by Bill Snyder

Report Analyzes Amazon’s Dynamic Pricing Strategy

Jan 16, 20153 mins
AnalyticsConsumer ElectronicsRetail Industry

Amazon wants you to think it always has the cheapest prices on the products you plan to buy. A new report, however, proves that isn't the case and provides details on how Amazon picks its prices for certain types of products.

If you’re a regular customer, you might think prices on the huge retail site never change. You’d be wrong; they do change, and though the fluctuations may seem random, they’re anything but. Amazon is a master of the art of retail pricing, and it carefully monitors the behavior of shoppers and competitors to determine the best times to raise or lower prices.

A new report from Boomerang Commerce, a startup that helps online companies find optimal prices for their merchandise, pulls back the curtain on Amazon’s pricing strategy — and may give you some hints on the best times to buy.

The report’s first lesson: Amazon isn’t always the cheapest place to shop. The giant online retailer uses its vast computing resources to monitor and analyze the prices of many thousands of items sold by competitors. Popular items are quickly discounted, while items that are less attractive may actually cost more than they do on rival sites.

Amazon’s strategy is meant to convince consumers that it always has the lowest prices, even thought it doesn’t, according to Boomerang.

Boomerang tracked the prices of many Amazon items for months. For example, Amazon listed a 32-inch smart TV for just under $400 in May of last year. The price consistently increased and decreased for six months, and on Black Friday, the huge shopping day right after Thanksgiving, the price plunged to $250.

“By testing the TV at various price points, Amazon would have been able to determine the optimum low price that it could use during the peak shopping period,” Boomerang says in its report.

However, Amazon raised the prices of HDMI cables on Black Friday, likely figuring that customers won’t do a lot of comparison shopping and will want to receive the cables when their new TVs arrive.

Items that are popular on Amazon and that get good reviews from customers tend to be cheaper than on competitor sites, while other less-popular items might be more expensive. Boomerang found that a popular router, for instance, was listed for $144 at Walmart and $120 at Amazon. However, the price of a different router that had received poor reviews from buyers turned out to be more expensive, at $56 on Amazon and $40 via Walmart.

“Amazon may not actually be the lowest-priced seller of a particular product in any given season, but its consistently low prices on the highest-viewed and best-selling items drive a perception among consumers that Amazon has the best prices overall — even better than Walmart,” the report says.

Boomerang, whose CEO is a former Amazon executive, says Amazon doesn’t try very hard to compete on pricing in some specific categories, including automobile parts and accessories, and pet-related products.

The lesson for consumers is clear: Don’t assume that Amazon has the best price on the goods you want — take the time shop around.