Patience vs. The Race To The Bottom

Price-Vice-Grip

Photo by s5761 from sxc.hu

The life of a reseller has its highs and lows, just like any other business experience. We know the thrill when we find multiple items at an insanely low price that we can sell for a high ROI (Return on Investment). We get all excited about finding 20 items for $2 that should sell for about $30 each. But then it happens… We send the items to Amazon and a few weeks later, the prices have dropped. Now, that same item is selling for $9.99?!?! What happened?

The race to the bottom. It’s one of the things that Amazon sellers fear the most. I first heard about this phenomenon from Chris Green, but many resellers talk about it. The race to the bottom is defined as the lowering of prices of products, sometimes very quickly, to a point where it no longer becomes profitable to sell.

There are many different reasons why the price of the product lowers so quickly. The main reason is that some resellers think they have to have the absolute lowest price in order to get the next sale. Most new Amazon resellers fall into this mindset. They see that the current low price of an item is $29.99, and so they think they need to price it at $29.98 in order to get the next sale. Then the next person drops it another penny, and on and on. If you’re an Amazon selling veteran, then you know that this can be foolish thinking.

The lowest price doesn’t guarantee you the next sale at all.  Buyer psychology is complicated, and there are a multitude of reasons why a buyer would choose a price other than the lowest. Maybe another seller has better feedback, maybe another seller has more feedback, maybe another seller has a more relatable storefront name, maybe another seller is closer to them (and therefore can get the item to them faster), and maybe another seller has the buy box and the buyer never even sees that there are lower prices available. Those  possibilities are just the tip of the iceberg of why a buyer might choose a price other than the lowest.

I understand that many resellers like to sell their items as fast as possible. It’s good to have items in your inventory that sell quickly, but to totally focus on getting the next sale is not as profitable in the long run as being patient. A healthy inventory consists of both items that sell quickly and those that sell slowly. On most items, I don’t mind waiting for those sellers involved in the race to the bottom to sell out. Yes, they might get a sale a little faster than me, but I will make more money. I don’t mind paying a few pennies of storage a month to get the price I want for that item.

Here is an example: Pictured below is a screenshot from the listing tool I use, FBA Power (Now called ScanPower). I took this screenshot on 1/17/12 as I was preparing to send 6 of these toys (Wow Wee Paper Jamz Drum Series II – Style 4) to FBA.

Screen shot 2012-01-17

You can easily see how each of these resellers were trying to race to the bottom in an attempt to get the next sale. According to CamelCamelCamel, the price of the toy got all the way down to $4.99 just 7 months later. 6304_PJ_Drum_front_2010Now, most resellers would freak out and drop their price too, thinking that they need to get rid of this toy as soon as possible… But often patience brings profits. I priced the 6 toys I was sending to FBA at $29.99 and they all sold that November and December. I was fine with paying a few pennies a month for storage and waiting for the higher prices to return. (The current low FBA price of that toy is $41.29, even higher than when mine sold.) Does this happen all of the time? No… but it does happen most of the time.

This scenario happens over and over again with products I sell. Sometimes the higher price returns much faster than the scenario above. For example, I bought about fifteen Discovery Kids Ice Cream Makers two months ago. I bought them for about $5 and knew143131291_400x400 I could sell them for $19.99. Just after the ice cream makers made it to FBA, the price dropped down to about $10 and continued to lower to under $4. I did not panic and decided to wait. Sure enough, this week, they started to sell at $19.99 (and that’s not even the lowest price, currently). I’ve sold two this week and expect the others to sell soon.

If you notice that the price of an item you sell is lowered dramatically, don’t worry. Be patient and wait it out. The lower prices will sell out and you can wait for your item to sell at the price you want. I know that being patient is hard, but if you think about it, you’re actually getting paid to be patient. Yes, sometimes the prices don’t come back up the way you would like, but more often than not, they do. The only time I ever lower my price drastically is if I have multiple items that would be subject to a long term storage fee. Other than that, I usually sit on my price and wait for my buyer to come.

What about you? When do you decide to lower prices? Have you ever been caught up in the race to the bottom? I have in the past, but have learned the lessons that patience teaches me. What do you think about when you see other people selling at a lower price than you? Let us know what works best for you.

45 responses to “Patience vs. The Race To The Bottom

  1. Good stuff! I have a couple of comments. One of the other bad things that can happen is that Amazon sometimes jumps into the market and lowers the price themselves. That has happened to me a few times, and I still won’t lower my price because even Amazon runs out of stock! When they do, the price returns to “normal,” or what I am wanting to sell mine at, until Amazon gets more stock in anyway. The waiting game isn’t fun, but it often works.

