Price dumping (from the English dumping - dumping) is an artificial reduction in the prices of goods or services in order to increase sales in a particular market. Dumping prices are usually below the market average, and often can be below the cost of goods or services. Dumping is one of the methods of competition and part of it is recognized as a method of unfair competition.
What is price dumping, why retailers start dumping on the Internet and how to deal with it, read in our article.
Dumping, today is an integral part of the life of a modern person, whether we like it or not. Buyers are pleased with lower prices, because why pay more? As for the shops and producers directly, the situation is far from being the most unambiguous. Non-compliance with the MAP leads someone to a leading position in the market, and someone, unable to withstand the competition, is forced to close their business. Let's take a closer look at what dumping is, why it appeared, what goals dumpingers pursue, how to effectively deal with unscrupulous competitors, and what the consequences may be.
Dumping. Origin and development of the concept
The term dumping was formed in the era of the Great Depression in the early 30s of the 20th century. Initially, they called the sale of illiquid goods, but later its meaning changed somewhat.
Now the concept of dumping is also inextricably linked with the foreign economic activity sector. In this context, it means exporting products at prices lower than they cost in the home market of the commodity producer.
If we turn to the anti-dumping regulation of the European Union, then the price of a product is dumped, provided that the export value of the product is lower than a comparable analogue in the domestic market of the exporting state. Thus, the company imports goods at lower prices than it sells on the domestic market, while not incurring significant financial losses. That’s why,
DUMPING is a broad concept that refers to the sale of products at a price at the cost level, or much lower than the average market.
This example shows that a low price is not always dumping. Ford was able to lower the price of its cars by reducing production costs.
We can talk about price dumping if there are 2 prerequisites:
If any of these conditions is absent, then price reduction is not dumping.
In a word, the planned price reduction is the result of deliberate financial and marketing measures, which is what distinguishes it from dumping.
Price reduction is justified in the following cases:
– reducing production costs;
– reduction of operating expenses;
– changes in product positioning;
– promotions and sales.
Companies that have chosen price dumping as their business strategy pursue the following main goals:
- neutralization of competitors;
- conquering a new market;
- sale of illiquid stocks of goods;
- the expansion of the customer base;
- anti-crisis measure.
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 dumping depend on the area and purpose of their application. They may also overlap. For example, price dumping can be sporadic.
To get the most profitable contracts, many companies are willing to make substantial concessions. Sometimes the price reduction is incredible. Contracts always go to the one who makes the best (cheapest) offer. As a result, such discounts can negatively affect the quality. Therefore, at the legislative level, the issue of deliberately lowering prices is strictly controlled, and violators face substantial fines and a damaged reputation.
The classic types of dumping have taken on new forms with the advent of online trading. In the course of our activities in the field of price control on the Internet, we noted the features of dumping that are unique to e-commerce.
The online store has information about the prices recommended by the manufacturer or importer, but deliberately sells goods cheaply. In such a situation, you need to start the fight against dumping by entering into negotiations with the owerner in the online store.
This type of dumping is caused by outdated prices for goods that have been in the range for a long time, but did not wait for buyers. In such cases, it is often worth sending the price list with current prices to the store employees responsible for pricing. In the future, in order to avoid such excesses, it is necessary to regularly send an updated price list and control the situation with the help of price monitoring.
In such a situation, your product at dumping prices is only a source of traffic to the site. Advertising is placed on forums, price aggregators, pages of your own store in order to attract attention, but to sell completely different goods or services. In such a situation, negotiations will not help, decisive action is needed to remove the product from the store's assortment in order to protect your brand.
As a result of the pandemic, which led to economic changes, the growth of the e-commerce market has increased many times over. The resulting restrictions have forced many companies to develop their brands in the only possible market - the network. Consumer behavior has also changed. With the mask regime and lockdowns, more and more buyers began to shop in online stores.
According to experts, the volume of sales on the Internet by 2023 will amount to 6.5 trillion dollars, although in 2019 it was 3.5 trillion.
