Is Amazon A Price Leader?

If you shop on line you’ve probably noticed that the price on Amazon for the same item can be different across many marketplace participants. You may have noticed too that prices will change over the course of a day and, at times, over an hour. Pricing is dynamic. There are many factors driving dynamic pricing but the most critical is that the key sellers have algorithms that responds to competitors’ pricing. For this reason, a price leader in the e-tail market is far more disruptive than in traditional brick and mortar retail.

Walmart is a globally recognized retail leader. It became the biggest retailer on the planet by being a price leader. With Amazon’s market entrance, Walmart saw its sales impacted and their stock value going down. As the leader they are, Walmart started their ‘fight back’ strategy.  

Walmart has been selling online for some time however they knew they needed to improve their strategy to re-take share. They acquired, with a great e-commerce leadership team then, leveraging on their existing stores, Walmart started to be much more aggressive online. They offer free shipping for orders above $35 and many items are exclusively available only online with attractive discounts.  

Interestingly Amazon has done a great job convincing consumers that they are the cheapest, or at least offer fantastic value for money. Attractive promotions and superb public relations has been their key to attract more customers. They slashed the prices by 43% on the very first day after acquiring Whole Foods. Prices at Whole Foods have always been at the “top-end”. But now, after the “perception management” around pricing that Amazon has engineered, customers will start to change their view on pricing available from these stores. 

Amazon+ Whole Foods = Amazon retail stores (looking more like Walmart) 

Because of Amazon’s great perception management, it has been very successful in managing the interests of all its stakeholders – consumers, marketplace sellers and most of all, stock holders. 

We think this is a super smart strategy. 

However, in reality Amazon is a price follower rather than a price leader.  Amazon is constantly monitoring their own site, across all their platforms, and scraping the entire web to find competitive pricing and adjusting their price accordingly.  One frustration from Amazon is when a ‘rogue’ trader offers highly discounted pricing on a product and negatively impacts margins.  Enter a price leader.  As Amazon follows pricing down two things often happen.  Amazon asks the supplier of that product to pay Amazon for lost margin or they suppress the item meaning it won’t turn up most searches.  In both cases this can be challenging for suppliers doing significant business with Amazon.  Through these policies Amazon is making it clear that they hold suppliers responsible for managing pricing across the internet. 

Will this ‘price follower’ strategy change? In the United States, there are MAP agreements to contend with, but in Europe, competition laws and the approach to resale price maintenance means that MAP is not allowed. Amazon is at an advantage with its existing online presence and now its expansion into bricks and mortar. We think it unlikely they will change their fundamental pricing policy. 

As a manufacturer, you need to carefully consider and control your product placement and pricing across all channels and platforms. Good management will contribute to the health of your e-commerce channel as well as your more traditional routes to market. It can seem daunting but can be done effectively and profitably. Look out for future blogs that will help with tips and tactics that ensure your pricing is in-line with your objectives as well as that of Amazon’s. 

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