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Sans price tags, discounts, Amazon woos buyers with bold new strategy

businesspaper Updated: Jul 05, 2016, 08:32 IST
David Streitfeld
David Streitfeld

SAN FRANCISCO: In a major shift for online commerce, Amazon is quietly changing how it entices people to buy.

There tailer built a reputation and hit $100 billion (Rs 6.7 lakh crore) in annual revenue by offering deals. The first thing a potential customer saw was a bargain: how much an item was reduced from its list price.

Now, in many cases, Amazon has dropped any mention of a list price. There is just one price. Take it or leave it.

The new approach comes as discounts both online and offline have become the subject of dozens of consumer lawsuits for being much less than they seem. It is also occurring while Amazon is in the middle of an ambitious multi-year shift from a store selling one product at a time to a full-fledged ecosystem. Amazon wants to be so deeply embedded in a customer’s life that buying happens as naturally as breathing, and nearly as often.

“When Amazon began 21 years ago, the strategy was to lose on every sale but make it up on volume,” said Larry Compeau, a Clarkson University professor of consumer studies. “It was building for the future, and the future has arrived. Amazon doesn’t have to seduce customers with a deal because they’ re going to buy anyway.”

Or so Amazon hopes. Digital stores live by Alec Baldwin’s maxim “always be closing.” Amazon tells the potential buyer what the price used to be on the website.

“They still need to showcase deals, but the question is how,” said Michael Kovarik, who runs a comparison-pricing startup called Rout.

That is why stores love big discounts: They work. In studies by Compeau and others, the perception of a deal is often what makes the purchase happen.

“We’ve been conditioned to buy only when things are on sale ,” said Bonnie Patten, executive director of Truth In Advertising. org, a consumer information site. “As a result, what many retailers have done is make sure everything is always on sale. Which means nothing is ever on sale.”

Amazon has both benefited from that conditioning as well as encouraged it, which is most likely why it is changing cautiously. It began eliminating list prices about two months ago, pricing specialists say, both on products it sold itself and those sold by other merchants on its site. The retailer did not return multiple requests for comment.

“Our data suggests that list prices are going away ,” said Guru Hariharan, chief executive of Boomerang Commerce, a retail analytics firm. Last spring, Boomerang compiled a list for The New York Times of 100 pet food products that Amazon said it was selling at a discount to a list price. Only about half of them still say that.

“Amazon is a data-driven company with very few sacred cows ,” Hariharan said. “At the very least, it is conducting a store wide test about whether it should change its pricing strategy.”

Over the Fourth of July weekend, the list price was gone for 39 of those products. The list Breville Infuser Espresso Machine, for instance, simply said what it would cost to buy at that moment, which was $483. Earlier it was being listed at $500 after a discount of 38%.

Nine teen other product pages tried to encourage a sale by pointing out that the price used to be higher on Amazon, although no time period was given.

“Amazon is showing it can fix the problem if it wants to ,” Patten said.

The problem with list prices or, as they are sometimes called, manufacturers’ suggested retail prices, is that they are regularly more of a marketing concept than what anyone is actually charging. When Amazon was saying the list price of the Breville Infuser was $800, Breville itself was selling the machine for $500 — about the same as Amazon. Other retailers sell it for $500, too. Breville confirmed the price was $500.

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