Price Dumping (from the English word "dumping" ā unloading) is the deliberate lowering of prices for goods or services to increase sales in a specific market. Dumped prices are usually below the market average and are often even lower than the cost of production. Dumping is one of the methods of competitive strategy and is often recognized as a form of unfair competition.
What is price dumping, why do online retailers resort to it, and how can it be countered? Read about this in our article.
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- 1 How to Combat Price Dumping Online?
- 1.1 What is Price Dumping? Origin of the Term
- 1.2 Goals of Price Dumping
- 1.3 Types of Price Dumping
- 1.4 Price Dumping Online: Who's to Blame?
- 1.5 How to Combat Price Dumping by Competitors
- 1.6 Price Dumping on Marketplaces
- 1.7 Risks of Price Dumping for Manufacturers
- 1.8 How to Combat Online Price Dumping
- 1.9 Advantages and Disadvantages of Online Price Dumping
- 1.10 Regulation of Online Price Dumping in Europe and the U.S.
Price dumping has become an integral part of modern life, whether we like it or not. Customers are delighted with lower pricesāwhy pay more? However, for stores and manufacturers, the situation is far more complex. While some benefit from not adhering to the MAP, climbing to leading positions in the market, others, unable to withstand the competition, are forced to close their businesses. Letās take a closer look at what dumping is, why it has emerged, the goals of those engaging in dumping, how to effectively combat unfair competitors, and the possible consequences.
What is Price Dumping? Origin of the Term
Dumping refers to the deliberate lowering of prices for goods or services below their market value or even below production cost. The goal of dumping is to capture market share, eliminate competitors, or gain a competitive edge, especially in highly competitive environments. This strategy is employed both in local markets (domestic dumping) and in international trade (export dumping).
The term "dumping" originates from the English word dump, which means āto dispose ofā or āto get rid of.ā
Initially, the term was used in the context of offloading surplus goods into foreign markets. Dumping became a widely discussed phenomenon in the 19th century with the rise of industrialization and international trade.
Historical Examples of Dumping
British Policy in the 19th Century:
Britain was one of the first nations to employ dumping on a large scale. Surplus goods produced during the Industrial Revolution were sold abroad at reduced prices. This strategy allowed British manufacturers to maintain high production levels and drive foreign competitors out of the market.
Dumping in Japan after World War II:
In the mid-20th century, Japanese companies used dumping to penetrate foreign markets, selling products (such as electronics and automobiles) at significantly lower prices. This approach helped Japan establish itself as a global industrial leader.
Chinaās Export Dumping:
In the 21st century, China has been one of the most notable examples of dumping, particularly in industries such as textiles, steel, and electronics. This practice has sparked numerous trade disputes with the United States and the European Union.
The Dual Nature of Dumping
Dumping is a controversial practice with both positive and negative implications:
- On the one hand, it can promote competition and make goods more accessible to consumers.
- On the other hand, it often disrupts market ecosystems, undermines fair competition, and discriminates against local producers.
Because of its significant economic impact, dumping is strictly regulated by the legislation of most countries.
Price Dumping or Just Low Prices?
Price reductions as a competitive tactic are considered “dirty” and unfair in many markets. They create chaos, cause significant financial losses, and lead to the closure of other businesses, including competitors and manufacturers. However, not all low prices qualify as dumping, so itās important to distinguish between reduced and artificially low prices.
Dumping is characterized by two essential conditions:
- The low price of the product is not a result of reduced production costs.
- Prices are intentionally lowered solely to attract customers and outcompete rivals.
If either of these conditions is absent, the price reduction is not considered dumping.
Planned price reductions, on the other hand, are the result of carefully thought-out financial and marketing strategies, which distinguishes them from dumping.
Price reductions are justified in cases of:
- Lower production costs;
- Reduced operating expenses;
- Changes in product positioning;
- Promotions and sales events.
Only under such circumstances can low prices avoid being classified as dumping.
