4 things we can learn from Amazon
Here are some facts about Amazon:
• 304 millions active users accounts
• Sale in 2014 – 2 milliards products
• The amount of available products in sales – 250 millions (only in USA)
These numbers are impressive – it’s unquestionable world leader in the e-commerce. Amazon’s pricing strategies are of course a secret, however we can guess some of them on the basis of available data. We present some conclusions, which we can use in our e-shop:
1. It’s important how people see you, not how it really is.
Most of the people see Amazon as a pricing leader. Is it really so? Yes, but not always. Amazon cares of being seen as the cheapest shop in the market. It sells popular high-rotation products at the lowest prices in the market and has definitely higher margins on the rest of the products. In the case of niche products, it can be more expensive than competition.
As we can see from the following diagram, Amazon places itself as the cheapest in the case of the most popular products in home electronics category:
The situation changes in the case of less popular and niche products (also in home electronics category).
As we can see, in this case Amazon is the most expensive seller:
The choice of the shop is based on the price (in the case of the significant percent of clients). However, remember that you don’t have to be the cheapest everywhere and all the time. You can also use the strategy of frequent special offers (equivalent of BestBuy in Amazon).
2. Short-term special offers – the magic of the lost benefits.
Amazon changes prices 2,5 mln times a day, 54% of products (electronics) were at least for a while at lower prices.
The frequent changes of prices have two aims:
• The special offer increases chances of sale
• Determining the optimum price of product – profit maximization
• There are many factors that influence client’s purchase decision. In many cases this is the price, however not always. It’s worth experimenting with prices, because it may turn out that we’ll get higher profit by raising the price (although the sales will drop).
• Monitor the competitors prices and react quickly to changes.
3. Bundles, bundles and one more time bundles.
Amazon is the absolute leader in offering bundles. It can sell some products below costs and make profits on complementary products. Example: during clearance sales the prices of televisions and monitors were considerably lowered, and at the same time the prices of cables were considerably raised (especially of own brand).
• Add those products to bundles, on which the margin is the highest. The clients compare (in most cases) only the price of a main product, so it’s worth lowering its price and compensate for margin on the other products from the bundle.
• Don’t offer many bundles, because the client will have problem with making decision.
More about bundles: Bundles – 9 practical tips
4. The most important thing is to know the clients.
The efficiency of Amazon activities is based on collecting and using data about client – what our interests are, what products we browse through and what products we add to the basket. Amazon creates individual special offers, for example: it can lower the prices, if we’re interested in the product, but we haven’t bought it yet. We can test it very easily. All you have to do is to add a product to the basket and don’t buy it. In a while, this product will be at a lower price.
Use basket analysis to improve the quality of recommended products. Remember to use purchases for it and the history of products that client browsed through.
CEO at Price-expert.net. Has many years of experience in managing IT projects and automating the price management process in e-commerce.