Avoiding “The Race to the Bottom” Price War is a State of Mind
Ask any Amazon seller doing retail or online arbitrage what their biggest frustration with selling on Amazon is, and you will end up listening to a 10-minute rant about sellers leading a “race to the bottom” price war.
The “race to the bottom” is when inexperienced Amazon sellers undercut other sellers until we no longer make a profit, turning a profitable product into one not worth bothering with.
There you are, happily selling a product making a $9 profit; with a 60% return on investment, and you have 20 in stock. There are other sellers on the listing, but that’s okay because everyone seems to be pricing around the same and Amazon is sharing the Buy Box fairly so that you make a few sales a week.
Then you noticed you haven’t sold this product in days so you take a look at the listing.
Shock and horror follows. There are six other sellers on the listing, none of which have any seller feedback and have the dreaded “Just Launched” label under their store name. The shock and horror doesn’t come from the fact that there are new sellers. We welcome new sellers on Amazon as we were also once a new seller. It comes from new sellers chasing sales by undercutting each other. A once profitable product is no longer as profitable. And now you’ve now got stock sitting on the Amazon shelves not moving.
“Why don’t they keep their price the same as everyone else?”
“Can’t they see the price history?”
“Why are they wiping out their profit?”
The cries ring out around Amazon related Facebook groups and forums, and there is much gnashing of teeth and not a small amount of cursing.
If we understand the psychology causing the price war we can turn that anger and frustration into positive emotions to avoid falling into that same pricing trap ourselves.
No Sale = Failure Myth
I wonder if the following scenario is familiar to you. Perhaps you are a new seller and you feel like this, or you may be more experienced and remember going through this.
This happened when I first started selling on Amazon, so it’s not a hypothetical scenario, it’s what really happens – and it’s about psychology.
When you first start selling on Amazon, you don’t have much inventory.
You’re checking your seller app every few minutes to see if you’ve made a sale.
You haven’t made a sale.
You check to see if you are the lowest price seller and have the buy box.
It turns out some rather annoying seller has undercut you. So you drop your price a few cents so that you’re now the lowest seller. You’re not going to make a five dollar profit and 30% ROI now, but that doesn’t matter because unless you make a sale today you’ve failed.
The other seller has been checking their app every few minutes to see if they’ve made a sale. It turns out some guy has undercut them. So they drop their price a few cents more.
This repeats itself. Sometimes a third seller will join in. A classic price war scenario.
You check your seller app. You’ve made a sale! You’ve only made a $2.33 profit, and 14% ROI, but that doesn’t matter because you’ve sold something on Amazon. You’ve won!
Except if you keep doing this, your Amazon business and the dreams that you have attached to it will soon disappear.
By all means sell low if you need to. I’ve sold at a loss to get rid of inventory.
But don’t sell low just to make a sale. You haven’t failed if you don’t make a sale today.
Hold onto your profit; let the other sellers sell out. Tomorrow, or the day after, when you make your sale and you’ve hit your profit and ROI target, you’ve won. And this time you’ve won properly while your competition is slowly going out of business.
This psychology comes from equating the lack of a sale with failure. You need to prove to yourself and others that selling on Amazon is a viable business model and you believe that proof comes from actually making sales.
Over the long term it comes down to sales that deliver a certain profit and return on investment.
If you change your mindset to stop associating a lack of sales with failure, you can start growing your business in a positive, practical way.
Here are some tips to avoid the race to the bottom mindset:
- Stop checking your seller app for sales every few minutes. Once a day should be enough
- Start sourcing smarter – look for products from less conventional sources – everyone else is sourcing from ToysRus (rest in peace), so look elsewhere
- Get out and do some retail arbitrage by finding products that other sellers won’t have access to
- Perfect your sourcing skills by learning how to read Keepa.com graphs
- Learn how to do Amazon flips where there is less competition
- Set your minimum prices in Amazon Seller Central so that if you slip and try following other sellers to the bottom, Amazon will let you know that you have dropped below where you wanted to sell at
- Set your pricing rules and minimums in the BQool repricer, and take the pressure of repricing off your shoulders. Know the minimum you want to sell at and set this in BQool. Also set a rule to match the lowest FBA seller. You won’t undercut other sellers and you are showing a willingness to share the Buy Box. You can’t drop to a price that wipes out your profit
And NEVER contact another Amazon seller to discuss pricing. Not only is this against Amazon seller Terms of Service but is likely illegal (price fixing) in your country or state.
Let’s wrap this up by going back to the psychology. What you are doing to avoid the “race to the bottom” price war, and as soon as you stop screaming at your computer about other sellers, you can take something out of your control and turn the feeling of failure into positive actions that help your business grow over time.