Amazon is famous for its affordable prices. Many loyal customers of the Internet giant will insist that it’s the cheapest marketplace. It isn’t actually true. The startup Boomerang Commerce, which provides dynamic pricing services, has found that the Amazon’s pricing strategy is not so precise. Marketplace managers dump popular products, but in the meantime, they unnoticeably offset the price difference on related products
Boomerang was launched by Guru Hariharan, an ex-Amazon manager. The service makes analysis of competitors’ prices and consults on where to increase or reduce prices in order to sell successfully. Having studied prices at Amazon, Guru has found an interesting tactic used by the retailer. The first thing is that Amazon does not provide the lowest price on the market. And it is no news to e-commerce players, but not the buyer.
Amazon uses the following strategy. They determine the most popular products on the website and significantly lower their price as compared to the prices of competitors. For example, Amazon gradually reduced the price of Samsung TVs which were the most popular items in the range of TV sets. Boomerang watched the price for the most popular Samsung TV on Amazon, which was $350 during the six weeks before Black Friday. On the very day of sales the company lowered its price to $250, thus having greatly reduced the cost if compared to competitive offerings.
However, when it came to HDMI-cables that are often acquired in addition to a new TV, the price turned out to be raised by 33% for the whole holiday period. Cables aren’t generally very popular, and such fluctuations do not affect the buyer’s price perception. In addition, Amazon seems to suggest (or know) that customers will hardly compare prices of cables as closely as they analyze the cost of TV sets and other expensive goods.
Let us review another example. Amazon reduced the cost of the most popular model of router by 20% if compared to the price at Walmart. But the price of a less popular model was higher than Walmart’s by almost 30%. Once again Amazon’s policy was based on the hypothesis that buyers do not compare prices of such products.
“In fact, Amazon may not be the least expensive store concerning a particular product or season. But they make such impression on the buyer by a consistent price decrease on best-sellers. As if Amazon is cheaper than even Walmart,” emphasize the authors of the study.
According to Hariharan, such price formation nuances (being subtle to the masses and even the competitor) allow Amazon to efficiently sell more products. "On the scale of Amazon, this trick of changing prices can be estimated at $10 billion for the holiday period. Some retailers repeat this every three months," he explained.
One more interesting thing concerning Amazon is the use of robots to work at their massive warehouses. Partial automation of work at the warehouse helps Amazon to cope with bulk orders as they did last year on Cyber Monday (the Monday following Black Friday), when they received orders at an estimated rate of about 426 per second.