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Is Amazon No Longer a Low-Price Ecommerce Leader?

April 2013 Pricing

There is a long-standing perception that dates back to the earliest days of the Internet that prices are always cheaper on the web at places like Amazon.com (AMZN).  In some categories like books, Amazon is often the price leader, but book publishers could have flipped this on its head if they had joined forces, bought recently purchased goodreads.com before Amazon did, and offered books directly at lower prices while eliminating the middleman.  Amazon preempted any potential forethought there, however, by buying  goodreads.com first.

Michael Learmonth at adage.com  stated the following in 2012, “There’s no more customer-obsessed company than Amazon, which has long forsaken high profits in pursuit of giving shoppers the best possible experience and the lowest possible price.” At one time, this was likely completely true.  I had some experiences recently that might cause me, Mr. Learmonth and everyone else to start a wide debate on this and ask if this perception of Amazon always offering “the lowest possible price” is actually now a myth?

Those who know me well know that I make great pot roast and that I am buying a considerable number of used books for a research project. Ever y once in a while I need to get a new pan.  I put Fat Daddio’s Anodized Aluminum Sheet Cake Pan, 9 Inch x 13 Inch in my cart and then saved it for later purchase. After I did that, I continued to buy used books on occasion. I noticed that the price of the Fat Daddio Cake Pan was changing price rather frequently and dramatically and I started to take screen prints. Imagine my shock when I saw one price change take the price of the cake pan from $13.99 to $18.99, an increase of 35.74%!

2013-04-12__fat_daddio

Here is a summary of the price changes I recorded:

Old Price New Price Difference % Change
2/25/2013 $15.90 $14.23 ($1.67) -10.50%
3/18/2013 $18.21 $16.01 ($2.20) -12.08%
3/18/2013 $16.01 $15.35 ($0.66) -4.12%
4/5/2013 $13.99 $17.79 $3.80 27.16%
4/6/2013 $17.79 $14.30 ($3.49) -19.62%
4/7/2013 $14.30 $13.99 ($0.31) -2.17%
4/8/2013 $13.99 $18.58 $4.59 32.81%
4/9/2013 $18.58 $13.99 ($4.59) -24.70%
4/12/2013 $13.99 $18.99 $5.00 35.74%
4/13/2013 $18.99 $14.75 ($4.24) -22.33%
4/14/2013 $14.75 $14.12 ($0.63) -4.27%
4/16/2013 $14.12 $14.20 $0.08 0.57%
4/19/2013 $14.20 $13.30 ($0.90) -6.34%

So the question then becomes, why are the prices of this particular item changing so much? Let’s explore some theories:

Search Engine Optimization – It is well known that some ecommerce merchants change prices a few cents here and there to make a page appear “changed and fresh” to a search engine crawler bot. If this was what was going on here, the price changes would be much, much smaller, so we’ll discount that theory.

Conversion – It is possible that small changes in price could cause someone to convert the item in the cart at a higher rate. This again seems unlikely due to the size of the price swings.

Low Quantity in Stock with Backorder – This scenario would make sense, but I’ll discard it as the price was moving up and down in relatively rapid time frames.

Automated Price Comparison Tools – There are now many automated price comparison tools that look at competitors’ sites and change prices based on a highly questionable benchmarking premise. As Harvey Mackey argues, it is foolhardy to compete with a fool.  An automated tool, often not rooted in proper business or pricing strategy is foolish.  It is even more foolish when technologists with no business acumen programmed it and don’t understand the business nor consumer impacts.

I consider the last item to be most likely and that is both sad and unfortunate, as it means that organizations are acquiring software with questionable benefits while adding to costs.  Senior management is likely not in touch with pricing strategy and the ability for prices to dip below profitable levels exists.

Ultimately, pricing is a senior-level business strategy issue that requires proper business acumen and life experience to manage successfully.  Leaving the decisions to low-level employees and/or questionable tools and software is poor corporate governance and proves a dysfunctional management team.

Great companies compete on great service.  It is time to have an open discussion about whether the low-price ecommerce consumer perception is frequently a myth instead of reality.  Might this debate lead to an acceleration of the various incarnations of the ‘Buy Local’ movement?  Could it lead to an erosion of trust of ecommerce companies?  I welcome this debate and encourage it to also include a conversation about replacing traditional brand marketers with proper strategic marketers in leadership roles across corporate America.