Goals of Price Dumping
Companies that choose price dumping as part of their business strategy pursue several primary goals:
- Neutralizing competitors;
- Capturing new markets;
- Liquidating unsold inventory;
- Expanding their customer base;
- Acting as a crisis management measure.
1) Neutralizing Competitors
To dominate a significant market segment, companies often take a few simple but impactful steps. First, they drastically lower their prices, leading to a loss of customers for competitors. They then wait for most rivals to go out of business. Once that happens, prices are restored to profitability levels, allowing the company to influence market pricing.
2) Capturing New Markets
Low prices are the fastest and most effective way to draw consumer attention to a companyās offerings. This approach works equally well for newly established companies and for long-standing businesses seeking to enter new market segments.
3) Liquidating Unsold Inventory
This goal is often achieved through short-term (one-off) promotions aimed at quickly selling goods with limited shelf life, seasonal items, or outdated models. In such cases, profitability is not the priority; the main goal is to recover funds invested in procurement and reinvest them in newer, more relevant products.
4) Expanding the Customer Base
The majority of consumer goods are sold through large retail chains. To achieve higher sales volumes, manufacturers are often willing to lower their prices slightly to maximize product turnover. This āplaying by the customerās rules,ā combined with maintaining good product quality, helps build loyalty and trust among consumers. However, if product quality declines, customer loyalty will erode, and even the lowest prices wonāt retain their interest.
5) As a Crisis Management Measure
In difficult times, lowering prices can help a company survive a crisis and remain competitive. Once the situation stabilizes, prices are typically restored to their original levels.
One of the most successful examples of using price dumping as a way to survive in a crisis is Pepsi. When sugar prices soared in the 1930s, the company sold its drink for 5 cents per 340 ml can. The main competitors, Coca-Cola, also sold their products at 5 cents, but for a volume of 170 ml. Thus, Pepsi, in addition to avoiding bankruptcy, was also able to press its main rivals on the market.
Types of Price Dumping
Price dumping an be categorized based on its goals, methods, and contexts of use. Below are the main types:
Price Dumping
Goal: Market capture through temporary price reductions.
Export Dumping
Goal: Selling products in foreign markets at prices lower than in domestic markets.
Promotional Dumping
Goal: Increasing demand for a new product or service.
Predatory Dumping
Goal: Eliminating competitors.
Hidden Dumping
Goal: Offering goods or services at reduced prices while maintaining the appearance of standard pricing.
Social Dumping
Goal: Reducing costs by lowering social standards.
Currency Dumping
Goal: Using exchange rate differences to lower export prices.
Seasonal Dumping
Goal: Reducing prices for season-specific goods after the season ends.
Strategic Dumping
Goal: Long-term market domination.
Price Dumping Online: Who's to Blame?
The pandemic brought significant economic changes, leading to explosive growth in the e-commerce market. Restrictions forced many companies to shift their focus to the only viable platformāonline retail. At the same time, consumer behavior changed dramatically. With mask mandates and lockdowns, an increasing number of shoppers turned to online stores.
This shift in consumer behavior and the rise in demand for "at-home shopping" created ideal conditions for the emergence of new online marketplaces, intensifying competition. For many companies, lowering prices through dumping became the simplest way to stay competitive.
Major market players like Amazon and Alibaba are actively fighting the spread of counterfeit products on their platforms. For instance:
- Amazon compensates customers for purchasing counterfeit or illegal products sold by marketplace vendors.
- Alibaba employs artificial intelligence to track and remove counterfeit goods.
The Role of E-commerce in Dumping
The growth of online marketplaces has intensified price wars, as sellers strive to undercut competitors to attract buyers. While this benefits consumers in the short term, it also leads to significant risks:
- Market destabilization: Consistent underpricing drives out smaller competitors.
- Quality decline: Sellers may compromise on product quality to maintain profitability at lower prices.
