Is Amazon facing pricing issues?

According to The Answers Experience Index (AXI), Amazon suffered a sharp drop-off in customer satisfaction over the holiday season, partly attributed to customers’ assessments of the retailer’s price competitiveness. In the study, which gauged online performance over the recent holiday shopping season, Amazon scored a customer satisfaction score of 83, a significant drop from their high score of 88 posted from 2011 to 2013.

The decline came after Walmart finally agreed to price-match Amazon this November, following similar moves by Target and Best Buy in 2013. A report from Wells Fargo Securities and online price tracking firm 360pi released last October likewise found that while Amazon "largely remains the retail price leader for like-to-like items," traditional brick & mortars had significantly closed the price differential gap. Walmart and Target both had lower online prices on apparel/footwear, electronics, housewares, and health & beauty.

Still, the Answers Experience Index also found that the average customer satisfaction score for retail websites overall fell two points from 79 to 77, reflecting rising customer expectations in "an increasingly complex multichannel shopping world," according to a statement from Answers Cloud Services.

The decline put Amazon in a tie with QVC, which kept its 83 rating from 2013. Avon, L.L.Bean and Netflix all scored 82. Apple dropped two points to 80. Eighty is considered the threshold for excellence at which an organization meets and exceeds customer expectations.

"It’s not that Amazon is no longer exceptional, because it clearly is," said Jim Yang, SVP of products, marketing and services for Answers Cloud Services, in a statement. "Rather, Amazon’s inability to deliver adequately against its customers’ expectations, particularly when it comes to product pricing, has opened the door for other retail brands this year."

price match policies

Amazon also lost ground in its mobile experience rating. While last year Amazon was five points ahead of any other mobile website or application, it scored an 83 in 2014, a mere one point above Fanatics and L.L.Bean on that score, followed by Newegg, QVC and Sony at 82.

The results were based on more than 40,000 survey responses collected between Oct. 26 and Dec. 15.

BrainTrust

Discussion Questions

Does Amazon still need a pronounced discount versus other online retailers to win new and retain existing customers? Are rising web expectations a contributor to the reported decline in Amazon’s shopper reputation?

Poll

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Brian Numainville
Brian Numainville
9 years ago

While traditionally I might have considered Amazon the place where I could get lower prices, given all of the price matching by traditional retailers (and when I tried it myself on an electronics item they were more that prepared and happy to match the price), coupled with the recent addition of sales tax in Minnesota, I now look at Amazon a bit differently. Amazon has become the place where I can find items that are not available in retail stores (at least not without a great deal of hunting around), a wider variety to choose from or simply the convenience of having the item delivered. Not to mention all of my e-books. But there are a significant number of people who shopped Amazon for lower prices and that advantage, while not gone, has certainly been blunted by traditional retailers.

Nikki Baird
Nikki Baird
9 years ago

I think I’m more intrigued by a different tactic I’ve seen to approaching Amazon’s price competitiveness. The tactic involves letting Amazon be the early low-price leader on popular items, letting them sell out first at the worst margin, and then coming in with more “reasonable” prices once Amazon is out of stock. So I’m curious as to whether the satisfaction issue is based solely on price, or if it is more a combination of price and availability. Because it’s foolish to pick a strategy for the one (price) without considering the impact of the other (availability).

Shoppers are notoriously bad at separating these issues. And from my own shopping experience on Amazon, I’ve been startled at items that Amazon has either suddenly discontinued from my subscriptions, or that are unavailable for Prime shipping. You have to look at the whole picture with Amazon, when it comes to considering “price.”

Zel Bianco
Zel Bianco
9 years ago

I think Amazon will continue to enjoy many customers’ assumption (true or not) that they have the lowest price for quite some time. While they need to stay competitively-priced, I think that Amazon has so many draws (wide selection, reviews and recommendations, two-day Prime shipping, etc.,) that they will continue to gain and retain customers.

The decline in Amazon’s shopper reputation is most likely due to rising web expectations. As we become more dependent on online shopping we also expect it to be more intuitive, faster and more useful. Amazon has done a good job innovating features and benefits in the past—such as with Subscribe & Save—but they will need to work harder to stay ahead of their competitors and their customers’ expectations.

If I could make a recommendation: If Amazon could signal web ads to stop trying to sell me what I have searched for once I have bought it they would get a 100 customer satisfaction score from me!