The change in the consumer behavioral model and the increase in demand for shopping "without leaving home" created ideal conditions for the emergence of new trading platforms on the Internet, and, accordingly, increased competition. The easiest way to deal with a competitor, many companies consider price reduction - dumping.
Prerequisites for the appearance of dumping in trade:
Newly-created on market.
Companies entering the market for the first time often use dumping prices to rapidly advance and win over a consumer audience. Not everyone can resort to the strategy of a sharp understatement of the check. Usually, these are companies that sell goods that are in high demand, or those who have this business is not the main one and have some kind of airbag.
Only the key, largest market players can afford such price behavior. Due to the wide assortment, huge turnover, such stores still win, despite the greatly reduced prices for some goods. Such tactics are often used to neutralize small competitors by gaining a monopoly position in the market.
In most cases, customers are wary of new products, preferring something that has already been proven. Therefore, in order to reduce the cost of promoting a new product or brand, sellers reduce prices.
Contraband and falsification.
Goods that are illegally imported into the country are often sold under the beautiful name "confiscated" and at very attractive prices. The main points of sale are various Internet sites and free classified ads on the Internet. Of course, this product has nothing to do with the goods that were actually confiscated by customs.
To distinguish smuggled goods from officially imported products, you need to know a few nuances. All accompanying documentation (instructions, warranty cards) must be translated into the language of your country, as well as certificates and information about the official importer and service centers in your country.
This is the most favorite trick used for lead generation. Online stores attract buyers with a low price for products of a popular brand that they don’t even work with. When a customer places an order, it turns out that the product is no longer in stock, and they immediately offer an alternative from a different brand.
Increasing sales in the evening, at night, on holidays or weekends.
Market research shows that dumping prices are most often set when no one can control them. Therefore, on the morning of the working day, all prices return to their original value. Hence it turns out that in some stores there are no sold, while others are actively trading. Keeping the situation under control and fixing violations at any time is possible only with the help of constant automatic monitoring of competitors' prices.
• additional discount;
• special price or bonus system for monthly, quarterly, annual turnover;
• free shipping when ordering for a certain amount;
• provision of a one-time discount for the purchase of a large batch of a certain product;
• the ability to purchase goods on sales.
These and many other lucrative bonuses that encourage sellers to buy in order to fill their warehouses with “profitable” goods. However, the hype passes and demand begins to fall, and warehouses are full. The retailer has no choice but to sell the mountains of adulterated goods at the lowest price.
There are indirect reasons for dumping, which may not depend on sellers. One of these reasons is
manufacturers do not understand the specifics of working in the e-commerce market.
• the updated price list is provided in a format that is difficult to upload to the site;
• binding prices to the currency, but the exchange rate of the supplier and the seller do not match;
• belated informing the online seller about changes in prices for goods.
Therefore, at least partially, it is possible to fight dumping with the help of a high level of organization and automatic updating of price lists.
In today's dynamic e-commerce market, dumping has long been a constant phenomenon. In a highly competitive environment, only price cuts help many companies stay afloat. In this situation, there can be no talk of making a profit and developing a business, it's just a way to survive. If you still decide to fight with competitors, you should be prepared for certain losses. In "price wars" all participants bear losses. It is necessary to understand how long the company can work in the red, whether it is possible to optimize spending and resources, and that you may not be the winner. Therefore, before you start fighting with competitors through dumping, you should think 10 times and weigh everything carefully.
Maintaining prices at the same level, despite the competitor's reduction in the cost of a similar product.
Instead of lowering the price, make package offers. This approach will make it difficult to compare prices in different stores, and you can convince customers that buying a whole "package" of goods or services will be very profitable.
Emphasis on value, not price.
You can even raise the price if you do it justifiably by improving the quality of your product or service. Such a decision must be made carefully and deliberately, as there is a high chance of losing customers. If you do this, then such actions will be a step to a new stage in the development of the company.
