Amazon’s Pricing Strategy Makes Life Miserable For The Competition

By: Brendan Sullivan

I am sure we have all bought a product off Amazon before. It is simple shopping and you can buy just about anything you want. Around Christmastime Amazon changes their prices. In fact, they changed the price on over $80 million products in one day in 2014. Other companies such as Walmart, Best Buy, and Toys R Us will not be undersold. With Amazon’s pricing strategy it is hard to compete with them.

Shopping online is a different kind of shopping for customers because of the fact they need to try products beforehand. Best Buy has an advantage with this because customers can try the products in their stores and buy them online with their online shopping deals. Best Buy’s policy on pricing is that they will match any one of their competitors’ prices. By matching their competitors’ prices, Best Buy can start bringing in more customers. Toys “R” Us is also matching competitors prices. More companies are starting to match their competitors’ prices so they can compete with Amazon.

How can Amazon do this and still compete with other companies during this busy shopping season? Well, there is a high demand and they do a tremendous job with their pricing strategy.

Amazon plans to continue expanding in the competitive online shopping arena. Their plan is to continue offering online shopping deals. By eliminating brick and mortar stores, Amazon has a huge advantage. They already have a great distribution system set up. Honestly, in my opinion, this is probably their best skill. I have never had a problem receiving or returning a product. It involves a lot of organization and long term planning. Another thing they do well is offering great deals for customers. Online shopping during the holiday season has been huge for Amazon. There were 50 billion dollars in sales on Black Friday in 2014. On Black Friday, Amazon offered huge deals on smartphones, diamond rings, and Wrangler jeans. Younger people shop almost exclusively online and the online shopping market has continued to grow. In 2013, there were 263.3 billion dollars in online sales. That is an increase of 16.9%. They are expecting by the end of 2014 there will be over 300 billion in sales. Everyday Amazon adds new sales or a new deal on certain products. They are the leader in adjusting prices to promote more shopping. For example, in 2013 Amazon changed their prices on almost forty million products in one day. They changed these prices so that customers looking for a deal can find it on Amazon. Forbes showed how on one day Sears was selling an HP printer for $160 while Amazon was selling it at $120 and B&H was selling it for $110. Sears then responded by dropping the price to $155. B&H upped their price to $130. It is incredible how these companies change their price depending on the competition. They are constantly trying to outdo one another and offer the best price. After 2:00 PM the deal ended; Sears changed their price back to $190 and Amazon raised it to $130.

Sears Amazon B&H
$190 $120 $110
$160 $130 (After 2:00 PM) $130
$155
$190 (After 2:00 PM)

In one day, Sears changed their price four times on this printer. Which is a lot of time to put into just one product. That shows how competitive online shopping has become. Price changing is a great way to sell a few extra items at a discounted rate for a limited time. When there are less people shopping online that would be a good time to offer a special deal. On Black Friday, Amazon had nearly three thousand price changes on a variety of products. The closest competitor on that day was Walmart with just over nine hundred. On cyber Monday, Amazon had over three thousand price changes that week with most of them occurring on that Monday. Again, Walmart was the next closest with almost a thousand. This is a great strength for Amazon and they are outperforming all their competitors in the price changing market.

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7 thoughts on “Amazon’s Pricing Strategy Makes Life Miserable For The Competition

  1. Jim Butterworth March 19, 2015 / 1:57 pm

    Brendan,
    As an online seller, Amazon realizes that the main things they have to excel in to beat competitors is service (ease of ordering, delivery time, etc.) and ultimately cost. As you noted they do a great job of staying ahead of the competition when it comes to cost. However, brick-and-mortar companies, like BestBuy, are now fighting back matching Amazon price and delivering a product to the customer immediately.
    This has brought a turnabout from Amazon. The ultimate online store is in the process of opening a brick-and-mortar store in downtown Manhattan. It will mainly act as a quick pick-up up location for online consumers, and warehouse for the retailer’s same-day bicycle fleet servicing Amazon Prime Now customers. Amazon, with the competition slowly eradicating its price advantage, has started to improve its service to stay competitive.

    http://www.upi.com/Business_News/2014/12/11/Amazon-to-open-physical-store-in-New-York-City-offering-same-day-delivery/2331418301912/?st_rec=6201423072525