    Also, if I have an item that hasn’t been selling and suddenly begins to sell, I go look and see if I need to RAISE the price on that item. Not so high that it won’t sell again, but raise it enough to bring it up to everyone else’s price. Nobody wants to leave money on the table, right?

    Finally, if you don’t mind, I’d like your opinion on the “condition notes” I see in your screenshot. I, too, add verbiage that is similar to yours, but some are now saying that if your condition is “New” you aren’t supposed to add anything to the Condition Notes. OK everyone has their opinion, but they also say that in some categories (and perhaps soon to come in all categories) those with condition notes similar to yours and mine, those offers will be suppressed. What do you think about that?

    • Georgene,

      …I think that screenshot is from **January of 2012**, almost 3 years ago.
      I think it has little to no bearing on today’s FBA realities – though it does still serve as a ‘nickel and dime to death’ race to the bottom – it doesn’t represent much more than that. =)

      New is new, and I can easily see “condition notes” as being harmful – if not now, then in the future. A free-text field like that can’t be monitored in an automated way. It’s just as easy to mark the item (Bubblicious gum) as New Condition, but put then put “Totally used bubblegum. Been on the nightstand for 4 years” in the Condition Notes and call it a day. A human being would have to review that to catch it, and that’s too labor intensive to be cost effective.
      It’d be SO much easier for Amazon tell FBA sellers to not use Condition Notes on New Condition Items, then suppress any New Condition Item that has Condition Notes – and even if that’s not the case, it does make good practical sense for the FBA seller to do that even if it’s not required – since it’s just extra work on your part. New Condition is “Gift Ready”. End of story. =)

    • @Georgene, you made a really awesome addition to Stephen’s post. While he was focusing on holding steady and not panicking when prices drop, you make a critical point about evaluating your inventory for opportunities to raise your prices. Both great angles.

      I did raised prices on a couple of my products recently and now enjoy a wider margin. The key is to keep an eye on your inventory and don’t assume that being the lowest price is the best position.

  2. I really needed to hear this. I have only been FBA for a little over a month, and I had begun to panic about items that have not sold. I have lowered the price to match the price on a couple of items that had FBAers listing at a slightly lower price (listed since I listed mine). Those items seem to have stabilized at a reasonable price, but I will be wary of lowering my prices in the future. And, I definitely won’t go so low as to lose money. I hope your next blog does deal with when to lower your price or to pull your item from Amazon.

    • “Low ballers” can be very frustrating… and I don’t suggest joining them unless it’s absolutely necessary (expiration date getting closer, too many items in stock, no sign of price recovery, etc).

  3. You make a great point. Last fall I purchased a certain toy that would provide a great ROI. Soon after sending them in, they price dropped significantly. I left my price alone. It took about 9 months, but every unit sold at my original price all within the same week.

  4. Great additional comments about this topic Georgene! Where are you seeing it said that any additional text in the condition notes of new items will be suppressed? Is it a rumor or is it on Amazon’s policy?

  5. Pat, glad I could write something that has helped! It takes a while for a newer seller to get more inventory in to Amazon, which will lead to more sales! More and more inventory also leads to so many items on Amazon that you really can’t track them all.

    Thanks for the blog idea! I’ll be working on that one, so be looking for it.

  6. Awesome article, Stephen. I also advise newer sellers that when they get into this situation, they have to start thinking in terms of ‘3-6-9 Turnover’, that is you have to be prepared for your items to take 3 to 6 t 9 months to sell or sell out. And I have a lot more tips for FulltimeFBA readers here: http://jordanmalik.com/crush , and in another post I wrote in 2011 (surprisingly, my predictions were accurate and many of the tips still apply today):
    http://jordanmalik.com/blog/fighting-fba-competition-and-finding-fba-inventory/

  7. Hi
    I’m a little perplexed by the main article of “not chasing prices down.” I well understand the logic for holding your price however some of the replies received say they had to wait months before lowered prices were restored. This all sounds fine but during that period of waiting they don’t make a single sale or more importantly receive any income.
    So you lay out money on inventory that doesn’t sell for months nor do you receive any income during that period; what sort of business model is this? Am I missing something here?
    There appear to be many anomalies with this FBA business, anomalies that are the proverbial “elephant in the room.” Am I the only one thinking along these lines or are there more ASM’ers out there of the same ilk. Feedback would be appreciated.

    • Terry… great question! For me, it really comes down to trying to have a well-balanced inventory. I’ll have some items that I hold my price on and wait for the price to return so that I’ll get the profit I want, while other items are selling quickly. Not all of the prices drop, so while I sell the items that are still selling well, I’ll hold my prices on the items where the price has tanked… especially when I get close to Q4 and I know sales are about to go through the roof.

