Is being the low price leader critical to Amazon’s ongoing success?

Discussion
Photo: Amazon
Nov 28, 2022

A study finds online prices are on average 13 percent less expensive on Amazon.com than other leading U.S. retailers across 15 categories, narrowing from 14 percent lower in 2021 and 16 percent in 2020.

Profitero’s sixth consecutive annual pricing study analyzed online prices for nearly 15,000 exact-matched products from July to October across 15 categories at 13 retailers.

Amazon had the lowest prices across 14 categories while tying Chewy in the pet category.

Walmart was the second most price competitive with online prices six percent higher than Amazon on average (four percent in 2021). Overall, Walmart is within five percent of Amazon’s online prices in 11 out of the 15 categories, including within two percent in grocery, health and personal care, home furniture, and vitamins and supplements. Comparatively higher-priced categories for Walmart include electronics, fashion, tools and home improvement, and video games.

Among others outside Chewy and Walmart, Petco faired best with its online prices — only two percent higher than Amazon — followed by Nordstrom, five percent higher; Petsmart, six percent; Home Depot, 10 percent; Best Buy, 13 percent; Target, 15 percent; Walgreens, 27 percent; Wayfair, 37 percent; Macy’s 38 percent; and CVS, 53 percent.

Retailers have been raising prices to offset inflationary pressures and Amazon’s profits have lately seen significant erosion amid a post-pandemic slowdown.

A recent Evercore ISI survey data reported by The Wall Street Journal showed the percentage of Amazon customers who report being “extremely” or “very satisfied’ fell this year to 79 percent, recovering from 65 percent during the pandemic but still down from a high of 88 percent nearly a decade ago. The decline was attributed to customer service issues, such as late packages.

A JungleScout survey from earlier this year found Amazon maintaining its e-commerce dominance over Walmart in nearly all categories, although 57 percent of consumers who responded said they are more likely to shop Walmart for groceries, compared with 15 percent for Amazon. JungleScout said Walmart’s grocery preference is “a byproduct of its brick-and-mortar presence and reputation for low prices.”

Still, Consumer Intelligence Research Partners found earlier this year that among Americans who have been Prime members for at least two years, nearly 98 percent keep renewing.

DISCUSSION QUESTIONS: Is price still the primary reason consumers choose to shop on Amazon? Is being the low price leader critical to Amazon’s ongoing success?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Price is table stakes now. Assortment and on-time delivery are the differentiators."
"Yes, low prices are the key, but we cannot forget that low prices include free freight, free returns, and an easy access and return policy in many locations."
"Closely behind price though is the convenience of buying."

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26 Comments on "Is being the low price leader critical to Amazon’s ongoing success?"


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Mark Ryski
BrainTrust

Price is very important, but the main reason people buy on Amazon is selection and convenience, especially for Amazon Prime members. Price will remain a key consideration for consumers, especially given the still high inflationary pressure consumers continue to face. I see Amazon continuing to push the low price narrative, and Walmart’s aggressive price positioning will ensure Amazon has no choice but to be competitive.

David Naumann
BrainTrust

Amazon does not need to have lower prices than other retailers, they just need to match the lowest prices for customers to be satisfied and loyal. Beyond confidence in fair prices, the two biggest value drivers for Amazon customers are the breadth of product choices and free shipping. Even if Amazon’s prices were slightly higher than some retailers, the convenience and free shipping would offset any small price premium.

Georganne Bender
BrainTrust

I can tell you that as a consumer I go to Amazon first because I can get whatever I am looking for fast and without the added hassle of having to type in my credit card and contact information. The bonus is I can shop small businesses on the site.

I know I am not alone when I say cost comes into play, but quick delivery and ease of shopping often trumps price.

Gene Detroyer
BrainTrust

You are surely not alone. You describe Amazon’s loyal shopper perfectly.

Jeff Sward
BrainTrust

Price might be most important when Amazon looks at Walmart, but overall I have to believe that breadth of offering and convenience make the big difference for most shoppers. I also have to believe that Amazon would like to turn a retail profit one of these days. Cheapest and profitable can be difficult to reconcile.

