Amazon's Pricing Strategy Outshines the Others

I have already discussed how Amazon has gained recognition as an e-commerce business utilizing their web business model approach. Using the tactics of a virtual merchant, Amazon solely relies on the internet and online consumers purchases. Although all traditional pricing models apply online, consistency is necessary between online and offline strategies. Because Amazon is strictly a pure play business, the company does not need to worry about uniformity. Even though Amazon is an e-commerce site, picking the best pricing strategy for their products is still essential. With all that being said, Amazon employs a fixed pricing strategy.

A fixed pricing strategy means that the price for each and every customer is the same. If I buy a Movado watch today and my friend loves it, she’ll be able to go online a week from now and get the same watch for the same exact price (assuming it’s not sold out). This helps to assure that every customer is getting the same deals. This concept means that everybody gets the same discount, the same quality, and the same overall experience.

Under the umbrella of fixed pricing falls markup, volume-based, bundling, and promotional pricing. Amazon relies mainly on promotional pricing. The e-commerce site almost always gives you discounts and/or incentives to purchase the products sold online. A cool feature that Amazon contains is the amount and percent you save on your purchase. This helps to convince consumers that it’s a good deal and that they should buy the heavily discounted product. Like most e-commerce sites, they also have a section that includes items that are frequently bought together. This also urges the consumer to keep shopping online for other products they might like. Amazon also offers you “Free Super Saving Shipping” options on purchases over a certain allotted amount. There are also special promotions from time to time. Today there was a free 2-day shipping period, without any minimum price. This tactic encourages customers to shop there, hopefully satisfying them with their needs and ultimately attracting them back in the near future.

“Amazon offered free shipping with any order over $25 with such success that it became standard. It didn’t arrive at that order amount, however, without trying several other price points first to find the optimum promotional offer to motivate sales” (Strauss and Frost 248)

However, Amazon’s original product, books, uses a bit different strategy. Their online book store utilizes a dynamic pricing strategy. Dynamic pricing strategies are variable by the customer and encompass yield management, negotiated, segmented, and personalized pricing. Amazon’s book store specifically uses the personalized pricing strategy. Although you are able to buy the new Amazon priced book at any time, you are also able to buy used books from other Amazon customers. These used books are personally priced by the Amazon user who is selling them. They are allowed to customize their pricing options for each product they sell. Although they can’t necessarily change the price for each customer, they can ultimately change the price whenever they please.

Amazon carries a wide variety of products ranging from books, DVDs, and video games to pet supplies, groceries, and apparel. Having options ensures that every customer will be satisfied. One of Amazon’s biggest markets is their online book store. Like I stated in my previous blog, Amazon essentially became an e-commerce site to sell books. With the great success of the Kindle and the Kindle 2, let’s compare Amazon’s prices to their competitors. As we have discussed in class earlier in the semester, there has been a lot of stir over Malcolm Gladwell’s book, Outliers: The Story of Success. On the Amazon website, Gladwell’s book is being sold new for $15.39 and used copies are on sale for $11.24. In comparison to Barnes & Nobles, an online competitor, Gladwell’s popular book is being sold new for $18.12 and used for a price of $15.15. Although Amazon only saves you a few dollars, during this economic downturn people are looking for the absolute best deals.

Amazon’s pricing strategy is quite effective for their business model. By simply comparing Amazon to Barnes & Noble we can evaluate who has the better overall sales. By generating such great sales and by offering free shipping options customers are bound to become loyal Amazon users. In my previous blog I talked about PriceRunner, a price comparison website, which ranked Amazon the top pure play business out of seven different online brands as the most trustworthy coming in with 62%. This statistics alone shows that Amazon surely has customer loyalty.

Amazon has also been a leader in sales. In 2007 the business reported $14.8 billion in sales and $476 million in net income. According to Morgan and Stanley, in 2005 e-retailer Amazon had the highest number of sales amid all other online retailers. Toping the charts in trustworthiness and sales shows that Amazon’s presence on the web is a force to be reckoned with.