Expand the range of budget counterparts. This technique may become temporary and work during the period of an active anti-dumping campaign. Give customers a choice between low price and high quality products. Then everything depends on the skill and professionalism of your employees, whether they will be able to persuade the buyer to the side of a quality, not a cheap product.
Exposure low prices in the media. Most clients do not even think about what dumping is, what harm it does to the economy and how it subsequently affects end consumers. Therefore, you, as an interested party, can convey this information to buyers through available resources (websites, blogs, social networks). Focus on the fact that high-quality original products cannot cost 30-50% less. If the cost is very low, then with 100% probability the product is a fake. Few people want to risk and spend money on a thing of dubious quality.
6. Formation of a loyal customer relationship.
One of the main tasks in any situation on the market is to win the trust of customers and maintain the achieved level of loyalty. Develop a system of bonuses and discounts for customers, hold interesting promotions, fill your website and groups in social networks, not only with information about the product, but also with other useful and entertaining thematic content.
7. Holding promotions.
To attract new and interrupt the outflow of regular customers, hold a promotion: for a short period, lower the price to the level of competitors. If the quality of your product is at a good level, then the buyer will return to you.
If the cost of goods for you and your competitors is the same, then there is a high chance that the dumping company will sooner or later go bankrupt. The wait-and-see attitude in this case is a simple but dangerous anti-dumping strategy. To wait for a competitor to leave the market, you must have a solid supply of resources, because this is not a matter of one day.
9.The last and radical method to avoid dumping is to close the business.
Many will regard this measure as weakness and loss, however, not everything is so simple. Having closed a business that could not stand the competition, you have every chance to start a new successful business. Having got rid of an unprofitable company in time, you can invest in some interesting promising line of business and already develop in it.
Dumping reduces the overall profitability of the industry and the quality of goods and services, it is very difficult to return the former cost later.
How to deal with price dumping is an important issue for many e-commerce companies. The solution to this problem includes systematic monitoring of prices and active anti-dumping measures aimed at stabilizing pricing policy in the e-commerce segment and maintaining order in the market.
You can resist the dumping of competitors by non-price methods: file a complaint against a competitor with regulatory authorities, expand the range and improve promotion strategies, and improve product characteristics.
It is extremely difficult for small and medium-sized businesses to compete with retail chains and giant stores. Networkers have a large turnover, the widest assortment, low interest rates on loans, fully automated business processes and a whole staff of employees. They can afford to carry out various promotions, discounts and sales without prejudice to the business. All these resources are not available for small shops.
Chain stores do not incur losses when prices are dumped. Lowering the prices of some goods, they raise the prices of others, thereby compensating for lost profits. Small and medium-sized businesses cannot afford this, because this is a direct path to ruin. The surest way to do business successfully in such market conditions is not even to try to compete with the networks, but to go the other way. What needs to be done for this?
During the pandemic and restrictive measures, marketplaces have become the only chance not to lose business for many entrepreneurs. They were able to adapt to new conditions faster than anyone else. During this period, marketplaces not only stayed afloat, but also showed an increase in demand at times. Therefore, instead of increasing investments in their own trading platforms, entrepreneurs began to cooperate with marketplaces. Despite the many disadvantages of such cooperation, the ability to scale indefinitely outweighed all the disadvantages.
The main problem of marketplaces is dumping. The strategy of low prices underlies the operation of all marketplaces.
One of the buying criteria for the average consumer is the low price. If a smartphone can be bought at least 10-20% cheaper, the buyer may not pay attention to the inconvenience associated with delivery or lack of warranty service.
Marketplaces are ready to cooperate with sellers who set low prices for their goods. The cards of their products may be in priority in impressions, and they receive more orders than others.
It is not uncommon when marketplaces provide individual terms of cooperation for sellers who dump. The marketplace raises the commission or removes the product for those who refuse to follow the rules and dumping.
Dumping is a controversial mechanism that, for a short period of time, can lead to an increase in demand and an increase in sales. But, using this mechanism, it is necessary to calculate all the risks, because its disadvantages will quickly cancel out the positive effect.
