Pricing Strategy & The Race to the Bottom
Retailers are finding that being competitive in terms of price isn't always the most effective strategy when it comes to actually increasing their revenues.
Pricing intelligence solution 360pi’s recently conducted a rather interesting pricing analysis of 1000+ household goods based on Amazon’s own assortment relative to Kohl’s, Walmart, Target and Macy’s. What 360pi reveal in their report, conducted between March-June 2014, might surprise Internet retailers.
Kohl’s was consistently 30-60% above Amazon’s pricing for this sample, but reported the healthiest financials of the group. In the same category and timeframe, Macy’s was consistently 20-40% above Amazon until April 2014, but appears to have been drawn into the “price wars” with Target, Walmart and Amazon – which likely contributed to missed Q2 expectations. Walmart has consistently been underpricing Amazon in the house hold goods category since mid-January 2014. Together, Target and Walmart have closed the pricing gap with Amazon to within a 5% range in July, compared to a 30% spread last fall. At the same time, however, Walmart and Target have both experienced under-performing sales and financial losses, while Amazon is under mounting pressure to improve profitability.
“We found this particular analysis fascinating because it puts a very large mirror on the pricing strategy that so many retailers fall prey to—the race to the bottom in which no one wins the gold medal,” said Jenn Markey, vice president of marketing, 360pi. “This holiday season will be a test to see which retailers will get it right by being responsive to the competition rather than reactive, and leverage a combination of loyalty programs with p