- Counterfeit surge: Cheap, low-quality counterfeit products flood the market, further damaging legitimate businesses.
Efforts to combat these challenges are underway, but price dumping remains a persistent issue in the competitive landscape of e-commerce.
How to Combat Price Dumping by Competitors
In a highly competitive environment, price dumping often becomes a survival tactic for companies. However, price wars generally lead to losses for all participants, threatening profitability and business growth. Before engaging in price dumping, businesses must carefully evaluate their strategy and consider alternative approaches. Below are practical steps to avoid and combat price dumping effectively.
Strategies to Counteract Price Dumping
Analyze Competitor Strategies
Understand your competitors' long-term pricing policies. Identify their strengths and weaknesses, and anticipate their next moves.
- Tip: Highlight the value your business offers, such as better service, faster delivery, or longer warranty periods, even if your prices are slightly higher.
Maintain Price Levels
Avoid lowering prices, even when competitors do so. Instead, explore value-added solutions.
Emphasize Value Over Price
Shift the focus from price to the unique value your product or service provides.
- Tip: Consider improving the quality of your offerings or enhancing customer service. If executed thoughtfully, even a price increase can be justified and accepted.
Product Segmentation
Expand your product range to include budget-friendly options. This strategy allows customers to choose between affordability and quality.
Build Customer Loyalty
Loyal customers are less likely to be swayed by lower prices. Focus on nurturing trust and long-term relationships through:
- Bonus programs and discounts.
- Engaging content on your website and social media.
- Exceptional post-purchase support.
Conduct Promotions Strategically
Organize short-term promotions or discounts to attract new customers and retain existing ones.
- Tip: Ensure the quality of your products remains high during these promotions, encouraging customers to return.
Educate Customers About Dumping
Publicly communicate the negative effects of dumping on the market and educate customers on the value of fair pricing. This helps shape customer expectations and discourages dumping behavior.
Monitor and Wait
If the cost structure of your business and competitors is similar, itās possible that dumpers will eventually exhaust their resources and exit the market. This "wait-and-see" approach requires significant financial reserves and patience.
Consider Exit Strategies
If all else fails, closing the business can sometimes be the best option.
- Opportunity: Pivot to a new, profitable venture with insights gained from previous experience. A fresh start can open doors to better opportunities.
Price dumping destabilizes industries, reduces profitability, and often leads to a decline in product quality and customer service standards. Restoring prices to previous levels after dumping is extremely challenging, making it vital for companies to adopt proactive anti-dumping strategies.
Combating price dumping in e-commerce requires a multi-faceted approach, including systematic monitoring of competitor prices and strategic measures to stabilize pricing policies. By focusing on value creation, loyalty building, and smart resource management, companies can counteract dumping effectively and maintain a strong market position.
Price Dumping on Marketplaces
During the pandemic and subsequent restrictions, marketplaces became a lifeline for many entrepreneurs. They adapted to the new realities faster than any other retail platform. Not only did marketplaces survive the crisis, but they also experienced a significant surge in demand. Entrepreneurs, rather than investing in their own platforms, turned to marketplaces to keep their businesses afloat. Despite the many drawbacks of this approach, the ability to scale quickly often outweighed the disadvantages.
The Core Challenge: Price Dumping
Price dumping is a major issue for marketplaces, as low pricing strategies are central to their business model.
For the average customer, low price is a decisive factor when shopping. For instance, if a smartphone is 10ā20% cheaper on one platform, a buyer might overlook delivery delays or the lack of warranty service.
Marketplaces often favor sellers who set lower prices for their products. These sellers receive benefits such as:
- Higher visibility: Their product listings are prioritized in search results.
- Increased sales volume: Lower prices attract more buyers.
While price dumping can temporarily boost demand and sales volumes, it comes with significant risks that can quickly outweigh the initial benefits.
Potential Risks of Price Dumping on Marketplaces:
- Profit Loss: Selling at reduced prices often means sacrificing profitability, which may not be sustainable over time.