Before entering the marketplace, online store owners need to think over their pricing policy. If you immediately set prices lower than those of competitors, you can get a backlash. Competitors will bring down prices and will win, as they are already more authoritative and recognizable. It is necessary to make an analysis of the situation on the site with which you plan to cooperate. The battle may not be equal. If you can’t enter the marketplace without artificial price reduction, look for options that can reduce financial losses.
Some tips for dealing with dumping:
Price dumping is just as terrible for manufacturers as competitors' dumping is for sellers. It takes the most aggressive form in the e-commerce segment, where about 20% of stores daily neglect the MAP/ MSRP established by suppliers. And in the case of some types of goods, it can be 60-80% (building materials, computer and household appliances and electronics).
During the crisis associated with Covid-19, the online sales market received a powerful impetus and began to develop rapidly. Small stationary retail outlets were forced to master a new way of selling - via the Internet. It is difficult for beginners to gain a foothold and gain customers. Therefore, due to inexperience, they are trying to attract buyers with dumping prices. As a result, it is the producers and importers who bear the biggest losses:
To minimize the problems caused by dumping, it is necessary to act immediately after it has been discovered. It is always much easier to neutralize dumping at the initial stage than to deal with the consequences when even decent sellers reduce prices out of desperation.
In this case, your most important and reliable assistant will be daily monitoring of prices in online stores.
Therefore, the first step in the fight for compliance with the RRP will be to search for the presence of the brand on the Internet and identify all violators, and then a series of measures to stabilize market prices. Looking for the one who started first is a completely useless and meaningless exercise. Most likely, you will not find the extreme. Sellers will unanimously blame each other. It doesn't matter who initially lowered prices, it is important to find and neutralize everyone who does not disdain dumping.
The fight against malicious violators is within the power of every commodity producer. It is only necessary to act as soon as at least one seller has lowered prices, and not let everything take its course.
In order for the struggle of the commodity producer to comply with the MAP/ MSRP to be successful, it is worth adhering to the following algorithm of actions:
Deprive bonuses, discounts or reason with the threat of a complete cessation of cooperation of systematic violators. The complete withdrawal of goods and the termination of cooperation with the store, where is dumping prices, is an extreme measure and the last possible step.
A few years ago, Price Control was contacted by a manufacturer of water heating equipment. The customer faced severe dumping, both in stationary retail outlets and online stores. The consequences were a sharp decline in interest in the brand, a drop in retail prices to purchase levels, constant demands from wholesale buyers for price reductions, the creation of a brand image with low margins, difficulties in selling, and a drop in profits and turnover. Dumping dynamics in November 2020 by client’s brand in online retail In 2021, the manufacturing company signed contracts with two more major suppliers.
The situation was critical and required urgent resuscitation. During the first monitoring, Price Control specialists found dumping in 255 out of 360 sellers working with the brand.
A strategy was developed to restore order in the market and bring the company out of the crisis. It included the following steps:
• Regular monitoring of the prices of all stores selling the company’s products.
• Creation of a “black” list of sellers.
• Informing violators by e-mail about revealed cases of dumping and with a request to comply with the MAP/ MSRP.
• Daily telephone conversations with violators about the return of prices to the recommended level.
• Introduction of a strict system of fines for dealers who ship goods to dumping shops.
• Carrying out control purchases in offending stores. Identification and application of sanctions to dealers who continue to cooperate with sellers from the “black” list.
The results were not long in coming. After a few months of cooperation with Price Control, we could talk about some victories.
Interest in the brand has increased, and the circle of potential partners for cooperation has doubled.
Key players in the sphere began to show interest in the customer’s products.
The number of stores that began to sell the client’s brand rose to 600, and the level of dumping among retailers decreased to 15%.
The company has gained a solid reputation and established itself as a reliable partner, working with which promises to be mutually beneficial.
Increasing by 200% profit made it possible to talk about overfulfillment of the annual plan already in November.
The higher the consumer interest in online shopping, the more new sellers appear. In this situation, the commodity producer needs to more closely monitor the state of the market and compliance with the MAP/ MSRP stores.
