Amazon is in a national spiral? The low-price "sales-boosting pill" has failed to work

Recently, many Amazon sellers have found that the order volume has dropped again. Even if they have launched killer measures such as price cuts and big discounts, the advertising conversion rate is still poor and it is difficult to increase orders. After the various operational optimization effects have faded, the most effective low-price strategy in the past has also failed.

The low-price strategy has recently caused heated discussions. An industry big V shared his experience of earning 10 million yuan with low-priced products, and believed that for ordinary trading sellers, low prices are the best sales method, no doubt about it. Compared with last year's public enemy, some sellers now believe that the low-price strategy has some rationality; but some people also believe that this is an unsustainable war of attrition for individuals and categories, and it is difficult for the initiator to have the last laugh.

Sales volume is difficult to increase, and the low-price "sales-boosting pill" fails to work

The dividends from the pandemic are gradually disappearing, and the industry is reversing. Compared with the considerable sales and profits of the past two years, this year's earnings have made many sellers feel disappointed. Li Tiancai, a beauty and home seller, said that compared with last year, the company's performance this year has stagnated and even slightly declined, while the CPC cost of advertising has increased by 50% compared with last year. In the words of the sellers, orders are getting fewer and fewer every day, and advertising costs are getting higher and higher every day.

After Father's Day, perhaps due to consumption suppression before the Prime Day promotion, orders on the platform seemed to have decreased again. Many sellers felt uneasy, so they began to use various promotions in the hope of increasing orders. Some sellers resisted low prices to no avail, so they joined the price reduction army with the idea that if they couldn't beat them, they would join in. Now, in many categories on Amazon, there seems to be a national spiral trend.

A seller said that recently many similar competing products of his product have dropped to a very competitive price. The low price has indeed effectively improved the ranking and sales of these competing products. In this fierce competition, the use of low prices for his own products does not have much effect.

"The price war is very fierce now. No one is making any money. Everyone is suffering heavy losses with the mentality of dragging their opponents to death. Amazon is also happy to see this kind of competition. It really hurts to sell such a good product at a very low price." said a seller.

This fierce price competition has occurred at multiple sites.

For example, some sellers complained about why many domestic sellers registered local companies in the UK to avoid taxes and then cut prices. This year, they have seen newly registered UK accounts doing this in many categories. The other party is not going for a low price route because they have too much inventory and need to clear it out, but simply using tax avoidance to further reduce prices and force out old sellers. Now that Europe's purchasing power has decreased, the exchange rates of the pound and the euro have fallen to low levels, which is very unfavorable to export business. This desperate squeeze to squeeze peers and give buyers a discount is really incomprehensible.

“Many products on the platform are free shipping for only $1.5, which makes me tired. I don’t know why people do this.” A seller sighed.

This kind of spiral situation, which is almost universal, has made the low price, the "order-boosting pill", ineffective. More than one seller has found that no matter how strong the low price spiral is, it is difficult to make a significant improvement in sales. Promotional methods such as price cuts and big discounts have collectively failed. There are no winners in a price war. Even if a high sales volume is achieved through promotions such as flash sales, the seller's profit has been greatly reduced except for obtaining rankings and clearing inventory.

Is the low-price spiral justified? Some sellers raised their hands in agreement

Last year, the low-price spiral entered people's vision and was hotly discussed. At that time, a large number of new sellers entered the industry, hoping to break the original market structure with low prices, grab a piece of meat from the original sellers, and even worse, they wanted to use low prices to seize the market and replace them. Until now, there are still many new products that crudely take the low-price route, directly offering 20% ​​or even 50% off, ready to lose money for a few months to take the lead.

Most people in the industry scoff at this strategy, believing that it is too naive to implement it with small profits or even losses. It would be difficult for them to survive until the profit period by dragging the entire category into it, and they would overestimate their own capabilities and instead stir up trouble.

But a year later, people's views have changed, and some sellers have begun to believe that the low-price spiral is reasonable.

Not long ago, a big V seller posted a post titled "How to Make 10 Million Yuan with Low Unit Price Products", sharing his experience of creating products at a low price through models and ultimately making high profits, which sparked heated discussions in the industry about low-price strategies. The seller believes that for ordinary trading sellers, low prices are the best method, no doubt about it.

