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Amazon – Price Wars, and How to Automate Your Pricing Strategy

Online shopping has had quite a run against brick and mortar stores and Amazon in particular has enjoyed huge success in this arena. However, a few recent trends may point to brick and mortar stores retail stores taking aim at Amazon.

Analysts at BB&TBBT chose a basket of 30 items for a periodic pricing study comparing Amazon to Bed Bath & Beyond. They found that Bed Bath & Beyond prices were on average, 6.5% less than Amazon. Factoring in the 20% off coupons that they regularly send out, the price gap was closer to 25% for the basket of thirty items.

While Bed Bath & Beyond stands out because of this particular study (which is NOT large enough to offer conclusive proof that Amazon is more expensive on items in general), several other American retail giants have also waded into the arena. Best Buy has offered a price match guarantee on Amazon prices for any item in their stores and Wal-Mart has put an increased focus on their online operations, using their brick and mortar stores as distributed delivery points. How effective these policies will be remains to be seen and there is an underlying element that price matching alone does not fully address – namely profit margins.

Amazon repricing tools in action

While the retail stores may be able to match or beat Amazon’s pricing in the short term, they cannot avoid the difference in overhead they face compared to the online giant. Cutting their pricing by 10-30% is going to have a HUGE impact on their gross margins and with their higher operating costs the jury is still out on the long-term viability of this. It remains to be seen if they can make up the loss in profit margins with increasing market share.

A particular advantage that Amazon has long had over retail stores was the lack of any state sales tax for purchases. While Amazon has finalized deals in some major markets (such as California, Texas, New Jersey and Florida), in states where they do not collect sales tax, they enjoy a 5-10% built in pricing advantage. This advantage will be negated by the proposed Marketplace Fairness Act (which has passed in the U.S. Senate, and is waiting on a vote in Congress). If passed, the Act would require online retailers to collect state sales tax.

It is not just retail stores that have opened a price war with Amazon. Overstock has recently announced that they will match Amazon’s pricing on all books. This announcement came barely a month after they had announced they would beat Amazon by 10% on all books (which Amazon quickly went on record to match). Overstock chief executive Patrick Byrne has told the Wall Street Journal that Overstock will continue to match Amazon on all book prices even though the company lost $11,000 daily while running their price matching promotion in July. Byrne said: “We think with the rise in sales volume, we can extract better [wholesale] pricing from publishers. Publishers do want to see more competition for Amazon.”

There is little doubt that Amazon will weather out this “storm”, though the pricing wars should make for some great bargains.  How well will your online store weather any bumps in your road? Pricing is a vital component of your stores ability to sell, and having accurate, real-time data can make the difference between staying on the cutting edge or falling behind the curve. Wisepricer’s pricing intelligence solutions provide a solution for your needs. With fast and accurate real-time pricing and the ability to automate Amazon repricing based on specific market conditions or even a specific competitor’s price on a particular product, you will have the tools you need to stay ahead. Wisepricer is a fully scalable solution, with pricing solutions that work for all types of businesses, from your small online store to enterprise level solutions that can track, monitor and update pricing for a million products.

Arie Shpanya

Arie is the former COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.

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