People like low prices. Amazon took that trait and ran with it, and today it’s the biggest online retailer in the world. But brands and retailers that think the company’s recent decision to remove some “list prices” means discounting will disappear, too, are sorely mistaken.
According to research group L2, the lack of an advertised manufacturer’s suggested retail price (MSRP) only makes it harder to work out the extent of Amazon’s discounting. It also won’t impact the “offer price” determined by the e-tailer’s dynamic pricing algorithm.
In an effort to help make sense of Amazon’s algorithms, discounting volumes and the impact of third-party sellers before all list prices vanish from the site, L2 tracked 781 fashion products sold by Amazon and third-party merchants over a six-month period.
Somewhat surprisingly, the study found that most fashion products sold by Amazon.com are discounted at steeper rates than the same ones sold by third-party retailers. Even more intriguing was the discovery that the online retailer and third-party sellers tend to offer similar prices for products under $50. And when it comes to more expensive items (above $100), Amazon’s algorithm takes it up a notch by undercutting the competition.
With that being said, L2 also realized that Amazon adjusts prices for most fashion products less than once a day.
“Traditionally, Amazon’s third-party sellers have been associated with deep discounting—their presence assumed to be damaging to brand equity. This does not appear to be true for fashion brands distributing on Amazon. To the contrary, Amazon wholesale inventory is discounted more steeply than the same products sold by third-party sellers,” L2 said. “This price differential is driven by Amazon offering steep discounts on relatively expensive products, catalyzed by sale prices offered for the products on other sites that are registered by the platform’s price crawlers.”
On average, Amazon ASINs (Amazon Standard Identification Number, the company’s version of the SKU) above $50 are priced 7 percent lower than the same items sold by third-party merchants. But for products cheaper than $50 (think: underwear, accessories), prices are more comparable.
Contrary to a 2013 study that suggested Amazon adjusted prices 2.5 million times per day, L2 found that wasn’t the case with fashion. For the brands observed in the six-month period, Amazon ASIN prices changed less than once per day on average, with expensive items changing most often (2.7 times).
“There is a self-perpetuating feedback loop between Amazon’s dynamic pricing algorithm and third-party discounting—each informs the other. This link can cause product prices to fluctuate significantly,” the report said.
But just as Amazon’s “aggressive” discounting can impact third-party prices, the reverse can also occur. This is something L2 predicts will become more common when the company releases its “Automate Price” tool. Currently in beta, it behaves more like Amazon’s own algorithm and will allow more third-party sellers to move away from manual price setting.
“As observed regarding Amazon’s discounting, adoption of a pricing algorithm by third-party sellers will make them more competitive and likely further depress product prices,” L2 said, concluding with a word of warning to brands. “Actively monitor and, when necessary, take action to clean up third-party sellers aggressively discounting their products.”