Gordon Arnold
Gordon Arnold
9 years ago

As a strategy the competition does not need to leverage against all of Amazon. The competition needs to know where their profits are and attack that aspect alone. Cutting into a giant’s profits stops growth and creates shortfalls in customer support that are expected from the market and relied on for customer loyalty.

Kevin Graff
Kevin Graff
9 years ago

The moment online retailers got into the “free” shipping game, the playing field leveled a bit more for brick-and-mortar retailers. Shipping certainly isn’t free to offer, just like having a store front isn’t free to operate. The race to the bottom has no winners.

What I think we’re seeing is the inevitable rise of brick-and-mortar retailers, as they become more competitive on the total value equation. Not just with price, but with the total shopping experience.

Max Goldberg
Max Goldberg
9 years ago

It’s not that Amazon is losing consumer support, it’s that other retailers are finally catching up. Between price-match guarantees, free shipping and efforts to go omni-channel, other retailers are finally succeeding in the online game.

My holiday shopping experiences are in line with the study—Amazon did not always have the lowest prices and their $35 minimum purchase to avoid shipping costs was higher than other merchants.

Amazon needs to find a balance between low prices and making money. While it makes adjustments, other retailers are becoming more competitive.

My primary concern is that no one wins in a race to the bottom. Competing on price is a slippery slope.

Bill Davis
Bill Davis
9 years ago

Amazon still lead the pack, although tied with QVC, but no surprise the gap is closing as retailers start to ramp up their e-commerce initiatives. That being said, it’s pretty interesting that the average customer satisfaction score dropped from 79 to 77 reflecting heightened expectations that aren’t being met.

Amazon is expected to top $30 billion in revenue for Q414 which is a 15 percent-plus gain over Q413’s $25.6 billion. The company is still growing and at very large numbers, so I think consumers are pretty well satisfied with the company’s ability to meet/exceed their expectations, and I am pretty confident they are keeping an eye on their performance and looking for ways to refine.

Shep Hyken
Shep Hyken
9 years ago

If you want to position yourself as a low-price retailer, you better be low price—every time. There are consumers that will stay with Amazon as long as they are competitively priced because of the Prime service they offer. However, many consumers go to Amazon.com for the lowest prices. Now the competition is willing to match. So the next type of customer is the one that not only looks for the lowest price, they also want convenience. If they happen to be in a store (Walmart, Target or any other retailer) who is willing to match the price, then that is probably more convenient than going home, searching the item and waiting for it to arrive. On the other hand, if they are not in the store, it’s pretty darn convenient to go online and buy what they want and need.

All that said, Amazon knows about their competition, and they do things to set them apart. They will continue to disrupt the retail industry. It will take more than pricing issues to derail Amazon.

Keith Anderson
Keith Anderson
9 years ago

Low prices have always been and will continue to be core to Amazon’s growth model and competitive position. I’m not sure “a pronounced discount” is essential, but I do expect Amazon will continue to relentlessly focus on low prices.

Nikki raises a very key point regarding the relationship between in-stock availability and pricing. Our data shows that Amazon is incredibly competitive on exactly-matched products that are in-stock at the same time, and that Amazon and other retailers use competitors’ out-of-stocks to their pricing advantage.

I’m not convinced that shopper perception is really changing, but I have definitely seen an avalanche of industry participants trying to generate interest by echoing this theme.

Tim Cote
Tim Cote
9 years ago

While Amazon has always been praised by industry insiders for various parts of their go-to-market strategy, in the consumer’s eyes it has always been about their pricing. As this advantage fades, so does the excitement around Amazon. Remember, with Millennials it is all about the deal.

Lee Kent
Lee Kent
9 years ago

While Amazon may have owned low price, fast efficient delivery and great customer service, not to mention no sales tax, let’s face it, the competition was not just siting idly by.

Smart retailers were learning how to do some of the very same things and sales tax came to Amazon to boot. Welcome to the retail world, Amazon!

I don’t think Amazon has been sitting idly by either. They have always been smart and they appear to be getting a better handle on what their brand is besides low price. Does this mean that they will have to find further discounts to keep traction? Not in my opinion. A score of 83 ain’t chicken feed and price is not the only game.

And that’s my two cents!

W. Frank Dell II, CMC
W. Frank Dell II, CMC
9 years ago

The reasons consumers buy online are price, availability, and convenience—in order of priority. Amazon built is image based on price where they had the advantage over brick and mortar stores. Stores have to pay rent and utilities and put inventory in every store. Due to lost business, stores created their own e-commerce business, but they have a pricing problem. Selling merchandise at lower prices than in the store only works to cannibalize, not grow sales.

