E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
Amazon doesn’t always offer the lowest price, but it is the most aggressive in changing prices to stay ahead of competitors, according to data from 360pi. Rivals are catching up.
The holiday season is extremely competitive for retailers—the entire year boils down to a battle for consumer attention and sales. This year was no exception, and many retailers applied different pricing strategies and tactics to win holiday revenues and margins. From a couple of weeks before Black Friday to the end of the holiday shopping season, 360pi closely compared retailers, such as Target, Wal-Mart, Sears, Newegg, Costco and others, to Amazon and its assortment in order to analyze how these online and brick and mortar shopping destinations competed for the sale. This is what we learned.
Lesson 1: Black Friday deep discounts are a myth. Are aggressive discounts on Black Friday a thing of the past? We think so, based on the data that we gathered. On the week leading up to Black Friday, we found that Wal-Mart steadily increased prices and actually raised its average prices across eight categories in the sampled assortment, including TVs, tablets and more, by about 5 percent on Black Friday. Toys R Us was another retailer who used such strategies with their action figures—in mid-November, they were on average 37 percent higher priced than Amazon and steadily raised prices until Black Friday, when they dipped slightly. Overall, we witnessed only a few retailers dropping prices on only a few categories during the popular shopping day.
Lesson 2: Amazon was the price leader only 80% of the time. Many found this fact surprising. Our data showed Amazon was not always the retailer with the best price. In fact, they were not as competitive in the traditional electronics category within the sampled assortment. Amazon was only the lowest price 48 percent of the time in TVs, 57 percent of the time in tablets and 67 percent of the time in digital cameras during the holidays. They excelled in action figures (88 percent) and power drills (84 percent), however, which tells us that prices shift radically between categories.
We were surprised to see that, overall, other retailers are playing and winning on Amazon’s “home turf”, or product assortment, 20 percent of the time. Our analysis shows that Amazon does have weak spots and that retailers can compete with the online giant, especially if they can beat Amazon on other non-price purchase factors.
Lesson 3: Dynamic pricing is a strategy dominated by Amazon. During 2013, most retailers only made daily price changes on about 5 percent of their product assortment. During Black Friday, retailers were a bit more dynamic in pricing, making daily changes on about 10 to 15 percent of their assortment. However, Amazon went from a daily price change average on 10 to 15 percent of its assortment to 32 percent on Black Friday. Extrapolating from our pricing observations of 8000+ Amazon-carried products over the holidays, Amazon made 3 million daily price changes in November and the actual number could easily be ten times greater.
Amazon is the clear leader today when it comes to successfully executing dynamic pricing. Amazon’s strategy is not necessarily to be the price leader, but to be the fastest follower of the price leader—i.e. when a retailer drops its prices, Amazon quickly follows suit. Price aggressive retailers that do not have a firm understanding of the competitive pricing landscape inadvertently work against themselves by accelerating a “race to the bottom” with Amazon. A much better, more sustainable pricing strategy would be to be competitively priced, but not the lowest price.
Other retailers are attempting to execute dynamic pricing, but don’t have the insight into their own product assortment to do so successfully. Sears, for example, already has the lowest price on certain appliances, but it slashes prices to encourage sales and loses profit margins unnecessarily and perpetuates the downward spiral observed above. Sears is a competitively priced retailer, but the company (and consumers) may not know this.
Lesson 4: Pure-play online retailers were not the most price-competitive retailers on Black Friday and Cyber Monday. For holiday shopping days that seem geared towards the “shop from home” consumers, we were surprised to see that multichannel retailers actually had the most competitive prices. In the consumer electronics category, for example, multichannel retailers like Best Buy were on average 4 to 10 percent lower priced than online-only retailers, such as Tiger Direct, Buy.com and Newegg on Black Friday weekend. For retailers that don’t have as much overhead costs as multichannel retailers, we expected the online stores to be more competitive, but we witnessed the opposite.
Overall, we saw that some retailers, such as Target, Home Depot and Best Buy, are catching on to the value of dynamic pricing. Given that our data is based on products drawn from Amazon’s own assortment, you would expect Amazon to be the most price-competitive retailer. However, when you factor in different retail competitive strategies such as carrying a different assortment, leveraging private label, delivering targeted customer promotions, and creating unique customer experiences in addition to price leadership, it certainly appears that retailers are learning how to compete with Amazon.
360pi monitors millions of products from hundreds of retailer web sites to deliver price intelligence to its clients.