Many supporters say that existence is reasonable, and even if the current business environment has changed compared to a few years ago, appropriate low-price strategies are still feasible; but there are also sellers who believe that this is a war of attrition for their own interests and those of the industry group, and that the advanced model is too idealistic.

Li Tiancai, a beauty and home furnishings seller, believes that this model is similar to an optimization based on the spiral strategy. "In the early stage of product promotion, low prices are indeed the best strategy, but I rarely do this. I personally feel that the sales and rankings of products promoted at low prices are too sensitive to prices. When you want to move up, sales and rankings will go down as soon as the price goes up." In fact, even for products with medium prices, the embarrassing situation of a one-dollar increase in price often leads to a sharp drop in sales.

Small sellers talking about strategic losses is like a joke. The premise for the success of low-price strategy is to have strong financial and supply chain resources to support it. The ideal situation is that sellers use low prices to outlast competitors and achieve a staged victory. One seller said that he used the low-price strategy to outlast similar products in almost a year, and then the price rose from $16 to $27, becoming the leader.

But it is impossible to predict how many Cheng Yaojins will appear in this process.

"You can imagine that there are so many operations and development people watching the Amazon front desk every day. If they find that you have established yourself and only you or a few sellers are selling this product, everyone will see this data and think that they can also enter this category immediately. So this is not a very long-term approach."

In addition, if the seller's product has limited advantages, it will inevitably be replaced quickly, and the life cycle gained by low prices may not reach the stage of offsetting losses or making profits. At present, many new product developments are mainly based on old models to make some functional improvements, appearance optimization, packaging adjustments, etc., to form a certain differentiation from existing products. With micro-innovation + low prices, products are more likely to break through and gain momentum, which is also a common operating routine. However, unless the product style is a classic style that can be left unupdated for several years, it is difficult to maintain a sales advantage for a long time.

The popularity of low-price strategies has exacerbated internal competition and created an industry gap. "You need to make 5 yuan, but my small company has only three or two people, so I can only make 2 yuan. This situation will always exist, and there will always be sellers with this mindset."

It is precisely because of the thinning of the overall profit of the category that the low-price tactics of the spoilers have been criticized. Excessive low-price competition has triggered fierce competition in the industry. Therefore, many industry insiders have accused the low-price tactics of working hard and not being a sustainable tactic, including some top sellers. However, some sellers believe that this is not the original sin of the low-price tactics, but rather that the big sellers want to avoid too many peers adopting this tactic to compete with them, so as to leave room for themselves to use low prices. This view is also recognized by many people.

A seller analyzed that the low-price strategy depends on how low the price is, whether it is a loss or a small profit. If there is still a profit, this low price is meaningful; if it is so low that it loses money, it is not something that ordinary sellers can afford. When launching a new product, a low price with profit is a relatively reasonable sales method and is normal. The purpose of a low price is not to sell at a loss, but to add an operating strategy based on a certain profit and then do it.

"Last year, there was a product that was repeatedly priced at $0.99, $9.99, and then $0.99. Now it is sold at $9.99. When he did this, we calculated that he actually broke even by switching between $0.99 and $9.99. After that, sales picked up, and he kept pushing categories. He reached more than 200 in the home category, with more than 1,000 orders a day. This seller relied on this strategy to promote his products in the early stage, but later Amazon closed this loophole and stopped the product from being sold at $0.99."

The low-price strategy is not completely unfeasible, but it depends on both the product and the seller's courage. When placing a large number of orders, controlling the inventory becomes a task. In order to maintain the ranking, the product must not be out of stock. Once a large number of orders are placed and the product is out of stock, all the preparations made in the early stage are basically invalid.

Obviously, this requires a variety of resources. Li Tiancai said that big sellers will spend a certain amount of money to promote a product, but this kind of heavy krypton gold playing method is not something that ordinary sellers dare to play.

Amazon and sellers work together to boost Prime Day sales

The low-price competition among sellers has intensified again, which may be related to the warm-up for the Prime Day promotion . Before the promotion, a wave of low-price promotion links appeared just to occupy the slots. Some of the top sellers have already started the warm-up outside the site and took the lead in the battle for traffic.