- Market Saturation: Consistently low prices can lead to a race to the bottom, destabilizing entire product categories.
- Decline in Product Quality: Sellers might compromise on quality to offset losses, damaging brand reputation.
- Erosion of Trust: Buyers may associate low prices with poor service or counterfeit goods.
- Competitive Vulnerability: Businesses operating on thin margins may struggle to compete if costs rise or demand fluctuates.
Marketplaces thrive on price competitiveness, but businesses must use this strategy judiciously. Entrepreneurs should evaluate the long-term impact of dumping on their profitability and sustainability, as well as explore alternative ways to remain competitive:
- Highlight product value, such as quality and reliability.
- Offer unique selling points (e.g., extended warranties or better customer service).
- Build customer loyalty through rewards or personalized offers.
Dumping can drive short-term gains, but without a calculated approach, it risks undermining long-term business success.
Risks of Price Dumping for Manufacturers
Price dumping poses significant threats to manufacturers, just as competitor dumping does to sellers. The issue is particularly severe in the e-commerce sector, where approximately 20% of stores disregard MAP (Minimum Advertised Price) policies set by suppliers daily. In certain product categories, such as construction materials, consumer electronics, and home appliances, this figure can climb to 60ā80%.
The largest losses in such situations are borne by manufacturers and importers, as dumping undermines the stability of the market and the reputation of their brands.
Key Risks of Price Dumping for Manufacturers
1) Loss of Consumer Trust in the Brand
While some consumers are attracted by the lowest prices, others associate unusually low prices with poor quality. This skepticism can result in reduced sales, tarnishing the brandās image and credibility.
2) Decreased Interest from Major Market Players
Price dumping makes it difficult for businesses to achieve planned profitability. As a result, established and reputable retailers may find partnerships with the brand unappealing. This limits market coverage and the ability to reach broader customer bases.
3) Brand Deterioration and Market Exit
Uncontrolled pricing creates chaos within a market niche. Over time, this can erode the brandās value and competitiveness. Many European brands, for example, have chosen to exit the Russian market due to the lack of price control, seeing no viable path forward.
How to Combat Online Price Dumping
Price Monitoring
Dumping is challenging to detect without efficient price monitoring across all available platforms, including online stores, marketplaces, and social networks. Utilize automated tools like Price Control to track prices in real time. These tools enable quick detection of violations. Analyze price trends to identify sellers who consistently lower prices and recognize patterns, such as seasonal discounts or deliberate policy breaches. The more accurate the data, the faster you can respond.
Pricing Policy
Implementing Minimum Advertised Prices (MAP) or Recommended Retail Prices (RRP) is a critical tool against dumping. Formalize legally binding agreements with partners, outlining obligations to adhere to the pricing policy. Include penalty systems for violations, ensuring they comply with local regulations. Offer support programs to partners who follow the rules, such as discounts or advertising incentives, to encourage compliance.
Creating Value
Price reduction often becomes a competitive tool when products lack unique selling points. To counter this, focus on adding value:
- Offer exclusive guarantees or extended return policies.
- Develop loyalty programs for repeat customers.
- Include free services such as delivery, setup, or consultation.
When customers perceive added benefits, they are less likely to choose products based solely on price. Show them that your brand offers more than just a product.
Partner Collaboration
Building trust and mutually beneficial relationships with distributors and retailers is vital for long-term cooperation. Regularly educate partners on the negative impact of dumping on their business, such as:
- Explaining how price cutting destroys the market and reduces profitability for everyone.
- Showing that following pricing rules ensures stable margins and customer loyalty.
Motivate compliance by providing marketing materials, running joint campaigns, and supporting rule-abiding partners.
Sales Channel Control
Dumping often arises from unauthorized sales through "gray" channels or sellers purchasing products from distributors who breach agreements. To prevent this:
- Clearly define who is authorized to sell your products.