Now that Amazon’s prices have been matched, they have lost their greatest advantage. It’s not like Amazon is making money. It lost money in 2012 and profits for 2013 were 0.0037% of sales. This does not leave a lot of room to discount prices further. With most e-commerce sites providing free shipping, the Amazon premium membership has lost some appeal.

Without a doubt, consumer expectation are increasing for all e-commerce sites. As competitors close in on Amazon, Their growth will likely slow.

Liz Crawford
Liz Crawford
9 years ago

Amazon is established enough at this point to enter a new phase of its lifecycle…it is heading toward a “house of brands” model, like a department store. What is to differentiate it from other department-store like venues? Price? Shopping experience? Convenience?

Whatever it is, they better get there soon, because their days as the hotshot new kid on the block are numbered.

Ed Rosenbaum
Ed Rosenbaum
9 years ago

What is different with this, that we have never seen before? Every time one big company comes up with a novel idea and cashes in on it, it is not too long before the others say “I want a piece of that pie” and grab hold of the gravy train. When this has happened in the past (and will continue in the future), the lead dog loses some of its competitive advantage.
Now it is time to wait until we see who and what the next novel plan will be to grab our attention and money. It is going to happen.

richard freund
richard freund
9 years ago

A prominent reason customers cut back on Amazon purchases is because they allow overseas vendors to sell on the site who have no clue how to handle North American customers. The customer service aspect of overseas vendors is extremely difficult (as I found out)…. And, they do not mention on the seller page if they are overseas suppliers (it’s an option for vendors) or not. I would imagine this would make customers look for alternates. I think Amazon NEEDS competition.

Kenneth Leung
Kenneth Leung
9 years ago

I use Amazon because of the convenience (I am a Prime member) and the selection of items that I couldn’t easily get in a store, or even know what store to go to get one. I have expectation that Amazon will be price competitive but not necessarily the lowest price. In this case, I think it shows the transformation of Amazon from being just a pure low-price seller to a brand/service retailers that meets the customer’s needs. Bargain hunters will still hunt the deals with Amazon and Walmart, but Amazon will succeed by being a great online retailer.

Jenn Markey
Jenn Markey
9 years ago

Amazon’s brand and associated value proposition have been largely associated with perceptions of price leadership. We expect this perception will continue to be key to shoppers and core to Amazon’s strategy.

With Amazon cracking the top 10 retailer list in 2014, two threats to this competitive position have emerged. Amazon is increasingly evaluated as a retailer vs. technology play, placing increased investor scrutiny on margin performance. As well, other retailers, notably Walmart, are becoming increasingly aggressive in their own pricing to keep and win their share of wallets.

On a related note, price leadership is as much about perception as reality and Amazon knows better than most how to manage this to advantage. Other posts cite the very real difference availability, shipping, and taxes can make in the price presented to the consumer. Other key tactics in the battle for price leadership perception include the timing and frequency of price changes, along with leveraging marketplace or 3P vendors.

Doug Garnett
Doug Garnett
9 years ago

The fundamental problem with any primarily price-advantage strategy is that it’s temporary. You simply can’t ensure that you always win those battles.

Christopher P. Ramey
Christopher P. Ramey
9 years ago

Retailers compete on several levels. Price and service tend to be the two most talked about. But it’s not quite that simple.

Every brand has to be priced competitively. There are no passes at Amazon or even Neiman Marcus. It’s still about the exceeding the values of your customer.

Gajendra Ratnavel
Gajendra Ratnavel
9 years ago

Hard to make a conclusion like this from the summary of the study. There can be a lot of factors.

However, when it comes to shopping online, price seems to be a much bigger factor.

Arie Shpanya
Arie Shpanya
9 years ago

Amazon has really locked itself into its loss leader identity. Shoppers have come to expect low prices from Amazon, on pretty much all items, all the time. When they find better prices elsewhere, it definitely alters their perception of the retailer.

I think Amazon’s lower shopper reputation can be partially attributed to its less competitive pricing recently and it could even have to do with its Amazon Prime push lately. Shoppers don’t generally want to pay more to have extra features, they just want to have free shipping on the items they really need and want. Especially when they have grown used to cheap items that are shipped quickly and for free.