Dumping, What is it, and how could it affect your business?

Dumping, What is it, and how could it affect your business?

09/27/2023 - Pricing strategy

Dumping is a practice linked to international trade and involves reducing sales prices to well below the cost price. It is a strategy primarily applied by large companies that can assume the losses that dumping entails. The main objectives are to penetrate a new market and attract a significant number of customers from day one, far outpacing the competition. If you are a large company, conduct an in-depth analysis of the pros, cons, and future consequences of dumping before embarking on this practice. For medium and small retailers or manufacturers, dumping can affect your stability if you don’t have a solid and consistent pricing strategy. Below, we discuss the possible effects of dumping.

Types of dumping or price discrimination 

There are several types of dumping, also called price discrimination, depending on the intent behind it. When dumping is applied with the intention of outstripping the competition by grabbing a large market share, this is predatory dumping, which companies consider unethical. One example is the emergence of Asian marketplaces with much lower prices because they manufacture their own goods.

Official dumping can be applied by companies when a product has some form of tax exemption or subsidy allowing it to be sold at a much lower price. Alternatively, when social dumping is applied, a law forces brands and retailers to reduce the price of a product. 

Negative consequences of dumping for eCommerce 

Dumping, especially predatory dumping, can have negative consequences for businesses in the same sector that will be affected by a drastic price crash and losing customers. These include: 

  • Closure of companies in the sector and loss of workers. Trying to deal with the price crash can cause unbearable financial losses for other etailers or manufacturers.  
  • Fewer options for users, who in the long run will be limited to a single seller with the freedom to set higher prices once d a monopoly exists. 
  • Damage to the industry producing goods. 
  • Slowed market growth. Markets will be deemed unstable and high-risk due to imposed low prices. 

Are there any negative consequences for the company responsible for dumping?

Yes. In the long term, this may be an unsustainable situation for the company starting to dump prices. Eventually, they will have to increase prices, causing dissatisfaction among consumers. They will then have to weigh up the consequences of adapting their pricing strategy against possible damage to the brand image. 

Also, in most countries, dumping, as a form of price discrimination, is considered an unfair practice and is therefore restricted. Although dumping is not illegal, international agreements and certain restrictions, tariffs and quotas exist to curb the practice and encourage fairer market development. Dumping can be considered an illegal practice by the World Trade Organization (WTO) if a country can reliably show the adverse effects the practice is having on its economy.

Negative consequences of dumping for eCommerce

Review your pricing strategy to adapt to market changes  

Although it can lead to a complicated situation for businesses, the main recommendation in day-to-day business is maintaining a competitive market where prices adapt to consumer demand. Set an appropriate and adjustable pricing strategy with the help of dynamic pricing and monitor competitors’ prices — you will then be able to adapt to all possible unforeseen eventualities and market changes. You can use repricing tools to automate processes and increase profitability. This will help you gain market share and optimize your sales to reach a competitive position, from where you will be better able to respond to any situation that increases your risk.

Category: Pricing strategy

Tags: pricing

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Maria Jose Guerrero
Content Manager

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