The Law of Supply and Demand - Are Shopping Bots Ethical?
If you are an online merchant / etailer with a store selling popular products then no-doubt you have heard of the law of supply and demand and even be familiar with Shopping bots and their consequences. If not, then its easy to confuse Shopping bots with the very useful retail Chatbot, – a tool for sales support and conversational commerce.
Below we will look at the law of supply and demand and the difference between these similarly named tools to clear up any confusion, and look at the use cases, finishing up with solutions to the problems they pose.
To begin with we need to establish a baseline with several definitions.
Table of Contents
What’s the difference between a Shopping bot and Chat bot?
For those not familiar with conversational commerce or shopping bots you would be forgiven for confusing the two. While both are scripts that provide automation of tasks, the types of tasks the code performs are very different. The former one is run by the seller to assist the buyer (retail chatbot), but the other is run by the buyer with the goal to scour the net, find specific products and (in some cases) purchase these items with specified purchase data.
Both Chatbots and Shopping bots can be extremely useful, aiding customers to achieve their goal but the latter is problematic to say the least, – and open to abuse.
Shopping bots can provide unscrupulous individuals the ability to bulk buy items fast from many different online stores. Therefore, for crooks it is a fraudsters dream and potentially a retailers worst nightmare.
The attraction for business and fraudsters alike is the opportunities the law of supply and demand provide.
What is the Law of Supply and Demand?
The law of supply and demand is an economic model of price determination within a market. It stipulates that quantity demanded (at the current price) will equal the quantity supplied (at the current price), assuming all else is equal. Therefore if the available quantity supplied can not meet the demand of the product, then the price will rise.
Problems arise in the case of a few individuals buying up all the stock to resell, because in effect, they are artificially raising the price. Of course by rising the price inevitably demand reduces from what it otherwise would be at the original price.
Ergo, price sensitive customers will be excluded as the graph shows below.
What are Shopping Bots?
There are several types of Shopping bot, with varying complexity. They all use shopping automation to some extent or another.
- Bots that assist product searching
- Bots that find products and then purchase items
Have you ever used a price comparison website such as Skyscanner? This is an example of the first type, it allows the searcher to check all flights available for purchase within a specific date range, no matter the vendor, assuming that is if the vendor (or product manufacturer) allows it.
For example Ryanair famously only allows the sale of tickets through their own website, a direct purchase and thus preventing anyone reselling their tickets, cutting out all trading, thereby enabling them to offer cheaper prices to the end customer.
The second type poses significant problems for manufacturers of popular products and their customers, the reselling of popular items is a big issue, often referred to as “scalping”. One only has to look at the effect these shopping bots have had on the recent launch of the PS5 or for over a longer period, the sneaker industry.
Simply put, the goal of scalping is to buy as much of the limited available stock as possible, with the goal to create scarcity and increase demand and then slowly sell at a premium price, far more than the official release price.
The problems associated with Scalping + Shopping bots
For official channels of brands that are locked into selling allocated stock for a specific price, this poses a problem, there is no communication with the end consumer, just the middlemen.
- There is no opportunity to upsell or cross sell.
- The customers the reseller sells to are lost to official channels
- Due to lack of stock and higher prices, scalpers price many customers out of the market or/and push them to similar, cheaper products of competitors.
The Solutions to Scalping + Shopping Bots for Shopify Merchants.
The good news is that there are countermeasures to scalping and shopping bots.
- Install Captcha to prevent bot usage
- Limit sales to a single item per phone number (confirmation txt code reply)
- Limit number of sales per household (delivery address).
- Ensure plentiful supply from the get-go, preventing a limited supply.
- If you have Shopify Plus, request Shopify to activate bot protection to prevent bots from buying.
- The Shopify app by Ellipsis “Human Presence” is also highly effective and without Captcha (its invisible).
Those who carry out scalping justify what they do by thinking/saying they are just like any other trader, buying on the low and selling on the high in a market driven by law of supply and demand, but the reality is that the Shopping bots are at best unethical and at worst totally illegal, – providing fake data or using stolen credit card data.
Reasons to Allow Scalping and Shopping Bots
Shopping bots are just a tool, therefore not good or bad, while not wrong or illegal per say, the use-case is what matters. The use of a shopping bot designed for purchasing can only be against the interests of retailers working to build for the long haul, – for building a Shopify brand for example.
By allowing Scalpers to buy, retailers are shooting themselves in the foot by denying themselves the end customer data that would enable brand building, trust building, upselling, cross selling and in-general reselling.
That being said, there are exceptions to this rule.
For example, in business to business use cases where wholesalers / bulk importers sell to retailers online, these businesses may well find it useful to allow scalping with the goal to sell as much stock as possible as quickly as possible, but this positive use case only applies where brand loyalty serves no purpose.
Should you allow scalping and the use of Shopping bots? The answer varies depending on who you are asking. The simple answer is no, you should not allow Shopping bots – not if you want to build up a trusted Shopify brand over time.
That being said, it is human nature to want what you can not have. In-demand items and limited availability, create an anticipation that serves manufacturers of brands. IF you anticipate buying a product you tend to enjoy it more, even if it is more expensive.
There is also the follow the crowd mentality at play, if your friends are hunting for an item, always talking about it on Social media, this also adds to the items allure.
Therefore many brands do not prevent the shopping bots that enable Scalping.
Understanding your customers is at the heart of the question of what price to charge, simply by using Conversific you can understand your customers enabling Shopify merchants to give customers what they want. Remember, a trusted brand can for higher prices, so why sell to scalpers?
Turn on Shopify Plus bot protection by asking Shopify today.
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