price parity

The Practical Approach: Impact of Stock Availability on Price Parity Strategies

Stock availability refers to the presence or absence of products for consumer purchase. Its level can significantly impact both the supply side and demand side of the market. When stock is abundant, customers have more options, leading to a competitive environment where businesses strive to attract buyers through appealing pricing. On the other hand, limited stock can create a sense of urgency among consumers, often leading to an increase in prices.

Stock Availability and Pricing Strategies - 42Signal

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What is the Meaning of Price Parity?

Price parity is when a business keeps its prices the same everywhere it sells. For example, a toy might cost the same in a store as it does on the store’s website. The idea is to be fair to all customers, no matter where they buy. 

The concept of price parity has grown in prominence since the last decade due to the abundance of e-commerce sites all over the world. Gone are the days when a product was only available on a single platform; to sell effectively, businesses have to broaden their horizon and utilize every avenue available. 

The Interaction Between Stock Availability and Price Parity

The interdependence of stock availability and price parity may not be glaringly obvious. For instance, questioning why are they connected and how are they connected is the logical first thought. 

In a nutshell, stock availability affects price parity in the following ways – 

  1. When There’s Lots of Stock: If a store has a lot of something, they might lower the price to sell it faster. This can be because they need space or because new models or versions are coming. It also could be that the shelf life of the item is close to expiry and keeping the product would result in losses. 

Brands usually hold clearance sales or massive discounts to clear any items that are being sold quickly. 

  1. When There’s Not Much Stock: If there’s not much of something, stores might raise the price. This is because people might be willing to pay more for something hard to find. 

A really good example of this use case is face masks and hand sanitizer during 2020-2021. With the world plagued by a pandemic, the sales of hygiene products went through the roof especially personal safety items such as gloves, face masks and sanitizer. This in turn resulted in low stocks (until manufacturing began in full swing) where prices skyrocketed. 

Stock Availability and Pricing Strategies - 42Signal

Image Source: The Lancet

  1. What About Sales Online and In Stores?: Sometimes, prices online and in stores can be different because of stock levels. If there’s more of something in the store, it might be cheaper there than online, or the other way around.

Warehousing costs are typically much lower than store rents and that could also affect costs in brick-and-mortar stores. Companies paying massive amounts of money to rent out spaces in high-traffic areas such as malls or expensive localities, can’t afford to lower the cost of goods beyond a certain margin while their online equivalents could probably do so while keeping a thick profit margin. 

  1. Laws and Rules: Sometimes, there are rules about how much prices can change, especially if something is in short supply. Businesses have to be careful not to break these rules.

MAP violations is one such rule where distributors cannot lower prices below the agreed-upon amount with the manufacturer. It destroys brand trust and if continued can also lead to bad relations with the brand. 

MAP Violation- Bundle Price Promotion

To know more about stock availability and why it matters, read our guide – Stock availability: The What, The Why and The How for Ecommerce Success

Conclusion

The interplay between stock availability and price parity strategies is intricate and vital for business success. 

With the above examples, it’s easy to understand how understocking and overstocking can impact the brand as well as the customer experience. 

42Signals has the answer to this problem by providing timely information about product availability to help brands sustain a seamless shopping experience for their customers. 

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