For Amazon, the right price isn’t always the lowest price
Editor in Chief
Amazon doesn’t offer the lowest price as often as it once did, as the e-retailer carefully calculates when low price is the best strategy. But with the leading online retailer less aggressive on price in certain categories big retailers are more aggressive in matching Amazon’s prices.
While many online shoppers look for the best deals on Amazon.com, increasingly that’s not where the lowest prices are to be found, according to data from several price-monitoring services. That’s not because Amazon doesn’t think price is important—experts say the No. 1 online retailer in the Internet Retailer Top 500simply is increasingly scientific in evaluating when it needs to undercut competitors and when it can win sales based on availability, free shipping and reputation.
Nonetheless, Amazon’s slightly less aggressive pricing may be contributing to more major retailers matching Amazon.com Inc.’s prices this holiday season. Meanwhile, some web-only retailers are working hard to win sales in ways besides competing on price with Amazon and other competitors.
There is a growing body of data showing that Amazon is less often the low-price leader compared to the recent past. For example a study by online price-monitoring service Ugam Solutions of major North American retailers finds that Amazon offered the lowest price in 2013 on 31 of the 50 most-popular wireless routers, but that fell to 25 this holiday season. In computer keyboards and mice, Amazon won on 37 of the 50 items Ugam studied last year but only 23 this year.
In one respect, Amazon has not backed off: It has by far the best selection of the most popular products across many categories, Ugam says.
The Ugam data only includes products offered by Amazon itself, and not by other retailers selling on Amazon.com. And that’s an important caveat because third-party sellers on Amazon account for about 40% of units sold on Amazon.com, and they often compete fiercely to win the prime position on Amazon.com, known as the Buy Box, says Mabel McLean, research lead at L2 Inc., a research firm focused on digital markets.
But a similar trend shows up in data from ShopSavvy Inc., which crawls millions of web sites and shows consumers the lowest prices on its web site, ShopSavvy.com. ShopSavvy, which does monitor prices of outside sellers on Amazon.com, says Amazon has the lowest price currently on only 6% of the products it’s tracking, down from 9-10% at this time last year.
“There’s a general perception by consumers that Amazon is the cheapest place to buy, but that’s been eroding over the last three years,” says John Boyd, co-founder and CEO of ShopSavvy. “Most of the time Amazon isn’t the cheapest place to buy. As a result a lot of the local chains are becoming a lot more aggressive in pointing that out by offering price-matching policies.”
Among the major retail chains offering to match prices this holiday season on Amazon.com, No. 1 in the 2014 Internet Retailer Top 500, are Wal-Mart Stores Inc., No. 4; Best Buy Co. Inc., No. 15; Target Corp., No. 18; and Toys ‘R’ Us Inc., No. 34. But those price-matching deals often exclude prices offered by outside sellers on the Amazon Marketplace.
And it may be that some frequent online shoppers are taking note. While a study conducted in September found that 90% of consumers who had shopped online at least four times in the past year said they always check Amazon.com before making most online purchases, when asked what competitors had done in the past year “that would cause you to shift your business to them and away from Amazon,” 74% cited “sharper prices.” That was far ahead of the No. 2 answer selected, “elevated customer service.” The survey of 1,000 online shoppers was conducted by research firm The E-tailing Group for e-commerce software provider MarketLive Inc.
But some experts argue that Amazon is setting its prices scientifically, using data about customer behavior and competitor pricing and inventory to determine how competitive it must be on price. “Amazon can be very strategic in whether they have the lowest price or not,” says Kevin Sterneckert, chief marketing officer at e-commerce technology provider Order Dynamics, who has been involved in retail pricing and merchandising for some 25 years in positions at such companies as research firm Gartner Inc., software companies Oracle Inc. and DemandTec, and retailers Wal-Mart and Big V Supermarkets.
He says Amazon looks at whether a price change will impact whether a consumer buys—it may on an expensive camera but not on a package of toilet paper, for example. The e-retailer also tracks its rivals carefully, he says, including how much inventory they hold of each product and how long it takes competitors to deliver. “There are Internet retailers that sell at very low prices, but it may take them 15 weeks to deliver,” Sterneckert says. “In Amazon’s eyes, they’re not competitive.” And that may lead Amazon not to meet that competitor’s prices.
Other retailers may be out of stock of a popular item, or charge for delivery; Amazon takes all that into account when setting its prices, Sterneckert says.
Amazon declined to comment for this story.
Another development that has caused Amazon to not compete aggressively on price in certain categories is the agreements it’s made with luxury brands to restrict price competition on their products in order to lure them to sell on Amazon.com, says L2’s McLean. For example, when Amazon launched its Luxury Beauty store in October 2013 it restricted marketplace sellers from selling below list price on certain products.
As an example, she points to L’Occitane en Provence Shea Butter Hand Cream. While the price on that product had been fluctuating on Amazon.com, as third-party sellers competed on price, McLean says, “once the luxury store opened, the price remained static.” Nonetheless, McLean says, Amazon overall remains a vigorous competitor on price, with the lowest price online on 95% of the cosmetics products it sells.
No comments:
Post a Comment