Recently , an outdoor power supply product from Anker has joined the ranks of low-price promotions. The original price of the product is $359.99, but the promotional price on the US promotion website Slickdeals is $200. Due to the large price reduction, the product has been posted on the front page of Slickdeals. At the same time, big sellers such as Zhiou and Mujia Home Furnishing also have products on sale on Slickdeals, with the lowest discount reaching 70%.

In addition to the big sellers, some small and medium-sized sellers have also joined in. Many sellers frequently offer 50% discounts in off-site channels.

As sellers prepare for Prime Day promotions, Amazon is also trying to make some changes to boost its sales.

Some sellers have found that the weight of negative reviews on Amazon has decreased recently, and the rating system has been adjusted. Now the negative reviews on the homepage are basically hidden, and more positive reviews appear on the homepage, and the reviews are concentrated in the last two months.

However, some sellers said that the negative reviews are indeed gone when viewed on the computer, but they can still be seen in the original location on the mobile phone.

The negative reviews on the homepage are hidden, which is good for sellers. One seller said that his performance was not good, but there were four negative reviews on the homepage, so he had an excuse. But now the negative reviews are gone, and he can't find an excuse for the poor performance. Some are happy, while others are sad!

Some sellers also said frankly that all the negative reviews on the homepage have been removed, and the links with good conversions will only get better, while the links with poor conversions will remain the same. Although we no longer have negative reviews on the homepage, our overall weight is still not as good as our peers.

Putting aside the competition factor, the disappearance of negative reviews on the homepage is good news for sellers. Even if there are negative reviews on the homepage, they cannot avoid competition from their peers. The disappearance of sellers’ negative reviews also proves that Amazon treats everyone equally. The platform allows sellers to make their homepage reviews look better, so that they can take advantage of this year’s Prime Day to place more orders, thereby boosting performance and causing the stock price to rise again.

In the first quarter of this year, Amazon's operating income was $3.7 billion, down 58% from $8.9 billion last year, and its revenue growth rate hit a new low in 20 years. It suffered a net loss of $3.844 billion, while its net profit in the same period last year was $8.107 billion. This is also the first quarterly loss for Amazon since 2015. Regarding the second quarter outlook, Amazon said that revenue is expected to be between $1 billion and $3 billion, compared with $7.7 billion in the second quarter of 2021.

Amazon suffered losses in the first quarter and is expected to suffer losses in the second quarter. It will certainly do its best to boost its performance. The second quarter's Prime Day promotion is its biggest hope. Before Prime Day, in addition to quietly hiding negative reviews, Amazon also updated its website homepage to a Prime Day theme page to create an atmosphere for the promotion.

To boost Prime Day sales, Amazon also launched a campaign to support small and medium-sized sellers.

According to Amazon's announcement, from June 21, 2022 to July 11, 2022, customers around the world who purchase items sold by eligible small businesses on Amazon.com will have the chance to win Amazon gift cards worth up to $5,000 each.

Customers in the U.S. will also receive VIP tickets to the 2023 Super Bowl, New York City screenings of The Lord of the Rings: The Ring of Power on Prime Video, VIP tickets to music festivals sponsored by Amazon Music, and other exclusive prizes. This promotion is fully funded by Amazon to help small and medium-sized sellers connect with customers.

This sweepstakes for small and medium-sized sellers will be available in the United States, United Kingdom, Canada, Mexico, Germany, France, Spain, and Japan. If the seller's product is included in the promotion, you will receive an email on June 21, 2022.

In addition, Amazon has also been providing tips for sellers who are trying to increase traffic. Officially, if sellers want to increase sales, they must first sort out the relationship between sales, traffic, and conversion, as well as the factors that affect each other.

( Image from Amazon )

Traffic and conversion directly affect final sales. For Amazon sellers, if they want to obtain traffic, they can write keywords into product detail pages and place advertisements; on the other hand, they can set up coupons and promotions.

In terms of conversion, in most cases the click-through rate of products is about 0.2%-0.8%. If the click-through rate is lower than 0.2%, sellers can first check whether the main picture is attractive, the quality of the title, the product price, the number and star rating of reviews, whether there is a Prime icon, etc.

If the click-through rate is normal but the conversion rate is not ideal, the seller can focus on checking the five-point description and whether the attached pictures clearly show the selling points of the product.