A few years ago, Price Control was contacted by a manufacturer of water heating equipment. The customer faced severe dumping, both in stationary retail outlets and online stores. The consequences were a sharp decline in interest in the brand, a drop in retail prices to purchase levels, constant demands from wholesale buyers for price reductions, the creation of a brand image with low margins, difficulties in selling, and a drop in profits and turnover.
Dumping dynamics in November 2020 by client’s brand in online retail
In 2021, the manufacturing company signed contracts with two more major suppliers.
In order not to play "cat and mouse" with online stores, the manufacturer needs to automate all processes as much as possible to effectively combat dumping. Collecting information manually will not bring even a fraction of the desired anti-dumping results for a number of reasons.
Automation of parsing processes can solve the problem of daily price collection in online stores.
The task of automating price monitoring in online stores has several solutions. Everyone will find the most suitable for themselves:
Price monitoring in online stores from the Price Control price monitoring service can be carried out from one to 24 times a day. Multiple data collection will identify the seller who was the first to dump and apply penalties to him. This functionality is available in the Personal account of the service.
from Price Control –
this is an opportunity to receive daily up-to-date data on the situation on the market and quickly respond to changes.
Price dumping, like any economic phenomenon, has an impact (negative and positive), both on end consumers and producers. For greater clarity, we present everything in the form of table 2.
|Increase in consumer audience and expansion of the sales market||Lack of customer loyalty. The client base is expanding due to those who are looking for the cheapest offer. Find a lower price - leave without hesitation|
|Increase in turnover and sales volume||Creating the image of a store that sells shoddy goods|
|Churn of customers from competitors||Increased chance of going bankrupt|
|Business profitability is falling. The company survives on a “financial cushion” and resource austerity, which affects the quality of products, services and salaries of employees.|
|When exporting goods, the chance of being fined or receiving restrictions increases significantly|
|For a company suffering from underpricing by a competitor|
|The chance to create a unique selling proposition, thereby getting away from the competition||When exporting goods, the chance of being fined or receiving restrictions increases significantly|
|The ability to repurpose the business by changing the scope of activities, update the pricing strategy and approach to customer service||Outflow of buyers|
|Closing a business or exiting the market|
|For retail customer*|
|Savings on purchases due to low prices||Increased chance of acquiring a lower than expected quality item|
|Increasing the likelihood of becoming the owner of the desired product (service) in a shorter time||Low level of service and the presence of hidden fees (delivery, after-sales service, etc.)|
Despite the fact that dumping has obvious positive aspects for all market participants, its negative component is still greater. Not every potential customer will spend their time looking for the cheapest deal. And, not for all buyers, low price is a decisive factor in the decision. Focusing your work exclusively on lovers of low prices is initially a losing position.
Dumping is unfair competition based on artificial price reduction. Most countries with developed market economies have legislation that defines anti-dumping regulation. As a rule, this is antitrust law. It allows you to protect intellectual property on the Internet.
Also, most countries provide for anti-dumping duties, which the state can impose on an unscrupulous exporter.
This duty is aimed at protecting local companies (within the customs union) from unfair competition from importing companies. According to this law, additional anti-dumping duties are imposed on importers who bring goods into the country at reduced prices. Thus, prices for imported goods rise, which gives domestic companies a chance not to be "eaten" by competitors and compete on an equal footing.
In 1967, the GATT member countries adopted the International Anti-Dumping Code in Geneva, which provided for the concept of "injury" to local enterprises in the importing country. Affected parties must provide evidence to assess damages.
In 1992, the British for the first time gave a quantitative parameter of dumping in the anti-dumping law. The law stipulates that dumping is an export price that is 20% or more below the market price in the country of production of the goods or 8% below the world price.
If the issue of dumping for your company is more acute than ever, then contact Price Controls. Our experts will help you find ways out of this situation. We can also help in finding installers - these are regular customers who are interested in long-term cooperation and not a one-time dumping sale.