The Out of Office Effect
June 28, 2021
Author: Guy Soreq
A trader usually has limited resources when it comes to strategizing the best price to offer into the market for a particular product. The easiest way to go about setting a price is to use the Cost Plus technique - simply add the costs you will incur to the price given by your supplier along with a set profit margin. Of course, using a pricing strategy divorced from market knowledge carries some risk. Amidst a market drop, the customer may have a better competing offer causing the trader to lose the deal. Another possible risk is that the offer is too good compared to what is actually happening in the market, in which case the buyer immediately accepts the deal and requests more volume. These examples are commonplace in a constantly shifting market.
In the absence of reliable market data, traders also look for indicators of demand. This time of year, the big indicator is pretty easy to find: Out of Office emails. As the industry leaves its desks for summer vacation the number of Out of Office automatic replies to sent quotes increases. Each one further reflects the seasonal drop in demand amidst the summer lull. Traders then respond by adjusting their Cost Plus. Lower industry demand means lower profit margins for traders, and lower prices for their customers. While there are certainly other explanations for the downward trend in prices, the Out of Office effect cannot be ignored.
While these market indicators are helpful, they don’t give us nearly enough information. They still force us to rely on imperfect pricing strategies like Cost Plus. That’s where Glowlit comes in. There is no substitute for real market knowledge, and the ability to get ahead of the market by knowing where it stands today.