- Vet new partners before starting cooperation.
- Restrict supplies to violators promptly.
Additionally, monitor parallel imports if they threaten your business and actively track potential sources of violations.
PR and Legal Support
Educate consumers about the risks of buying from dishonest sellers. Launch PR campaigns highlighting:
- The quality of your products.
- Official warranties and the risks of purchasing from unauthorized sellers, such as counterfeits or lack of support.
Engage legal experts to protect your rights. This could include sending notifications to violators or filing lawsuits for severe breaches. Such actions protect your business and build customer trust.
Differentiation
Dumping often occurs when a product is perceived as a commodity without unique features. Address this with differentiation strategies:
- Create separate product lines for different sales channels, such as one for marketplaces and another for offline stores.
- Promote your brandās uniquenessāthis could include sustainability, exclusive design, handmade production, or social responsibility.
Differentiation reduces price sensitivity and increases the perceived value of your products.
Each method requires time and effort, but a combination of these approaches will help you minimize the impact of price dumping and establish a more sustainable business model.
Case Study: Price Control in Online Stores
A few years ago, a water heating equipment manufacturer turned to Price Control to address severe price dumping, both in physical retail stores and online. The repercussions included:
- Sharp decline in brand interest.
- Retail prices dropping to the level of wholesale costs.
- Persistent demands from wholesale buyers for price reductions.
- Brand reputation as a low-margin option, making it harder to sell products.
- Decreasing profits and turnover.
The situation was critical, requiring immediate intervention. During the initial price monitoring, Price Control identified dumping practices among 255 out of 360 sellers associated with the brand.
Strategy for Market Recovery
To restore order and guide the company out of the crisis, Price Control developed and implemented a comprehensive strategy:
- Regular Price Monitoring
Continuous tracking of prices across all stores selling the companyās products. - “Black” List of Sellers
Creation of a blacklist of sellers violating pricing policies. - Notifications to Violators
Sending email alerts to offenders, notifying them of detected dumping and requesting compliance with recommended retail prices (RRP). - Daily Phone Negotiations
Direct communication with offending sellers to encourage returning to the recommended pricing level. - Strict Penalty System
Introducing penalties for distributors supplying products to blacklisted sellers. - Control Purchases
Conducting secret purchases from violating stores to identify and penalize dealers continuing to work with blacklisted sellers.
Results
Within just a few months of collaboration with Price Control, significant progress was achieved:
- Increased Brand Interest
The brand’s appeal grew significantly, doubling the pool of potential partners. - Key Market Players Engagement
Major industry players began showing interest in the manufacturerās products. - Growth in Retail Partnerships
The number of stores working with the brand increased to 600, while dumping among retailers dropped to just 15%. - Strengthened Reputation
The company gained a solid reputation as a reliable partner, promising mutually beneficial cooperation. - Profit Surge
A 200% increase in profits allowed the company to exceed its annual revenue targets by November.
The case highlights the importance of consistent monitoring and enforcement of RRP policies. As consumer interest in online shopping grows and more sellers enter the market, manufacturers must remain vigilant about market dynamics and ensure adherence to pricing policies.
In 2021, the company further expanded its reach by signing contracts with two major suppliers, solidifying its market position and setting the stage for continued growth.
