Barney Jopson, the author of a Financial Times series about Amazon that debuted yesterday, wrote a separate article in the same issue about the algorithms that are used to price products on the site. Based on tools developed for high-speed trading in the stock market, these third-party applications let sellers change prices as to undercut rivals or maximize visibility on Amazon.
According to Jopson, these tools make "prices change as often as every 15 minutes". Misusing the algorithms has led to some extreme results, including an instance in which the list price of a book escalated to $23.7 million. Races to the bottom are also possible.
Some sellers have expressed concern that the software will lead to hair-trigger changes in price that wipe out inventory (likely at a loss for the merchant). Given the experience with stock-market fluctuations, those possibilities are out there.
Reading Jopson's report, I was struck by something else: the idea of changing metadata more than once a week. Whether on Amazon or another retailing platform, publishers typically update their price files weekly. Research we are doing with a mix of sites suggest that price changes cascade through the system over a period measured in days to weeks.
The report we prepared for the Book industry Study Group included two related recommendations for publishers and retailers, alike:
- Further automate metadata workflows; and
- Prepare for more frequent updates
Within the report, we posed a question that publishers could ask themselves: "What would happen to this process if we had to make changes every day? Every half day?" In hindsight, we might have reduced the time interval to "every 15 minutes".
One answer to that 15-minute challenge could be, "We'd develop a pricing strategy that had appropriate upper and lower bounds, and we'd let the algorithm do its work." Another answer might be: "We will test prices, but we won't compete on them." A third might harken back to the ideas contained in a June post: "Use pricing strategies to expand the pie."
There are more answers, and there are more questions to answer. What seems clear is the fading value of managing the marketing mix (price, place, promotion and product) at arm's length and a week at a time.
