How Amazon wages price war with Walmart
Retailers interested in fine-tuning their digital pricing strategies may want to look at a new index called the Price Perception Index.
The index, created by e-commerce startup Bommerang Commerce, measures how retailers optimize prices to attract buyers, compete with other retailers and build their business on a mix of profit margins and volume.
The first Price Perception Index looks at the complex competition between Amazon.com and Walmart.com.
"Competitive pricing has moved beyond weekly adjustments and price matching," said Guru Hariharan, founder of Boomerang Commerce. "The PPI sheds light on the complexity and the speed at which retailers adjust their pricing to drive buyers and revenue."
Amazon undercuts Walmart's prices by 4% on the most popular products, while Walmart is following a price matching policy with 63% of its products at the same price as Amazon's. Additionally, analysis shows that Amazon has a sophisticated pricing strategy to own a majority of the SKUs for the most popular items and undercut 3rd party resellers on those products. Third party resellers offer more products in the lower demand product areas.
Other findings in the report:
Retailers split products into three groups (popular or head products, core products, and tail products) and price each of those differently by category
Savvy retailers test pricing on popular products well in advance of the holiday season dropping the price by as much as half to measure customer response
During the holidays prices rise on tail products, the products consumers tend to add to a purchase such as a phone case or HDMI cables
Amazon's shipped and sold products are generally 2.5% less than the same products at Walmart while Amazon third party sellers, offer those same products for 9.7% more than Walmart
While Walmart price matches Amazon on 63% of the items, Amazon is able to drive lower prices on the most popular products and obtain a much lower overall PPI (-2.5% vs. +0.49%)
PPI by category can vary greatly and each retailer optimizes prices in the categories where it excels e.g. Amazon focuses on Home Audio vs. Walmart focuses of Auto
Boomerang Commerce, founded by Amazon veteran Guru Hariharan, makes software that tracks prices on shopping sites that compete with its clients, then recommends price changes dynamically. The company was recognized by the National Retail Federation and chosen as one of the top two Digital Commerce Startups of the year at this year's Big Show.