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How to Compete with Amazon? Optimize Prices, Says Boomerang Commerce

A veteran of Amazon and eBay, Guru Hariharan has raised $8.5 million for his company to help retailers compete with Amazon. While small and micro sellers won’t be using Boomerang Commerce’s services, they may wish to understand how the company is helping larger merchants optimize their pricing online.

There are many popular repricing services on the market that help merchants of all sizes dynamically reprice products with a focus on Amazon and eBay listings. Boomerang’s Dynamic Price Optimizer helps merchants adjust prices dynamically on their own ecommerce websites.

Retailers with an online retail revenue in excess of $50 million and growing are ideal clients for Boomerang Commerce, Hariharan told EcommerceBytes.

“We are having some very interesting conversations with some promising small retailers who are growing at an average of 25-30% a year. Online retail is exploding and we feel that promising players need a level playing field. Through our platform, that is precisely what we have set out to achieve.”

Boomerang Commerce said it has already helped several multi-billion dollar retailers grow their online revenue by an average of 5%. Clients include Staples, Sears, DHGate, Groupon Goods, and RadioShack.

Repricing versus Price Optimization
Boomerang Commerce’s Dynamic Price Optimizer is not just repricing – Boomerang Commerce helps retailers meet their top-line and profit goals by creating an “excellent price perception of their products” in the minds of visitors to their ecommerce portals, Hariharan said.

Rather than being rule-based system, Boomerang Commerce is a price optimization platform for ecommerce websites. “Our big data, software as a service (SaaS) platform looks top down and helps category managers create, test, implement, and monitor pricing strategies. The Boomerang Commerce Dynamic Price Optimizer ensures that these strategies are aligned with competitiveness and profitability goals. Prices of products are a derivative of the method to reach and exceed those goals.”

Putting Economic Theory to Use
The company talks about its use of portfolio theory, real-time machine learning and game theory. One example, Hariharan said: “If you know the competitor’s typical reaction to your pricing strategies, you can apply Game Theory concepts such as Nash Equilibrium to take advantage of the first mover advantage.”

“For instance, if we know that your competitor is going to race you to the bottom on the category, you may not reduce prices on that category much. On the contrary, you may want to increase prices. On the other hand, if your competitor doesn’t have a good cost structure on the category you want to win marketshare in, perhaps it’s a good idea to drop prices.”

Race to the Bottom?
While repricing is wildly popular with some EcommerceBytes readers, there remains among some merchants a perception that repricing can lead to a race to the bottom. We asked Hariharan what he would say to the skeptics.

“That is the beauty of price optimization. While we always benchmark against competitors, we keep a firm eye on revenue and profitability – parameters that shareholders also keep a keen eye on.

“Then there is this aspect of perceived value and rock-bottom prices surely do not correlate well with that. So price optimization is actually a race towards better perception of value through better price perception and healthy profitability. It is not a race to the bottom.”

Competitive Intelligence on a Massive Scale
The term “big data” applies to Boomerang Commerce’s approach to competitive intelligence. “With millions of products in the assortment of major online retailers, tens of competitors of the same size (hundreds globally), and complex supply chain and cost parameters, it is impossible to handle competitive intelligence manually. This is not a consulting exercise. It is handled at a massive scale. This is big data at its biggest.”

Using Price as a Weapon to Compete with Amazon
Boomerang Commerce plans to use its new financing to aggressively expand its engineering and go-to-market teams and to build additional retail applications on top of its platform.

Guru Hariharan had lots more to say about his company’s services and how retailers can use price optimization to compete with Amazon.

EcommerceBytes: Do you believe Amazon wants to be the place with the least expensive products? How does it accomplish what merchants are trying to do – price attractively but still make a decent margin?

Guru Hariharan: Amazon’s pricing engine has been perfected through years of focused effort. Amazon is what it is owing to being there first and doing it right consistently. This enables them to price in a manner that works for their customers and Amazon’s business.

We have seen Amazon raise prices on many products so it is not really true that they want to be the place that has the least expensive products. However online buying depends on perception of price and value with things like timely delivery, shopping experience and many more matter a lot.

With the horsepower in its systems and its logistics network, Amazon does seem to have a huge advantage. It is precisely here that we come in with our technology and promise to bring massive scale price optimization to the retail mainstream.

EcommerceBytes: Do merchants engage in price optimization on platforms outside of Amazon? Should they?

Guru Hariharan: Price optimization is rather new. There are, and always have been models and practitioners here but none have attempted to solve the optimization challenge at a scale we are attempting to. Amazon has been a frontrunner but uses its intelligence to its own advantage. We have successfully built a business model out of a very strategic thought – price – unequivocally one of the most important attribute of any product.

EcommerceBytes: Should merchants use price optimization?

Guru Hariharan: Of course, they should. Out of annual ecommerce sales of $263 billion in the US in 2013, $106 billion were from web-only retailers, with Amazon accounting for over $65 billion of this. $87 billion were from chain stores with an ecommerce footprint. The web-only retailers grew at 21% and the stores-based merchants at 16%. So ecommerce is exploding.

Price is the biggest weapon that online and store-based retailers have to fuel growth. Mere price intelligence is a passive concept – price optimization in real-time is where all retailers will eventually gravitate to.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.