Amazon raises prices on Cyber Monday

Discussion
Nov 14, 2014

The popular perception is that retailers bring out the big deals for Black Friday and Cyber Monday, but that has not been the case in recent years, according to research conducted by Upstream Commerce.

Last year, for example, Upstream looked at pricing on the top 20 athletic shoe brands sold on Amazon, Macy’s and Zappos. It found that Amazon offered the biggest discounts on Black Friday but raised prices on Cyber Monday.

"There was no consistent strategy or head-on competition among the retailers," said Amos Peleg, CEO/Co-founder of Upstream Commerce, in a statement. "The average discount rate attained at both Amazon and Zappos (at different times in the scale), was 2.8 percent, but was only 0.5 percent for Macy’s."

In 2011, the company did price checks on televisions and toys sold by Amazon, Best Buy and Walmart. As with athletic shoes, Amazon offered the biggest discounts on Black Friday and then pulled back on Cyber Monday.

Best Buy was more selective with its discounts. The chain offered deals on TVs, but raised prices on games and toys for the 2011 holidays.

Walmart’s average prices for Black Friday and Cyber Monday, were actually higher on items studied than they were on Nov. 15 of that year. According to a Dec. 8, 2011 post on Upstream’s blog, "This surprised us, so we analyzed further and found that average prices went up on Black Friday and Cyber Monday because many of Walmart’s less expensive products were out of stock (and had not been restocked). This of course makes you wonder — did Walmart prepare properly for these two critical days of the year? It seems that they might have left money on the table, or, conversely left consumers unable to buy goods at the usual, expected low Walmart prices."

In both the example from last year and 2011, there was no clear pricing strategy from the various retailers based on the competitive marketplace. Price matching has become the answer in recent years as retailers have become concerned about consumers’ perceptions about prices (and that they may not have the best ones).

"Retailers should stop chasing each other around," said Mr. Peleg. "Employing predictive pricing strategies based on competitive analytics is the only way retailers can price optimally to sell the maximum number of products most profitably."

Are retailers, by and large, using price to effectively drive profitable sales? Is predictive pricing based on an analysis of the competition the answer for retailers looking to boost sales and margins?

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18 Comments on "Amazon raises prices on Cyber Monday"


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Chris Petersen, PhD.
Guest
4 years 1 month ago

This is a great study actually documenting what many have suspected!

Time-starved shoppers turn to online during the holidays. And they do extensive price comparisons FOR THE DAY THEY SHOP. They are not nearly as good at checking prices across time to see the trends.

Now that Walmart has announced that they will match Amazon prices, it will change some key dynamics this holiday season. Consumers will be more likely to check the Big two of U.S. retail first if they are price sensitive.

Mr. Peleg has it exactly right: “retailers should stop chasing each other around … [on price].” The future of retailing success will require predictive analytics and pricing elasticity models that enable optimizing pricing by hour—such as Amazon and Alibaba are able to execute today.

Nikki Baird
Guest
Nikki Baird
4 years 1 month ago

Ugh. The only thing that competing on price gets you is an unending race to the bottom—and an unprofitable one at that. It gets even worse when retailers that consumers assume have the lowest prices—something the brand is built on, as is the case for both Amazon and Walmart—take advantage of that by actually having higher prices than they normally might.

I agree that retailers need to stop focusing on the competition. Yeah, you should be aware of what competitors are doing to make sure you’re not missing something, but you should focus instead on the value of what you can offer consumers, and invest some time and effort into conveying that full value instead of letting your brand be cornered into pure price competition. I know it’s not easy, but it’s got to be more worth the effort than cutting prices, cutting costs to stem the losses and in general just cutting your way to obscurity.

Dick Seesel
Guest
4 years 1 month ago

The idea of taking markdowns to move more units or to clear slow-selling inventory is not new. The difference now is the sophistication of IT systems, allowing retailers like Amazon to react quickly to selling patterns. In Amazon’s case, however, the ability to maximize margins through predictive pricing hasn’t translated into a consistently profitable business model.

As to the whole idea of “Cyber Monday,” it’s becoming as outdated as “Black Friday.” The days of consumers logging onto their work computers on the Monday after Thanksgiving—which drove the original shopping dynamic years ago—are long gone. M-commerce and the evolution of omni-channel retail have changed the landscape, along with retailers’ promise of delivery as close to Christmas Day as possible.

Gene Detroyer
Guest
4 years 1 month ago

By and large pricing has been used to cover mistakes in inventory purchasing and meet revenue projections when coming up short. Neither help profit. Unfortunately, when you talk pricing with most retailers, they think it only goes in one direction—DOWN.

