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How Retailers Can Fight Amazon on Black Friday and After

How Retailers Can Fight Amazon on Black Friday and After

(Getty/Leon Neal)

By    |   Wednesday, 23 November 2016 03:38 PM

By Shira Ovide and Shelly Banjo

Here's a heartfelt Thanksgiving message for retailers: Amazon is killing you, and you are missing the best shot to fight back.

Shopping with Amazon.com Inc. has become an ingrained habit for many of the world's consumers. Thanks largely to the hugely successful Prime shopping club, many consumers automatically turn to Amazon when they need to replace their coffee filters or find new headphones.

Its dominant position is even more pronounced this time of year. About 55 percent of Americans surveyed by Kantar Retail say they plan to shop on Amazon for holiday gifts. That's up from 41 percent two years earlier.

Competitors can trot out all the Black Friday door-busters they want, but it's now Amazon vs. everyone else, and the boys and girls in Seattle are winning.

Still, Amazon does have a vulnerability many retailers haven't fully exploited: prices.

Amazon built its reputation as an everything store with razor-thin profits. It has convinced shoppers it always has the cheaper choice, regardless of the reality. 

It turns out Amazon doesn't actually have the lowest prices. Its special sauce is knowing how to create a low-price halo by cherry-picking the most popular products and undercutting its competitors there, while maintaining list prices on other products, according to Boomerang Commerce, which makes price-tracking software. 

Percentage Of Least-Popular Items Amazon Discounts: 1%

When analyzing toys and games last month, Boomerang found Amazon discounted 32 percent of its most-popular items, but only 9 percent of what it calls "core" items and 1 percent of the least-popular items. That let it maintain the perception of having the lowest price, without having to take margin-squeezing discounts on all its offerings. While media outlets have written about Amazon's pricing tactics, it is not common knowledge among many consumers. 

Retailers this holiday season can pounce on this gap between consumer perception and price reality. They can advertise head-to-head price comparisons on their websites and in their stores. They can call out Amazon, just as Sprint's television commercials target Verizon directly, and as Apple once went after Microsoft for selling dowdy PCs. Want to stretch those holiday shopping dollars further? Turn to us, not to Amazon. 

It's not enough to just be cheaper. Retailers have to be louder, and more targeted. Some booksellers are already doing this, putting tags on popular novels comparing their prices to Amazon's. The website of The Strand, a New York-based bookstore, has a section called Real Books Cheaper than E-Books. 

Yes, it is dangerous for retailers to engage in a price war with Jeff Bezos, Amazon's famously aggressive CEO. He can simply drop the price on KitchenAid mixers if Walmart brags about undercutting Amazon. But the goal here isn't to sell more kitchen appliances. It's to plant a seed in consumers' minds that Amazon may not be the smartest place to turn first. 

Right now, they definitely are turning to Amazon, particularly during the holidays. More than a third of visits to retail websites last year were to Amazon, according to eMarketer. The next-closest retailer, Walmart, only grabbed a 6 percent share. 

And while Amazon's value perception has slipped a bit over the past year, consumers still rate it the highest among big retailers at providing good value for their money, according to YouGov BrandIndex. 

Getting the lowest price -- particularly around the holidays -- is still very important to shoppers. More than 50 percent of consumers surveyed by Kantar said "getting a good deal" was the most important holiday shopping priority, while 34 percent said the top priority was "spending as little as possible."

If retailers such as Walmart, Target, and Toys "R" Us are going to convince shoppers to open their wallets and spend with them this holiday season, they need to challenge their biggest enemy explicitly. Retailers are losing the war to Amazon. It's time they used some new weapons to fight back.

© Copyright 2021 Bloomberg L.P. All Rights Reserved.

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Here's a heartfelt Thanksgiving message for retailers: Amazon is killing you, and you are missing the best shot to fight back.
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Wednesday, 23 November 2016 03:38 PM
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