      I’ll only lower my prices if I’m nearing the FBA aged inventory cut-off date, or if I need to get my capital back to reinvest in better selling items.

      I hope this helps.

  8. Very interesting article. I would love to see a blog post that takes this topic and ties in the concept of opportunity cost. Would love a way to calculate opportunity cost when deciding to hold or lower the price of an item.

    Here is an explanation of opportunity cost to get the ball rolling and juices flowing: http://en.wikipedia.org/wiki/Opportunity_cost

    Thanks for the blog, I read every single post.

    Steve

    • Good idea Steve! Yes, there are some opportunity costs to consider. If you lower your price and get your capital back, you could potentially use that capital for much better items. I’m only suggesting holding your price when you have some proof (thanks to price history on CamelCamelCamel) that the item will return to that price.

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  10. So I am a little frustrated. I have some items I have been getting replenishments on and so I decided to stock up big time on these particular things before I invested for Q4 items that I don’t ordinarily buy. I realize these are the items that were driving my daily business. Every single one has had someone come in and undercut me by more than I can afford to drop. I had *assumed* that I could just continue to have these staples but am now hundreds of pieces deep in them. What do I do?

    • I’m so sorry that you’ve had so many under cutters come in on the items you are selling. It’s very frustrating. I almost never go deep on one particular product unless I’m sure (based on sales rank history on CamelCamelCamel) that it will sell a lot over a very short time. I do more DEEP than wide when it comes to souring items. My suggestions for you is to wait it out. Even “non Q4″items seem to sell more dying Q4. People are on Amazon buying gifts and then also buy stuff for themselves too. Hope this helps!

  11. this gold mind and such a big issue for newbie like me.
    Thank you for your great advise.

  12. Great article and comments from all. I have a staple item in the buy box right now that is not the lowest price. I’m selling about 2 a week. I’ve got at least a dozen items that dropped in price when others discovered the “bargain.” I’m holding my price and watching the buy box price heading back up toward me. I had a book this week that sold for 89.95 (I paid $5 for it), the buy box was under $50 for about the same book in like condition. Sometimes it just doesn’t make sense. Develop your plan and work it. I started FBA in March of this year. We’re picking up steam. Start slow, read everybody’s blogs, listen to every podcast, experiment with 2-5 of a bunch of items and you’ll learn quickly without having to make some big inventory mistakes in order to learn and grow.

  13. Last night as I was going through my inventory and having a near meltdown as 100’s of competitors have now come onto the scene tanking prices as well as adding to the competition I also found yesterday’s blog and how timely it is! Between Amazon tanking prices, and those who don’t’ want to run with the herd and also tank prices, I find it difficult to set goals and see them realized. Like others I have items specifically related to the Christmas Holidays so the question is how do we recover our cost and possibly make any ROI on them. I found some great inventory and prices on a well known line of Christmas China and by the time my inventory reached the warehouse Amazon had joined the party. Of course when they do that the profit disappears. For that reason alone, I always avoid items where Amazon has listings. Had they jumped on board a few days earlier I could have saved a lot of money and the agony of watching my profits dwindle. For me part of the answer is to focus on Private Label in 2015 and continue to look for ways to move away from the massive competition. In the meantime, any suggestions on what to do with specific Christmas items other than wait it out? This is only my 2nd year so possibly I’m overly concerned a little too early. I also find this makes me gun shy when it comes to future purchases as I wonder will each item with good rank be a repetition of 100’s joining each listing and racing to the bottom which means those of us who don’t want to play that game have to sit and wait which is costly as well. Suggestions welcome!!

    On another note Stephen, have you ever done or ever considered offering a “Texas Field Trip Day” to those who follow you on FB or the Blogs? I would think there are many of us in Texas who would be appreciative of spending a day with you learning from your wealth of experience.

    Thank you!

    • I feel your pain, Jan! I’ve been there before too. One thing I have learned over the years is to buy items at a price low enough, that if the price does drop 20% or even 30%, then I will still be making a profit. Many people try to find a way to double their money, but I want to triple or quadruple my money… or more! That way, when people come in a lower the price, I’ll still make a profit. It takes more patience, and time researching sites like CamelCamelCamel, but it’s so worth it.

      As for Q4, I NEVER re-price after October, as I know many products will have a huge increase in both sale velocity and sales price. I only start to reprice once February comes.

      I know the “hot new idea” right now is Private Labeling, and it’s a really good idea, if done right. The product you choose to private label is very important, as you want to be sure you won’t be making a private label for items that other are also making their on private label of.

      I have thought about offering a “Texas Field Trip Day” to anyone in Texas who would like to join me sourcing someday. I’ll be sure to announce that with enough lead time to make sure people can make it. Thanks for the suggestion.