I do not know the background of Amazon’s logic of rising prices on Cyber Monday, but it makes sense. If the customer is coming to your “store” because they think it is a great bargain day, there is no compelling reason to give them deep discounts. They have already made their decision.

Tom Redd
Guest
4 years 1 month ago

I am getting old and could care less if one retailer is $3 or $30 less than the other. What I was is the ITEM itself and I want it—the exact one that I want in stock and close by.

Retailers know the technology is available to stop this chasing around on price game. Get that done on the back burner and get the supply chain issues addressed ASAP.

If you do not HAVE the item who cares what your price is?

Tony Orlando
Guest
4 years 1 month ago
With all the tools available for the consumer today to get the best price, it is amazing anybody can stay in business and still make a profit. Shopping is a high-tech scavenger hunt, and retailers are trying to figure out how to effectively price their products for the holidays and return a decent profit, which is not a bad thing. In our crazy business, everyone sells turkeys below cost, sometimes way, way, way below cost, and customers expect it. I never understood the concept of constantly selling key items at a loss with the expectation that the customer will buy everything else from you to make up the loss. It just isn’t true anymore, as most consumers shop multiple stores each week to get the best deals in each store. Price matching of ads online or print from Walmart takes away your advantage anyway, so the race to the bottom never ends. Price is a very effective tool for sure, but all of us as retailers need to offer up some very unique gotta-have items… Read more »
Lee Kent
Guest
4 years 1 month ago

I’m tired of talking about the race to the bottom in pricing. It’s long past time that retail figures out how to compete profitably.

For my two cents … Next topic please!

Bill Davis
Guest
4 years 1 month ago

To generalize and say most retailers are managing their pricing well during the holiday season would be an overstatement. Amazon is the most sophisticated in terms of managing its pricing, and given they are the benchmark I think it’s inevitable that other retailers have to follow suit or risk being marginalized.

There’s a really good reason why Walmart has recently decided to price-match its online competitors, this holiday season and beyond.

David Coleman
Guest
David Coleman
4 years 1 month ago
There is clearly a role for improving predictive pricing models. That said, having done a number of longitudinal studies on Amazon pricing behavior, it is apparent that Amazon pricing is simply a function of positioning themselves to be one of the three lowest prices available. Generally speaking, the simple search conducted by a number of consumers stops after the top three lowest prices are presented. What may appear to be sophisticated pricing models are in fact very simple. As the Amazon third-party sellers “stock out” of items, Amazon is subject to less competition, and thus can raise prices while still being in the top three lowest prices. The most frightening thing I see is retailers offering price matching when the competitor they are matching may, in fact, be out of stock. On any given item, the price-matching retailer may be giving away 30 points of margin to match a competitor that has run a loss leader program and is currently out of stock. It’s even worse if the item sold is in high demand, and… Read more »
James Tenser
Guest
4 years 1 month ago
I’m a bit puzzled by the declaration that there was “no consistent strategy” for Black Friday and Cyber Monday pricing among the handful of retailers it tracked for this study. It seems to me that there was a very deliberate strategy to maximize margins during brief periods of high demand, although the tactics varied. What’s remarkable about this is that Amazon, Zappos and Macy’s seem to have made selective upward adjustments to online prices on specific days. This was unheard-of just a few years ago, before pricing optimization analytics became available. Today it would be folly not to use these tools to manage net profitability. If I understand Upstream Commerce’s interpretation of Walmart’s pricing trend during the pre-holiday run-up, it seems that average price increases were an effect of shortages of lower-priced items. If so, this is a statistical phenomenon that is different from making deliberate price changes on items in stock. Of course, some deeply-discounted holiday items are offered in limited quantities—so-called “door busters”—which might influence this metric. I applaud Upstream Commerce for tracking… Read more »
Mark Burr
Guest
4 years 1 month ago

Value is and always will be the best driver of sales. Price is and always will be only one of the components that make up each consumer’s value equation.

Far too much weight is placed on price as the trigger value driver in the holiday season.

Why is it any surprise that Cyber Monday would be a lesser discount day than Black Friday?

The only thing that this study shows is that, to little surprise, Amazon and Zappo’s know their business.

Price matching is simply foolish unless you have nothing else to offer. Attempting to retrieve a shopper from a competitor on the basis of price alone is an ineffective plea of desperation.

Walmart has highly invested in price matching. If their consistently flat sales are any indication, it has been effective only in communicating to the consumer that their prices aren’t the lowest after all. They’ve succeeded at communicating it well and breaking a long-established perception on the part of the consumer.

