Will getting rid of list prices help or hurt Amazon?
According to reports, Amazon.com has concluded that large numbers of consumers will only make a purchase if the items they are looking to buy are discounted. The e-tailing giant, which for years hasn’t seemed all that interested in selling products at a profit, has also decided it would like to make better margins on the items it ships. To move itself in the right direction, the company has decided to eliminate the use of list prices on its site.
While retailers typically do not sell at manufacturer suggested list prices, the baseline is often used as way for merchants such as Amazon to quantify the deals they are offering. Ultimately, however, pricing comparisons come down to one retailer’s price versus another. So, will this move prove positive for Amazon or something less than that?
According to various reports, one reason that Amazon may be eliminating the use of list prices is over concerns the company could find itself embroiled in lawsuits over its pricing practices. A number of suits have been brought against J.C. Penney, Kohl’s, Macy’s and others over the listing of regular prices when running sales. The suits have centered on allegations that retailers’ use of regular prices is deceptive since sale items are never sold for that amount.
One potential concern is that the elimination of list prices will in some way affect consumer shopping search patterns online. For many, Amazon has become their de facto shopping search engine. Without a comparison between list and final price, will consumers begin to see a need to extend their searches beyond Amazon and its marketplace sellers?
Discussion Questions
DISCUSSION QUESTIONS: What do you think are the factors motivating Amazon’s decision to discontinue the use of list prices on its site? What do you expect to be the result of this action?
Poll
BrainTrust
Doug Garnett
President, Protonik
Adrian Weidmann
Managing Director, StoreStream Metrics, LLC
I don’t think it’s going to help or hurt. Amazon has trained people to price check and they will continue to do so. I’ve caught Amazon with some very high prices lately on relatively high ticket items. It has cost them sales from me.
As for the lawsuits, I’ve been around the retail industry for a very long time now. The lawsuits have been going on for as long as I can remember. “Compare at” prices have been challenged at least since the ’80s. And basically, retailers “pay the ticket and go home.” I have no idea why this is coming out as some kind of shocking revelation. I think private label was an original driving force behind it, but it is ubiquitous and always has been.
Amazon’s motivating factor is to make more money. I question if this is the best way to go about it when the company’s competition is just a click away. If consumers are concerned that they are getting the lowest price it’s easy to compare and, if Amazon comes up short, it could lose these customers. Amazon has build a powerful empire by combining low prices with convenience and great customer service. If lower price is removed from this three-legged stool, will it still stand?
Well, back from vacation and time to raise some noise.
Amazon does not fear lawsuits, they just want to make their prices LOOK the best. Killing the list price is more of a marketing move than anything else. With no list price the shopper has to evaluate if the price matches the need vs. just buying cause it is a good deal. More pressure on the shopper and less work on Amazon. Also another way to differentiate. I beat on Amazon and Jeff a lot because so many young writers and other strange people promote Amazon as the new retail — the leader in this or that. They aren’t. Very simply they are a mass merchant that never got around to learning how to manage a real store or thousands of stores. Their merchandise mix is so broad they are like a retailer that cannot decide who they are. They also carry good product and items that not even Family Dollar or Big Lots would carry. Cheap, trashy product destined to fail or be returned.
Their list price issue will be fun … Millennials will love it for some strange reason.
Amazon may be concerned about a lawsuit but comparing a retailer’s price to the Suggested Manufacturer’s Retail Price has been common and the lawsuits mentioned have not been settled. It is more likely that Amazon wants to increase prices to get a higher margin. For that to work, they have to hope that consumers have developed a habit of purchasing on Amazon and will continue their habit with higher prices OR that comparing prices will be too much work and consumers will continue to purchase on Amazon. However, this will leave an opening for other retailers who are creating efficient online options that are truly integrated with their brick-and-mortar stores.
Amazon clearly has a profit problem since Amazon’s core model is to take business away from retail by getting investors to underwrite losses — not because they have a competitive business model.
But given Amazon’s past, my suspicion about this change is that it comes from that same idealistic ignoring of reality that nearly put J.C. Penney out of business. And they were probably given a push in that direction by the threat of lawsuits.
For years, Amazon has positioned themselves as a great place to find a deal. We repeatedly see companies of that flavor eventually try to change and fail — because they ignore how critical the perception of a deal has been to their success. We will have to see what happens here.
This is really about truth. The worst kept secret in retail is that the MSRP or “regular” price is, with a few exceptions, pure BS. That is not at all to suggest Amazon merely makes up its comparative pricing; I’d be very disappointed if that were true. I see this as a truly “clean” approach and hope others follow suit.
Anytime you can eliminate even the suspicion of dishonesty, manipulation and deception, do it. Transparency is one of the rarest practices in pretty well every dimension of our society. Wouldn’t it be interesting (or immensely depressing) to know what’s really going on, what the truth is, not only in retail but in agriculture, educational systems, religious organizations, the VA … and particularly in our local, State and Federal governments? I won’t even mention political campaigns!