Richard Hernandez
BrainTrust

Price is very relevant right now. I use Prime because my perception is it is cheaper and I can get products fast. Walmart (at least in my state) has de-emphasized the low price message – there is a lot of competition and they are not the best price in many categories. Even my father who used to use Walmart for most purchases has switched to Amazon.

Ken Morris
BrainTrust

It isn’t just price as there are a number of other factors driving traffic to Amazon. The two biggest are ease of shopping and, of course, shipping. With shopping, one click is the standard, and few can match the Amazon juggernaut. We needn’t talk about same-day, next-day and free shipping. The Amazon Prime renewal rate of 98 percent among longtime members is nothing short of astronomical. Returning to price, some back-of-the envelope math suggests that Amazon might keep its price advantage to the end of this decade overall, but it’s clear that challengers like Chewy will force Amazon to cut margins to keep competing on price in certain categories.

Dave Bruno
BrainTrust

Selection (albeit a double-edged sword) and speed are what drew people to Amazon originally. And as long as their prices remain competitive, if not the lowest across the board, I believe people will continue to go to Amazon first when shopping. For many, Amazon is the Google of shopping for all but exclusive products only available elsewhere.

Melissa Minkow
BrainTrust

Price is absolutely the primary reason for Amazon’s ongoing success. Even in categories where it’s hardly leading, there’s still an expectation from consumers that they’re getting the lowest price. Closely behind price though is the convenience of buying. There is no retail platform that’s more efficient when it comes to enabling shoppers to make quick, well-researched purchase decisions.

Gene Detroyer
BrainTrust

Price? Not for me. I go to Amazon first. If they have what I want, I go no further. Might I pay more for some items? Maybe? But time is money too.

Dion Kenney
BrainTrust
2 months 10 days ago

Price is no longer the primary reason people shop on Amazon, the reasons are ease and convenience. However shoppers say (and this is supported by actual sales numbers) that they are willing to pay more to buy from a local brick-and-mortar business. Price has always been a meaningful dimension in retail competition, but there are many other dimensions on which retailers can compete – customer service, quality, shopping entertainment factor, etc.

Lisa Goller
BrainTrust

The blend of speed, price, variety and hassle-free service attracts consumers to Amazon – in any economic climate. Competitive prices are critical to Amazon’s success, especially as inflation drives more shoppers to discounters and dollar chains.

Neil Saunders
BrainTrust

Price matters, especially during a time of inflation. This is especially so on branded products, like electronics, that can be easily compared between retailers. However price is not as important as value which incorporates a much wider set of considerations. And that is where Amazon excels. It has low prices but it combines them with other factors such as speed, convenience, a wide selection, and so forth. If it just offered low prices it would do nowhere near as well as it does.

Gary Sankary
BrainTrust

Price, assortment, convenience, and reliability.

Price is just one piece of the pie. Amazon’s wide assortments(which are beyond “long tail” at this point) and the effortless customer experience, set them apart from almost every competitor. I think we’ve reached the point where most people who don’t shop Amazon are doing so because of their own negative bias against the company and not because they’re finding better deals and faster shipping elsewhere.

Scott Norris
Guest

If you know exactly what you’re looking for, Amazon is great for convenience and the shipping. We drop several hundred each month with them. Certain categories on the site, though, like clothing and furniture, are just too chaotic — for those it’s either stick with the established online brands we know and trust for sizing and quality, or else go local where we can touch and try on. Same with food – I’ll buy shelf-stable name-brand items from Amazon if local supply is unreliable (ramen recently for some reason?) but won’t trust them for fresh/specialty and will go to a local grocer or ethnic/farmers’ market.

And product discovery (don’t know what you don’t know) on Amazon is a non-starter – there is no story there, just a wall of boxes.

Gary Sankary
BrainTrust

You make a good point — there are some categories that Amazon doesn’t work for. I’ve started using their online shopper for clothing, and honestly, it’s better than I can pick for myself (judging by the feedback from Mrs. S). Most of the brands I shop for are available on Amazon; in many cases, it’s easier for me to navigate Amazon’s site and payment options than using the brand’s sites. I also like that I don’t have my credit card floating around the market.

