can avoid those losses.

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