The ancient adage that “cleanliness is next to godliness” was not just about washing your hands, it was also about having a clean and truthful operation. Interestingly, you can make more money that way too.
I’m sure fear of potential future litigation and a desire to strengthen margins are at the heart of the decision — assuming, in fact, the decision has actually been made to eliminate list prices.
The problem is, if you are a discounter, how do you demonstrate the degree of discount without referencing a list price? Also, whenever any retailer — digital or otherwise — makes a dramatic public change in pricing policies, most consumers think the worst.
It will be interesting to see if the rumors are true and, if they are, how consumers will react.
Likely a smart move on Amazon’s part. The funnel of goods and services that Amazon is offering continuously grows. They are taking a page out of their book category. This move will permit them to keep the adventure of pricing fresh on an ongoing basis. It has appeal to the treasure hunters, EDLP and the simple value-seekers who want to be sure they are not being overcharged during their shopping experience.
Consumers expect a value when shopping at Amazon. Taking away apparent value didn’t work out so well for J.C. Penney, nor will it for Amazon.
MSRP confirms what buyers want to believe. Customers cling to context.
Consumers can shop around for pricing on any item. For many bigger purchases the consumer will always look at different options before pricing. Amazon will remain competitive, but two of the biggest things they have going for them are that consumers trust them and their Prime program. It’s hard to compete with trust and a membership/loyalty program like Prime. Amazon is very customer-focused and I’m sure is weighing all decisions they are making regarding their pricing program.
Amazon wouldn’t make this move without A/B testing it first, and they can reverse it anytime they want. Any risks here are largely imagined. Amazon may be about to prove list prices have become a sacred cow.
In behavioral economics, anchoring is an effect whereby initial exposure to a number serves as a reference point and influences subsequent judgments about value.
Nobel laureates Tversky and Kahneman have shown that an initial exposure to a high price, however arbitrary or non-credible, will subconsciously lift the willingness to pay for the product. One cannot really help it. It works!
Inflated list prices may therefore subconsciously create a false perception of value. Therefore, they could face shoppers with an unfair element of manipulation that, although potentially profitable, Amazon may wish to remove.
Why would anyone think anything Amazon is considering would hurt them? They will certainly do their due diligence, which includes the J.C. Penney boner, before making a drastic change. Beside that, why should we care so much? Amazon is the “King of the Retail Hill” now and for the foreseeable future.
I believe that Amazon realizes the true value of its brand. Many people shop Amazon based upon the brand and not the price … so they don’t even consider price as part of the equation. My wife said to me recently that she would rather pay Amazon for a video than to watch me search for the same video for free on Time Warner Cable. That is powerful brand equity and my wife is not alone. Amazon Prime has millions of consumers hooked on the promise of free shipping and videos that are simply lost leaders to the bigger branding play.
Amazon’s elimination of list prices on products will make it easier to charge higher prices to increase margins. And with their massive loyal customers, they can get away with it. While the strategy to eliminate list prices on products that are not discounted makes sense, I am sure they will still use list prices on discounted products to make those products “fly off the shelf.”
One of the whole points of e-tailing is the ease with which price comparisons can be made. So I’m not sure a comparison to Macy’s or JCP or any other traditional retailer is valid, since people online are already comparing actual prices between “stores” more than between a “list” and actual price. And, of course, Amazon isn’t really a (single) retailer as much as it’s a marketplace for many retailers, all selling at different prices.
In short, I don’t think it’s going to make much difference.
We believe Amazon’s decision stems from the desire to avoid further list price lawsuits and other pricing challenges, such as dynamic pricing, competition, and need for profit. Reference “How List Prices Lost Their Meaning” (New York Times), RetailWire discussions on this subject and “List Prices Have Become Slippery Slope” (Upstream Commerce).
The risk Amazon runs is encouraging consumers who like to comparison shop (remember the consumer’s propensity toward the thrill of the chase) to check other sites than staying with Amazon. Also remember Amazon’s other forays that ended up somewhere other than successful, like Amazon Fire Phone. (Aha, I knew you already forgot it).
I don’t know if I ever noticed the “list price” when I shop at Amazon. Most of the time people use Amazon as a reference price and then check against the competition and brick/mortar stores. Whether it is “list” or just “the price” is irrelevant to me. Maybe I am the minority here ….
I would hope that one factor driving this decision is to solve what has been a very bad customer experience for a long time: showing the list price with a new price that is only pennies less. How is the consumer going to feel confident in Amazon’s pricing for them, when the price drop is one penny? Do the following search with Google and you’ll see 2.6 million results as one-cent drops in the list price. Search “site:amazon.com You Save: $.01.”
Price perception matters. Despite many independent studies showing that Amazon doesn’t always have the lowest price, they are still perceived that way, and many shoppers have been conditioned to turn to Amazon first, with that expectation. Because of this, there is probably less of a need for the list price, despite the psychological pricing aspect of it, so I don’t think it will hurt them necessarily. The reasons for doing so — as others already mentioned — profits and mitigating legal risk.