Paula Rosenblum
BrainTrust

Price is table stakes now. Assortment and on-time delivery are the differentiators.

Gene Detroyer
BrainTrust

It isn’t price that makes Amazon the go-to place for shopping. It is everything from Prime to two-day delivery. But most of all, it is convenience. A shopper can compare a wide variety of products without going to a wide variety of websites, or put in a search for a specific product they want and up it pops.

And the customer likes what they and how they offer it. What company in the world would not be happy with 79 percent of their customers being “extremely” or “very satisfied”?

Brian Delp
BrainTrust
2 months 10 days ago

The back-end financials make a big difference as it boils down to margin expectations. Many traditional retailers have complicated accrual programs and complex cost structures that can drive up pricing. Amazon puts some of the pricing in the vendors’ hands depending on the account plan. Off-price retailers have made a lot of headway by having a simplified financial structure and cutting to sharpest pricing.

Tara Kirkpatrick
BrainTrust

I agree that selection and convenience are the main reasons why shoppers turn to Amazon. Because both represent significant opportunity-cost savings and Amazon has a reputation of affordability, I believe they could price creep and most Prime members would not look to an alternative. The opportunity costs Amazon removes from the equation by providing selection and convenience include: 1. not having to browse multiple sites 2. not having to drive to any stores 3. not having to wait more than two days before the item arrives to be consumed.

Kai Clarke
BrainTrust

Yes, low prices are the key, but we cannot forget that low prices include free freight, free returns, and an easy access and return policy in many locations. This is what makes purchasing products from Amazon superior to others.

Craig Sundstrom
Guest

I don’t know that price has ever been the primary reason (and it’s really the perception of lowest price that drives people…not necessarily the same thing): price matters, of course, but it’s one of a number of factors (reliability, ease of purchase, quality…).

As for the results of the study itself, I’m a little bit surprised; I’m not going to question it formally, but I’d love to see a thoughtful critique of it

Brad Halverson
Guest

Low price leader hasn’t been a brand promise Amazon ever made, or not with any consistency. That’s an assumption consumers have made, or have enjoyed for years. Variety, selection and operational excellence in customer experience is the main value proposition and differentiator.

Yes, Amazon often has low prices and shows it as a point of strength, but they won’t need to posture towards a race to the bottom, at least not unless other e-commerce retailers become equal or better in offering and execution.

Shep Hyken
BrainTrust

Amazon is low or at least competitive with almost everything on their site. And often they will share when another retailer outside of their Prime program has a lower price. That’s how confident they are about the value they provide. That value is a combination of price, process, convenience, and low friction. That’s what’s important to Amazon’s ongoing success.

Nicola Kinsella
BrainTrust

No. Amazon used to be the low priced retailer. That’s how they built market share. But they don’t have to do that anymore. There are plenty of products on Amazon that can be found cheaper elsewhere if you hunt, but people don’t. Why not? Because the convenience factor is just too high, especially for Prime members. They know things will show up. Fast. They don’t even have to think about it. In short, Amazon makes it so easy that price is less relevant to their decision. It’s trust in their inventory accuracy and fulfillment promises that make, and will continue to make, Amazon successful.

Anil Patel
BrainTrust

Customers usually shop on Amazon for electronics, toys, clothing, or accessories. Undoubtedly, it is very convenient to shop from Amazon, especially for customers who have Amazon Prime membership. The wide assortment at low prices with faster shipping, what else could customers ask for? The only point of contention is that customers do not prefer to shop for groceries on Amazon. Instead, they prefer to go out and consciously buy groceries since it is more of a personal activity. Therefore, Walmart significantly benefits from its omnipresence and is likely to be a more preferred grocery shopping destination.

wpDiscuz
Braintrust
"Price is table stakes now. Assortment and on-time delivery are the differentiators."
"Yes, low prices are the key, but we cannot forget that low prices include free freight, free returns, and an easy access and return policy in many locations."
"Closely behind price though is the convenience of buying."

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