Why are online retailers dumping?

The seemingly simple answer to the question, “Why do online stores engage in dumping?” is “to sell!”

But if you look into the real motives and schemes, you’ll understand the factors that trigger dumping in online stores.

Pioneers, with heads of iron, souls of tin, devils possessed!

Content List

• Entering the market
• Discounts and special offers for purchasing goods
• Warehouse
• The domino effect — a reaction in kind
• Switching to a competitor’s brand
• Uncoordinated price list updates
• Dumping after hours — evenings, nights, and weekends

Entering the market

The fastest way for a newcomer store — a “pioneer” — to start selling online is to set minimal prices and run ads. Their chances of making sales increase significantly when established market players follow the recommended retail price (RRP). The newcomer’s prices may look very attractive, enticing customers to buy cheaper while protecting themselves by paying upon receipt.

Some pioneers don’t even have contact with certain suppliers but “test” the market by adding various products to their web storefront. In doing so, they pursue at least two benefits:

— Suppliers themselves find these online stores and establish partnerships;

— Interested customers place an order for one product but get offers to buy a different one (more on that below).

A request for a discount doesn’t signal poverty but frugality.

Discounts and special offers for purchasing goods

Practically every supplier or distributor offers discounts and special deals to retailers, further stimulating sales. In wholesale, these can include:

• free delivery to the store’s warehouse for orders above a certain amount;
• special prices or bonuses for achieving monthly turnover targets;
• a one-time discount on buying a batch of one or several product models;
• an extra discount for avoiding accounts receivable;
• seasonal closeouts.

These and other types of attractive offers from suppliers encourage retailers to “take more” for their own warehouses. But if they realize they’ve “swallowed too much,” they have to play with prices to clear inventory.

“Where’s Grandma?”

“I’m here in her stead…”

Warehouse

Both established and new online stores with their own warehouse may end up with slow-moving goods. Sales and promotions help them:

• reduce or clear out warehouse stock;
• free up working capital;
• sell seasonal items;
• remove certain categories or brands from their product range.

Such actions lead to the following consequences.

The Falling Domino Principle…

The domino effect — a reaction in kind

Deliberate dumping is initiated by online stores that certainly know the recommended prices. Someone starts dumping first to “skim the cream” in this simple way. Once a critical mass of competitors engages in dumping, almost all other players inevitably respond to the market situation.

Like toppling dominoes, a chain reaction ensues — forced response to competitors’ slashed prices.

In such cases, prices on the dumped brand’s goods can only be stabilized in a short timeframe; otherwise, it becomes an endless game.

“Don’t go there; go here instead!”

Switching to a competitor’s brand

Another scheme that provokes dumping among competitors for the same product is advertising a low price to lure customers, then switching them to a product from another brand. Along with appearing in Google search results, such online stores draw in interested visitors by deliberately listing items they don’t actually have on price aggregators (Hotline, etc.).

The effect of this strategy for online stores is somewhat questionable because it requires skilled engagement with the end customer and the ability to switch them from one product to another. But for the “donor brand” (the one being switched away from), it’s both reputationally and financially damaging.

Both newcomer stores and those cut off from supplies for contractual violations can engage in this practice. You might negotiate with some, but for others who illegally use your trademark, you should demand they remove the items from their web storefront.

Systematic data collection directly from online stores, as well as monitoring prices on Hotline, allows you to stay informed about all major market players, including those using switching schemes for items they can actually sell.

“The bullet’s already left — it’s your problem now…”

Uncoordinated price list updates

Not all online stores intentionally violate agreements with suppliers. Many suppliers simply fail to understand the nuances of online stores’ business processes.

While a single supplier can send one price list at a time to dozens or even hundreds of stores, a typical online store receives dozens of price lists per day from different suppliers, and each one needs processing!

The result is that category managers in online stores can’t keep up with updating all supplier price lists, leading to mistakes in product prices — some end up too high, some too low. Chaos ensues…

Organizational and technical factors include:

• no regular delivery of updated price lists;
• price lists in inconvenient formats (in the body of an email, in PDFs, behind a site login/password);
• no online price list (e.g., Google Sheets);
• supplier’s price list is tied to a foreign currency, and the recipient doesn’t get timely updates on currency exchange rates.

The better suppliers organize the distribution of their price lists, and the higher the automation level of updating price and inventory information, the fewer problems online stores face in processing this data.

“The city goes to sleep, the mafia wakes up…”

“…and starts dumping prices.”

Dumping after hours — evenings, nights, and weekends

Often, it’s well-known when staff controlling online store prices are off duty. Precisely at these times, maximum dumping occurs automatically in online stores for certain brands. Yet, by the start of the next workday, the RRP is automatically reinstated.

The quickest stores make sales this way, while the most honest ones see close to zero sales under these circumstances.

How do you stay informed about what’s really happening on the market at any time?

You probably already know the answer — connect to an automated monitoring system for online stores. PriceCop’s system collects prices, availability, and other data, helping you eliminate manual tasks and increase sales.