Joan Treistman
Guest
4 years 1 month ago

It doesn’t take that long for consumers to catch up. There’s been quite a bit in the press that informs shoppers of the reality regarding pricing on Black Friday and Cyber Monday.

At the same time, retailers want to be open earlier for Black Friday so they can capture the early bird shoppers. It makes me think that this is what you do if you expect profit to come from overall sales volume, while pricing on some items is the primary attraction.

I suspect that consumers can differentiate between the best absolute price of a single item vs. the overall best value a particular store offers for that person’s shopping list.

We need to address shopper perceptions while we correlate pricing or the conclusions we draw about how to influence shopper behavior may be incomplete or simply wrong.

Ben Ball
Guest
4 years 1 month ago

Congrats to Jamie Tenser and Scanner for two of the most insightful interpretations of this report.

To piggyback on Scanner: There is a very real threat to Walmart’s core strategy implied here. And that is “Lowest prices every day,” originally a statement of everyday shelf price has now become interpreted by consumers as “lowest prices EVERY day” and that is a huge switch.

Walmart used to “have frank discussions” with suppliers whose products showed frequent deep discount specials below Walmart’s everyday pricing. (OTC drugs and the Drug chains come to mind.) Now that is a very public conversation with consumers. One that is forcing Walmart to the “price-matching” tool. And that is very dangerous to Walmart’s once invincible core brand image/strategy.

Christina Ellwood
Guest
Christina Ellwood
4 years 1 month ago

If by “profitable sales” you mean the total ticket/basket then, yes, low prices can be used effectively. Great deals drive people to the store or site and once they score the deal, they may well (and the data shows often do) buy more items at full or over full price. The additional items may offset the lost revenue on the “deal” item.

Of course, there are other reasons to drop price including to offload excess inventory, etc.; the goal is not always “profitable sales.”

Lee Peterson
Guest
4 years 1 month ago

The whole meaning of Black Friday is gone…it’s not Black Friday, it’s now called “Thanksgiving.” Time to move on; retailers are open all the time now, one way or another, with stores or without. It’s a 24-7 game and the idea of using price to drive sales is also 24-7. Unfortunately, that is, vs 24-7 quality.

Jonathan Marek
Guest
4 years 1 month ago

This is great, and I agree it indicates what many here have suspected.

The holiday season is time shifting earlier, and online is now a key driver of this phenomenon. It used to be that online had to band together and create an event to compete against Black Friday…thus Cyber Monday. People could use broadband while in their offices and Black Friday would get them in the mood to start Holiday shopping. My how things have changed!

Online doesn’t need brick and mortar to drive the start of Holiday anymore. They can drive it themselves. Thus Cyber Monday loses relative importance and they can get sales earlier. Combine that with the desire to tap into limited Holiday wallets earlier, and you have a recipe for lower online prices earlier in the season.

Now, how will brick and mortar re-compete? What true omnichannel strategies will they test, that actually take advantage of their brands and physical presence but also work online?

Graeme McVie
Guest
Graeme McVie
4 years 1 month ago
In the Holiday season, retailers are striving to showcase their low prices so they can capture customers at a time when a significant number of them are in buy mode. On the surface this makes sense but when you delve a little deeper you have to ask yourself, at what cost does it come? Advertising low prices and using a marketing approach to drive customers to stores makes sense, but if individual customers buy single items at a price point that delivers a low or negative margin, then the financials won’t stack up. Using predictive capabilities to set prices is a step forward for a number of retailers but they have to be careful when considering the competitive aspect. Setting prices based solely on the competition effectively outsources pricing to a direct competitor. On some products and in specific stores, price matching can make sense, but a more customer-centric approach will yield the best outcome. Not all retailers have exactly the same customers with exactly the same needs, and customers who are willing to switch… Read more »
Amos Peleg
Guest
Amos Peleg
4 years 28 days ago
Dear Friends at RetailWire: Thank you for featuring our Upstream Commerce research about pricing behavior of big retailers during the holiday season. I’d like to address some of the comments: To Nikki Baird, Managing Partner, RSR Research: Nikki, Fully agree with you that competing on price is not going to get the retailer everything they need. However, what we’ve learned together with our clients, is that once a powerful competitor becomes aggressive on pricing, if the retailer does not position himself carefully (both strategically and tactically) he might get exposed in dramatic way. He might end up not having the time to work on his other differentiators while he bleeds his margins and his bottom line. Pricing in an analytical way often involves the counter-intuitive action of raising prices, and oftentimes advises when to stop following your competitor all the way down. To Gene Detroyer, Professor, Independent: Thanks Gene, We do see that, oftentimes, practices involve only price reduction. It happens when prices are being adjusted manually. In such cases, without proper analysis, one will… Read more »
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