Overstock declares book price war with Amazon
There was once a time when Amazon.com played the role of David going up against the goliath Barnes & Noble. Having beaten its rival, Amazon rose to take the crown of booksellers. Now, a smaller rival is using low prices, a key weapon in Amazon’s ascendancy, to try and knock Amazon off its throne.
Yesterday, Overstock.com announced that it had lowered book prices across its site to undercut Amazon. Members of the site’s Club O loyalty program, which costs $19.95 a year, will receive an additional 15 percent back in reward dollars for book purchases made through Cyber Monday (Dec. 1) in addition to free shipping.
Overstock’s management has not made a decision on whether it will extend the deal to a later point in the holiday selling season.
"We will analyze the results and cost benefits of this price war against Amazon and decide how long to continue the promotion," said Patrick Byrne, CEO of Overstock, in a statement.
Overstock appears to have made a conscious decision to try and price promote its way to market share gains this holiday season and beyond. The company recently announced a deal to acquire $89 million (retail value) in liquidated merchandise from Bidz.com. The pieces it acquired will be featured in the new Jewelry Liquidation Vault on Overstock.
Discussion Questions
Will Overstock’s direct price comparison with Amazon help capture book customers from its larger rival? Will this carry over to other product categories?
It’s a worthy experiment for Overstock given their positioning and their heritage as an off-price online retailer.
My suspicion is that they will discover competing with Amazon on price sustainably is a very difficult thing to do. Maintaining a position of broad-based price leadership depends on a combination of superior (or unique) unit economics, competitive price intelligence and dynamic pricing capability.
Still, something targeted during the key holiday season may certainly generate publicity, and this may still yield a meaningful ROI.
This may be a big deal for Overstock, but I couldn’t tell from their homepage, where books were not mentioned. A price war may build temporary market share, but unless a retailer is prepared to battle on indefinitely it’s a losing proposition in the long run. Amazon has more titles, delivered in more ways, than Overstock. Coupled with Amazon’s renowned customer service, Prime and breadth of offerings, this is a battle that will be difficult for Overstock to win.
It may capture a few customers but it is unlikely that it will make any significant impact on Amazon’s customer base. Never having been to the Overstock website, I did so before forming an opinion.
I was surprised that if this was going to be a major effort by Overstock the books were not in the categories listed at the top of their webpage. When I did click through to look at the books in the New Releases section I found a fair number of them were out of stock.
When you click on one that is out of stock it does ask for your email address so when it is back in stock they can let you know. However, most people today want it (whatever they are buying) now and not when it gets back in stock.
I did check a couple prices. James Patterson’s book Burn was $25.20 on Amazon and $16.79 on Overstock site. However John Standford’s Deadline was $16.76 on Overstock and $16.77 on Amazon. It appears Overstock’s pricing differential will vary significantly. I expect that they will find they will be cherry picked by knowledgeable customers.
Possibly and best of luck to Overstock. At least someone is trying to compete against Amazon.
It’s probable that Overstock will win some business from Amazon with this approach but it’s likely to be customers who value low prices over other purchase decision criteria. Amazon has built up a lot of brand equity and trust with shoppers that will engender a good degree of loyalty from customers who are not making decisions based solely on price and will provide some insulation against this move from Overstock. In addition, Amazon is known for their great selection and that is not necessarily something against which Overstock will be able to compete effectively.
Whether Overstock will be able to continue to provide this offer after the holiday season will depend on the financial performance it delivers. If they can make the financials work on a standalone basis then they will continue with the offer. If it entices new customers to shop with Overstock and they can keep these customers or if their customers buy from additional product categories (and grow their baskets) then it could also make sense to continue the offer. If the approach is struggling from a financial perspective then they could still make it work by becoming more tailored in whom they provide the offer to through their loyalty program.
Whatever the outcome it is great to see someone competing with Amazon on price—the winner will hopefully be the shopper!
Let’s segment the customers that shop at Overstock and those at Amazon. Then let’s take a next step and look at the relative value propositions of Amazon and Overstock for each of those segments.
Amazon’s value proposition at the same price or even a slight premium probably far exceeds that of Overstock, e.g., the buying experience, the Kindle/Kindle app, delivery and for those who have Prime, so many other benefits.
In addition to that Amazon has probably become a habit with the avid book reading customer segments that matter. In my opinion, it’s going to be very difficult to change their habit or get them to move elsewhere for a few dollars especially if it is unclear how long this is likely to last.
Such tactics do get news coverage, but I would predict it stops at that.
Sure they will get a few, but Amazon won’t care. Yes price is a factor at Amazon, but at this stage in its life-cycle Amazon is the go-to place for everything.
Overstock should stick to overstocks. There they have a sustainable competitive position. Be where the big boys don’t want to be and do it better than anyone else.
Selling books has become a commodity business and lowest price is the main determiner. Unless that proves to be Overstock’s basic and affordable strategy, it probably can’t capture long-term book customers from its larger rival, Amazon, unless Amazon backs off its aggressive positioning. That’s not likely. Amazon has its pride and is very combative. But at least Overstock is showing grit in their effort.
As to this carrying over to other product categories, let’s not forget that in commerce the courage to win a price battle is of finite value unless it projects winning a profitable war.
So this announcement, eh, war, cuts (some) book prices for all and has additional benefits for members of their Club O in the form of additional club rewards applicable to future purchases? This just seems so small that beyond the value of the press release getting some pick-up by the media it doesn’t really do much for sales or customer acquisition.
How about trying something like giving all Prime members the same benefits for purchases made on Overstock? That would get Amazon customers’ attention. (I’m not saying this tactic would be a way to make a profit, just get the attention of the Amazon base.)
And open up the war on a few fronts beyond books. This attack isn’t going to strike at the heart of the beast as according to data I was able to find, books account for only about seven percent of Amazon’s total sales.
Overstock is not the first or the last company that will go up against Amazon. However if Overstock is going to advertise (or should I use the word “promise”) better/lower book prices than Amazon, they better honor that promise. The first time a customer finds out the prices aren’t lower may be the end of the trust that Overstock is trying to gain. And if they really are going to compete against Amazon, they may need to consider broadening their low price strategy to areas beyond books.
Competing as a low-cost retailer means the loyalty you have with customers is tied to price and nothing else, which means there really isn’t any loyalty. If Overstock can provide value along with low prices, they may have a chance at gaining customer loyalty and taking customers away from Amazon.
Amazon has a competitor going right after them. When the bell rings and the bout is over, Amazon will come out as the victor. But they might find out they were in a fight which could open the door for others to make a run at them.
The title of this worries me. Price war with Amazon? Good luck!
I think the way Overstock is going about this is genius: limited time frame (creates urgency), free shipping (no shoppers want to pay for it), and rewards (builds loyalty and gets shoppers to come back). But despite that, Amazon is truly a one-stop-shop and Overstock will only compete on an even playing field if it is able to mimic Amazon’s larger than life inventory. Sure, this could help with books in the short term, but Amazon has proved to be ruthless in its quest to dominate the book market.