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    • Sirisha March 22, 2015 / 11:53 pm

      Amazon is known for having low prices online. As a consumer i would always look for low prices in the market. They do amazon prime which has an options of free shipping and free returns which is convenient to online shoppers who make small orders. Walmart and Target are now competing in prices with amazon but it does not provide any prime options like amazon. There is a short term risk for target and Walmart customers that pick and choose between using target only for orders under the amazon shipping threshold. I believe this is not a pricing strategy by amazon to stay competitive but it’s shipping costs that makes significant difference in terms of placing a small order.

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    • Kendra Van Pelt March 30, 2015 / 2:14 am

      Jim,

      I think you pulled a very interesting article into the conversation regarding Amazon’s pricing strategy (and just overall strategy). Companies are trying every option to get ahead of their competitors. I think Amazon’s proposition of a same-day bicycle fleet service within NYC is an extremely innovative strategy to get its products to its customers as fast as possible. As an additional bonus, Amazon operating a bicycle fleet to deliver their products could be a great marketing technique – a company as large as Amazon has only ever relied on typical modes of transportation over the past few decades – truck/train/plane. Adding a bicycle fleet would be a very unique factor that could get them a lot of attention, potentially. Of course, there are other bike messenger businesses located in the city. Uber is another innovative company that is adding on additional branches to to their main company. In NYC, they have created UberRUSH, which is a bike messenger service, under the more commonly known name of Uber. Uber has also created a food delivery branch, such as UberFRESH, located in the L.A. area, that delivers lunch and dinner items from a few handpicked local restaurants each day. They company has just expanded into Barcelona with a new food delivery branch. Although Amazon does not deal in specifically food delivery services, the company is beginning to face competition from computers it once never had to worry about, because they were never in the same market – like uber.

      http://blog.uber.com/RUSH
      http://www.uberfreshla.com

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  2. Kevin McAtamney March 24, 2015 / 4:21 pm

    I agree with sirisha regarding the shipping costs. I find it a little unbelievable at times that my shipping costs have the ability to be more then the product I’m buying for. Amazon will always be competitive in the retail space and have done all the right things to hold the market share that they have. I’m interested to see where the company goes and how they can improve on their service especially regarding their pricing strategy as well as the shipping costs. I strongly believe taht if they had the ability somehow to reduce their overall shipping costs, they would increase their credibility in the market place and gather a stronger, more loyal consumer demographic.

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  3. David Collins March 26, 2015 / 3:09 am

    Amazon is able to keep their prices low because their pricing strategy is to corner the market and not necessarily make a profit. Due to investor belief in their growth, they’re able to successfully fund a billion dollar business without ever turning an annual profit. Investors are essentially putting their money in a machine that will in turn be utilized to save consumer money on their goods and shipping. They have several loss leader programs and products, such as Amazon Prime and the Kindle Fire, in order to continue to gain and engage their customer base.

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  4. Domenica Fuller April 10, 2015 / 8:23 pm

    While I have purchased products on Amazon before, I have been bitten by Amazon on many occasions. Consumers go into the website thinking that because it’s Amazon it is going to be cheaper and a lot of the time it is not. Plus, not all products offer free shipping or are compatible with Amazon Prime, you might as well spend the gas and go to New Hampshire to avoid sales tax. Companies such as Best Buy now offer price matching to compete against Amazon. If the product in the Best Buy store is cheaper on a competitors website, they will match you on the cheaper price. The customer gets to go home with the product that day and Best Buy is bringing in customers who will hopefully remember them for future purchases.

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  5. Megan Lac April 20, 2016 / 12:00 am

    Amazon is capable of having such low prices because they are an online business. Their numerous warehouses allow for easy access to products and low shipping costs whereas, somewhere like sears has to take into account their stores. Stores have a lot of overhead which is why prices are typically higher in store than there are online. And since sears sells both in store and online its hard to compete with a company thats just strictly online. My fear with amazon is that retail stores aren’t going to be able to stay afloat due to amazon’s cheap prices. Retail stores are now becoming showrooms and purchases are being made online more and more everyday.

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