Amazon Has a Risky Strategy for Cutting Prices This Holiday Season
06 Nov 2017
If you find more goods than usual on Amazon are discounted as the holiday season starts, that may not be because the sellers have chosen to cut their prices.
Instead, as The Wall Street Journal reported Sunday, Amazon itself has started briefly discounting certain items sold by sellers, by as much as 9%. This only seems to apply to third-party sellers who ship their products through Amazon’s distribution centers.
Until Amazon started doing this in “recent weeks,” it only controlled prices on the goods it sold directly to consumers. Some brands, such as The North Face, therefore avoid selling directly to Amazon, in order to control their own pricing strategies.
In its new discounting push, Amazon is absorbing the amount of the discount itself, in order to tempt customers away from other retailers.
That means the third-party sellers get the same amount they usually would—and indeed, it seems Amazon isn’t even telling them about its discounting. This last point could prove problematic for sellers who have signed agreements with brands or other marketplaces, to maintain a minimum price on the goods they sell through all platforms.
Amazon isn’t saying how it selects the items for discounting, but it told the WSJ that sellers could opt out of the program.
Amazon’s stock price is at an all-time high after its last financial results showed a one-third increase in revenues—on Friday, an SEC filing revealed that CEO Jeff Bezos understandably chose now as a good time to sell a million of his shares in the company. However, while quarterly revenues had shot up to $43.7 billion, Amazon’s profits were about where they were a year before, at $256 million.
That’s testament to the company’s aggressive pricing strategy, and it will be interesting to see to what degree the new discounts’ attraction to customers balances out against the erosion of Amazon’s already-tight margins.