If you work in the eCommerce and dropshipping industry, opting for price competition can be tempting—especially in the early days. However, competing with other brands on price alone is a dangerous road that can lead to many problems later on down the line.
The eCommerce industry has seen impressive growth over the past few years, making competition tighter than ever before. A recent study reports that by 2040, more than 95% of global purchases will happen online, indicating that the world of eCommerce has a bright and busy future.
If your eCommerce company is in it for the long haul, you’re going to need all the information and support necessary for consistently attracting customers and crushing the millions of competitors out there. In this article, we’ll go through five strong reasons to avoid dropping the prices of your eCommerce goods and the reasons behind why they can cause trouble.
1. Low Prices Advertise Low Quality
Price is often linked to our perception of inherent value. While the theory doesn’t hold up in every instance, many of your customers will use price as an indication of quality, and therefore you should, too. For example, unusually low prices can trigger consumer questions such as:
- Why is this product so cheap? Is there a defect I can’t see?
- What if this product doesn’t work? Will I need to replace it with the expensive option anyway?
- Have flimsy materials been used to make this? Will it last?
- If people know I’m buying from a cheap brand, will they think less of me?
The last thing you want to do is give consumers cause to doubt the quality and validity of your product. If your prices are too low, it can scare off potential customers for fear of it breaking or failing to deliver the value they are looking for.
2. Price increases present long-term difficulties
Chances are, your plan is to start off with low prices and increase them over time. However, carrying out that strategy in real life can have serious ramifications.
Price shoppers (consumers that exclusively hunt for bargains) are loyal to only one thing: low prices.
If you’ve spent all your company’s time and energy targeting consumers who fall into the “price shopper category”, don’t expect them to follow your business into the future as you steepen your rates.
Even the loyal customers who follow your business for the products or the service are not likely to take kindly to a price increase. To some, it may even feel like a slap in the face. If your customers become acclimatized to a certain price bracket, a sudden increase will be nothing more than a reason for them to seek business elsewhere.
3. Larger competitors will crush you
The threat of a larger competitor squashing your trade is not unrealistic, especially in today’s bustling eCommerce world. Even if you manage to cultivate initial market leadership with low rates, the winning streak is sadly destined to be short-lived.
Major retail companies like Amazon or AliExpress are backed up by legacy, loyalty, and billions of dollars in revenue that can survive selling at a loss for years before sapping their competitors (you) dry. It may seem pessimistic, but this is the reality of how major eCommerce brands work.
If you are running a small or even medium-sized online business/manufacturer, aiming for price competition is only going to buy you a bit of extra time before your profits run out and a bigger company decides to take the reins on your customers.
4. Price Competition, aka Low prices, attract difficult customers
Price shoppers can create more problems than just disloyalty. Customers who are looking for the cheapest possible online goods also tend to be the type of customers who complain to receive further discounts, make invalid returns, or delay payment for as long as possible.
While it is a generalization that should be monitored by the sales manager of your eCommerce store, low prices have a reputation for attracting problem customers that makes your life much harder than it needs to be. Other potential issues include:
- Not valuing the product they buy
- Requests for free goods or refunds
- Unreasonable micromanagement
The above problems can be caused by just about any customer, but price shoppers have a categorical history of being difficult to manage. The fewer options a customer has, the more likely they are to put up a fight if things don’t go their way. These are not the customers you want in your target market.
5. Bigger Margins = Bigger Opportunities
The smaller your margins are, the smaller the potential is for sustained growth. If you want your business to continue growing and expanding over time, your profits need to be at a certain level, or else you risk an early departure from the industry.
Larger margins ensure that your company is being fed what it needs to thrive, creating a more sustainable loop of distribution, and profits.
It means being able to sell better quality products, paying staff higher rates, and investing in tools that can further advance the business. Making a success out of an SME eCommerce business in 2022 with price competition is not impossible. But it’s much harder and more fraught with complications than if you place your prices at a higher mark.
When you have a decent markup and a healthy profit margin, you open yourself and your company up to the potential for experimentation, training, expansion, and the all-important room for error.
The Bottom Line For Your Bottom Line
Price Competition, aka Lowering your prices, is a strategy that may work in the short term. But over time, it simply isn’t worth it. Drastically reduced rates can harm your relationship with loyal customers, and leave your company in a vulnerable position that’s tricky to climb out of in today’s fiercely competitive climate.
Another factor to consider is how important your supplier is when sourcing your items, especially in China.
While it is true that China has become, over the years, the “World’s Factory”, the quality of the products produced can vary enormously, even within the same factory.
You need someone who has experience in dealing with Chinese manufactures and who can provide you with the best products at the best deal.
Someone like Yakkyofy, we can:
- Provide you with an All-In-One Web-App to manage your eCommerce orders;
- Source top quality products from certified suppliers in China;
- Execute Quality Control Checks on your Items before Shipping;
- Help you create Personalized Packaging;
- Customize your Products with your Logo;
- Dropship in over 100 countries worldwide;
- Ship to Amazon FBA;
- Assist you in the Importation in your own Country;
These are only some of the services we provide.
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BIOGRAPHY OF THE AUTHOR:
Nina Sharpe is a content champion for various outlets, covering various business topics from finance for startups to small business accounting tips.