  14. Thanks for the post and all the comments. All very helpful. I am like someone else and wonder if it is a requirement from Amazon that we not put notes under Condition notes if the item is new? I put a blurb like many along the lines of “100% stored + shipped by amazon….” But i don’t want to be breaking any rules and give them any reason to kick me off, and I also don’t want to be putting the notes in onluy to have to go in later to take them all out. I am also curious about your opinion on using these type notes even if it is ok. You mentioned that these were 2012. Do you now put no notes under new items? Or do you still promote the FBA part of it?

    • Amazon states in the rules that we should only out in the condition notes information that helps the buyer understand the condition better… so I guess stating that “the item will be shipped by Amazon ” does not note anything about its condition. Right now, the only things I put in my condition notes is “Brand new” or “Factory Sealed.”

  15. I love your posts Steve. They always pop up in my inbox at exactly the right time. Competitors that undercut have to be some of THE most annoying people on the planet! I always hold my price but have lately had refunds due to customers “finding a better price” elsewhere. I have simply stopped stocking these items now because of this. I am also leaning more towards PL as this seems to ward off most of the lemmings. Keep up the good work!

  16. Another fantastic article! Thanks Stephen 🙂

  17. What about when you have a repricer? I am new to repricers but found they have negatives and positives to them. I found the negative is that they lower the price little by little over time and get too low to make money. Or they match the lowest price before I can raise it, then my inventory is sold out. Then i loose money. This is during q4. The positive is I can get the buy box and sell more. I set the repricer so that it only drops the price by no more than 5%, let’s say, and avoid a low baller.

    I am new to fba this year but have been selling merchant for over 10 years in one category usually out of print items. This year I ventured into other catagories that are in print. I went wide with my inventory in the other catagories and didn’t make much money. So what’s your opinion about repricers? I feel like I am getting no where in the new categories I started selling. If anyone has any opinions or advice I greatly appreciate it. Thanks, Jen

    • The thing about repricers is what you need to make sure you have them set up correctly. Most repricers have the option to set a price floor where the price will not be automatically lowered under that price.

  18. yea I think it’s kindve the nature of the beast. Because of my shoe string budget sometimes I would rather make a sale and take a couple dollar loss if that sale is $50-$100. It also depends on how I am doing that week. If I am killing it, I won’t even consider this race to the bottom nonsense, but sometimes I think it’s the right move to just cut your losses get out of an item and move on.

  19. I use a much different mentality in fighting (and winning) the race to the bottom. I have an item I sell 100-200 units a day. I have dominated the buy box 95% of the time for the past year. I’m priced lower than most of the competition, but don’t have to be the cheapest because I’m usually the only FBA offer. Whenever a new competitor takes the buy box from me by undercutting my price by a few cents, I respond by undercutting their price by 10-20%. And I keep the price there for a week or two. They rarely respond by matching or beating my price. Every once in awhile, I “stock out” of my product and the competitors quickly liquidate and rarely come back. I send a clear message that they will never beat me on price and I will win a price war, so they might as well move on. After they leave, I raise my prices to where I want them. This has consistently worked for me for over a year.

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  21. Wow! You described exactly what happened to me this past month. I wish I had had access to this post earlier.

    I had sent in a summer product which I bought for $9.00 and was selling for $37.00. After I had sold three, having one returned, prices started to drop. Yes, I panicked. After all, Amazon had just suggested that get a bunch of stuff out of my inventory to avoid higher fees. So, I was afraid it would happen again and was caught into the other sellers’ game and started lowering my price too. But you are right, I never lowered it as low as the competition, and sold my last four items anyway. However, I made no profit at all, just got my investment money back.

    So, thanks for the eye-opener, Stephen!

  22. Beginner’s question:

    When the price of the ICE MAKER dropped to 4$ (actually lower than the price you paid for it) , did you think about buying it at this low rate price and then resell it on Amazon FBA for 20$?
    (Is it legal?)

    • I’ve done that before and it’s totally legal… just don’t use the Prime shipping to order the item because it’s against Amazon’s guidelines to buy using Prime shipping for the purposes of resale. Just choose FREE Super Saver shipping and you’ll be fine.

      • Wow….

        there are so many products that their Prime pricing is 3 times higher then the non-prime pricing…

        this can be a great OA sourcing method, instead of looking through all the websites…. isn’t it?
        Let them do the race to the bottom (on non-prime) , order and resell through FBA !

        • OK, I take that back…

          there are no tas many as I thought…

          usually if you see a very low price – it’s not free shipping, and that makes it like all other new offers – cheaper then prime, but not that cheap…

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  24. It’s the prisoner’s dilemma!

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