Dumping dynamics in November 2020 by client’s brand in online retail
(Schedule)
Advantages and Disadvantages of Online Price Dumping
Positive Impact | Negative Impact |
| For Dumpers (Businesses Engaging in Dumping) | |
| Increased customer base and market expansion. | Lack of customer loyalty. Customers attracted by low prices are likely to leave for cheaper options elsewhere. |
| Higher sales turnover and increased volumes. | Perception of low-quality goods. Dumping can create a reputation for selling substandard products. |
| Attracts customers from competitors. | Increased risk of bankruptcy. |
| Reduced profitability. Survival often depends on financial reserves and extreme cost-cutting, affecting product quality, service, and employee wages. | |
| Export risks. Dumping can lead to fines or trade restrictions when exporting products. | |
| For Companies Suffering from Dumping | |
| Opportunity to create a unique selling proposition (USP). | Reduced profitability and business viability. |
| Possibility of rebranding, updating pricing strategies, or improving customer service. | Loss of customers. |
| Business closure or market exit. | |
| For Retail Consumers | |
| Savings on purchases due to lower prices. | Higher likelihood of buying lower-quality goods. |
| Increased accessibility of desired products or services. | Poor service quality and hidden fees. These could include high delivery charges, inadequate customer support, or costly service plans. |
While price dumping can create short-term benefits, such as cost savings for consumers and market expansion for sellers, its long-term consequences often outweigh the advantages. Dumping erodes brand loyalty, reduces profitability, and undermines market stability. Addressing these challenges requires robust pricing policies, enhanced value propositions, and strategies to sustain customer trust and business viability.
Regulation of Online Price Dumping in Europe and the U.S.
Price dumping in online markets is governed by antitrust and competition laws aimed at preventing unfair practices, abuse of market dominance, and ensuring a fair market environment.
European Legislation
In the European Union, price regulation and anti-dumping efforts rely on several key legal frameworks and principles:
Treaty on the Functioning of the European Union (TFEU):
Article 101: Prohibits agreements between businesses that restrict competition, including dumping arrangements.
Article 102: Prohibits the abuse of a dominant market position, including price dumping intended to eliminate competitors.
Unfair Commercial Practices Directive:
Regulates business practices that mislead consumers or harm competitors, such as aggressive pricing strategies.
Geo-blocking Regulation:
Protects consumers from discrimination based on location and ensures equal access to pricing across EU member states.
National Competition Laws:
Businesses must also comply with individual member states' competition laws. For instance, Germanyās Gesetz gegen WettbewerbsbeschrƤnkungen (GWB) addresses anti-competitive practices and dumping.
U.S. Legislation
In the United States, dumping is addressed under antitrust laws and regulations designed to protect free competition:
Sherman Antitrust Act (1890):
Prohibits anti-competitive agreements and monopolization. Price dumping aimed at driving competitors out of business is considered a violation.
Clayton Act (1914):
Addresses price discrimination and prohibits unfair pricing strategies that could lead to monopolization.
Federal Trade Commission Act:
The Federal Trade Commission (FTC) monitors unfair competition, including online price dumping practices.
Antidumping Laws:
Regulate the import of goods sold below production cost, which can harm domestic manufacturers. Such cases are reviewed by the U.S. International Trade Commission (USITC).
Regulatory Focus in E-commerce
Monitoring Online Behavior:
Both EU and U.S. regulators actively monitor businesses operating on e-commerce platforms, including marketplaces and large retailers.
Legal Enforcement and Fines:
Companies violating rules may face significant fines. For instance, in the EU, penalties for anti-competitive behavior can reach up to 10% of the companyās annual turnover.
Platforms and Marketplaces:
Authorities closely scrutinize major platforms like Amazon, particularly for their use of pricing algorithms that may facilitate dumping.
Key Considerations
- In the EU, the primary focus is on safeguarding competition and ensuring a level playing field in the market.
- In the U.S., the emphasis is on preventing monopolies and anti-competitive practices.
Companies operating in international markets must comply with both local and regional legislation and stay informed about evolving judicial precedents.
Understanding and adhering to these regulations is essential to maintaining fair practices and avoiding penalties.
If price dumping has become a critical issue for your company, turning to Price Control could be the optimal solution. Our team of professionals can help:
- Identify and analyze pricing policy violations across all platforms.
- Develop a strategy to protect your brand and profits, tailored to your market specifics.
- Restore fair competition while maintaining the loyalty of your partners and customers.
Donāt wait for the situation to worsenātake action today!
- info@pricecontrol.biz
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