Whether it is preheating in advance or giving tips to sellers, Amazon is making efforts for Prime Day. Many sellers are also eager to try and make preparations in advance, looking forward to a surge in orders during the promotion.

However, the economic conditions in Europe and the United States may have a certain impact on consumer purchasing power. In the context of inflation, the United States may experience an economic recession, and marches and strikes have also broken out in the UK to protest against the rising cost of living.

U.S. e-commerce sales to surpass $1 trillion by 2022

Fed Chairman Powell recently said that the US inflation rate is too high and it is necessary to take measures to cool it down. The Fed understands the difficulties caused by high inflation and is taking prompt action to reduce inflation levels. The Fed has both the necessary policies and the determination to restore price stability on behalf of American families and businesses.

According to the Federal Reserve Board of Atlanta, the U.S. economy may also have difficulty growing in the second quarter after shrinking in the first quarter. Under inflation, the adjusted salary level of employees fell by 3% year-on-year, and the U.S. job market may also be slowly shrinking.

Compared with the United States, the British people are more "anxious" about inflation. Recently, a large-scale march broke out in London, with thousands of protesters shouting slogans and walking through the city center. They protested against the rising cost of living and demanded that the British government introduce more measures to deal with severe inflation.

At the same time, the UK railway network also broke out in the largest strike in 30 years, with 40,000 workers responding. On the 21st, members of the British Rail, Maritime and Transport Union officially launched the strike action. The main contradictions of the strike are workers' wages, working methods and possible layoffs.

On the 22nd, after negotiations between British railway workers and the company failed again, the second railway strike this week will be held as planned on the 23rd. The head of the trade union said that if the demands for job security and pay increase are not met, the industry will continue to carry out strike movements.

Whether in the United States or the United Kingdom, people's lives are not easy under inflation. However, Federal Reserve Chairman Powell believes that the overall economic situation in the United States is favorable, the job market is strong, and demand continues to be high. This promotes that people can continue to maintain their spending power and have ways to keep up with the rising costs of basic items such as food and household goods even in the face of high inflation. However, the growth of some non-essential categories will slow down, such as clothing, toys and hobbies, and furniture and household goods. Overall, Americans' consumption is still relatively impressive.

eMarketer data predicts that U.S. e-commerce sales will exceed the $1 trillion mark in 2022, reaching $1.05 trillion, and by the end of 2022, it is expected to increase by 9.4% over 2021. At the same time, total retail sales this year are expected to reach $6.988 trillion.

According to estimates, 238.1 million people aged 14 and over will browse or research products on the Internet in the United States this year, and about 90% of this group will buy online at least once this year. By 2026, the number of online buyers in the United States will reach 230.6 million.

eMarketer’s back-to-school and holiday shopping forecasts are as follows:

1. Back to school season : Last year, back to school related products had good growth, this year back to school peripheral products are expected to grow more moderately. Consumer demand for laptops and consumer electronics will decrease, and categories such as clothing, accessories, and office and school supplies will have higher growth.

2. Holiday season : U.S. holiday retail sales will grow 3.3% to $1.262 trillion in 2022, with physical retail growing 0.9% to $1.026 trillion and e-commerce growing 15.5% to $235.86 billion. Consumer spending momentum and an extended holiday shopping season should contribute.

3. Cyber ​​Monday and Black Friday : In the five days from Thanksgiving to Cyber ​​Monday in 2022, the e-commerce sales share will drop from 16.9% to 16.4%, lower than the high of 20.0% in 2019. See the figure below for specific sales on each day ↓

Looking back at the upcoming Prime Day sale, RetailMeNot predicts that the hot-selling categories on this year's Prime Day will be: clothing and footwear, home decor, kitchen supplies, cleaning supplies, electronics and home fitness equipment.

Sellers of related categories can prepare in advance. As far as the current situation is concerned, many sellers are still looking forward to the Prime Day promotion and the holiday season in the second half of the year.

As seller Li Tiancai said, after the "fighting" in the first half of the year, some sellers have been eliminated, and the speed of new sellers entering Amazon is also slowing down. With fewer sellers, the competition will be relatively smaller, and perhaps there will be an explosion in the second half of the year.

Low Price Spiral

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