On 4x price increases, rapid price fluctuations, upstart brands and fake listings
COVID-19 has led to a spike in demand for products like hand sanitizers and face masks. Manufacturers of these products, many of whom were blindsided by this spurt, have been struggling to meet consumer needs, leading to empty supermarket shelves across the world. In the online world, this void has given rise to a different set of supply dynamics - since the barrier to introducing new products and dynamically altering prices is lower on ecommerce marketplaces, we've seen the emergence of new brands, new sellers, new products and a certain degree of predatory pricing behavior.
Consider the hand sanitizer category on the Amazon US marketplace. NONE of the traditional best selling brands and products are in stock. You'd be hard pressed to find any Purell or store brand Solimo goods that are in stock.
In the current best seller list for Hand Sanitizers, the leading brands are MiyaSudy, ArtNaturals and Kitt. Notice that few products on this list (shown below) have more than a handful of reviews. Contrast this to best sellers lists of adjacent categories like Cleaning Cloths, Swabs & Wipes and Ointments in which all products have at least a 100 reviews.
What happens when such conditions prevail?
Price Rise (By 420%!)
Using the Semantics3 database, we compared the prices of best selling hand sanitizers in January with prices of those in March. We found that in this time period, the cost of 1 fl. oz. (fluid ounce) of hand sanitizer has risen from $0.32 to $1.36. That's a 420% increase in costs!
Price Fluctuation (of up to 50% in the span of a week)
Is this price increase justified - perhaps a reflection of an increase in the cost of supply - or has it been opportunistic?
To understand this, over a period of one week between March 9th and March 16th, we checked the prices of all top hand sanitizers at regular intervals. What we found was sobering - five products that were marked as best sellers in the entire Health & Household category saw a subsequent spike in prices of 25%-50%! In another category undergoing similar dynamics - face masks - we found several products that saw price increases of as much as 250%, undergoing as many as 20 distinct price changes in just 5 days.
A very plausible explanation for this is that once these products made it to the top, sellers saw it opportune to bump up prices to take advantage of consumer sentiment.
New Supply Lines
Many of the products listed have long delivery times, presumably because they're being shipped to the US by foreign sellers who do have access to supply. While the wait times are not ideal, for many, the existence of such supply channels is better than having no supply at all. Such ad-hoc sources are difficult for big box retailers to tap into, but can be made to work on online marketplaces.
Scams & Fake Listings
The flip side of these new supply lines is that many of these may not be legitimate. Several product listings that we've been tracking have shot up best sellers lists and subsequently been taken down. This is a testament to the ability of marketplaces to police bad behavior. It is also, however, an indicator of how consumers are susceptible to panic buying and can fall prey to sellers.
Here's an example of a surgical mask that was marked as a best seller across several categories:
But the listing has now been taken down and the seller pages seem peppered with negative reviews:
tl;dr: In physical retail, supply shortages lead to empty shelves, but in ecommerce marketplaces, shortages make room for alternative players and dynamics. This is a double edge sword - since these channels come with looser constraints, they provide an environment for opportunistic sellers to take advantage of consumers through higher prices and at times, fake listings.