How to Compete Against Amazon with Optimised Pricing

Amazon’s 2020 has been strong with accelerated growth during lockdown.  When online spending rose, 1 in 3 online sales in the UK was attributed to them.  Now,  with the expansion of their services to include grocery delivery, their growth has continued.

This ultimately provides the backdrop to where eCommerce businesses now find themselves as they begin to prepare to compete against the industry juggernauts that are readying for the run-up to the holiday season. The most industry-recognised dates in this run-up are, of course, Amazon Prime Day and Black Friday, where the larger names typically take the lion-share with the former set to take place over two days on October 13th and 14th.

With that in mind, eCommerce businesses looking to claw-back customers should be ready to sharpen their pricing and marketing strategies to give themselves an opportunity to compete and reel in sales. And there are key ways to do this:

Optimise Your pricing to compete with Amazon

From a pricing perspective, eCommerce business can be more competitive by trying these pricing strategies:

Consider dynamic pricing

When it comes to dynamic pricing, Amazon reigns supreme. Amazon maintains its low-price reputation by undercutting competitors on top-selling, high-visibility products, whilst protecting margins by charging more on less price-sensitive items.

Dynamic pricing is a critical capability for competing in eCommerce to drive revenue and margin growth. To build a case for dynamic pricing, retailers must first quantify the potential of introducing dynamic pricing by systematically comparing their price levels to those of their main competitors, assessing how frequently competitors change their prices, and studying how competitors react to their price changes.

Conduct a pilot in a handful of categories and, if a success, roll out dynamic pricing across all product categories. This should yield meaningful improvements in revenue, profit, and customer price perception.

Look to use product bundling

Implementing bundling allows eCommerce businesses to charge a unique, competitive price that cannot be copied by others. Multiple products or components are packaged together for a single price and offer benefits to both companies and their customers.

Electronics retailers often bundle hardware, software and accessories, e.g. consumers might buy a computer and get a bundle deal with the monitor, printer, cables and webcam. Some companies use bundling as a way to package less popular products with items more in demand. eCommerce companies can also create longer-term opportunities for add-on sales when selling multiple products to customers. If the product bundle addresses most or all of customers' needs this is convenient because they can make all their purchases in one go.

Additionally, customers often experience economies of scale when buying a bundle of products because if they have a need for all the components in the bundle, they typically appreciate that the price of the bundle is lower than if the components were bought separately.

Implement psychological pricing

Use psychological pricing to choose an attractive price based on the needs and wants of target customers. Psychological pricing appeals to a customer's emotional rather than rational side.

For instance, a higher price than your competitors will be associated with higher quality. On the other hand, if the prices of your products are lower than the competition then customers will value them less. Another psychological pricing strategy would be charging, for example, £9.99 instead of £10.00. Consumers associate the price to be closer to £9.00 rather than £10.00, even though in reality it is only 1p less.

Optimise Your marketing to compete with Amazon 

So, what does a marketing strategy that can compete with Amazon look like:

Those eCommerce businesses looking to ensure they aren’t bowled over by Amazon Prime Day have leveraged savvy techniques in previous years and with Amazon’s success on this day in 2019 seeing more than 175 million items purchased throughout the two-day event it is easy to see why. 

For example, businesses have begun to harness the idea of quickfire, event-driven sale periods similar to Amazon Prime Day with The Strategist and Cosmopolitan both launching their first two-day long shopping events in recent years. This year more than 250 retailers are expected to roll out sales of their own to directly compete with Amazon Prime Day. In the case of The Strategist, they launched a “Two-Day (Actually Good) Sale” event coming off its all-time best month for both traffic and revenue in May 2020. Whilst it was not intended to compete with the likes of Amazon Prime Day, it drew a 50% increase in average click-through rate as well as a 50% increase in earnings per-click for the items included in the sale, making it a clear success. 

Given the connotations of the word ‘prime’ with a sale event, it is perhaps little surprise to see brands like Walmart, Macy's, Zappos, Nordstrom, and Zara having the highest competing discount rates and leveraging the use of the word "prime" in discount marketing. 

For example, DSW sent an email to shoppers with the subject line "It's prime time" to announce a 20% storewide sale running until July 17. Speaking about this marketing technique, Kayla Marci, Edited's Market Analyst, said: 

"There is a growing trend of retailers using their messaging to take direct hits at Amazon," Marci said. "eBay has named its promotion the 'Crash Sale,' poking fun at when the site went down last year and have said to unlock even more discounts if it happens again this year."

One of Amazon’s key weaknesses is the fact it can’t personalise to customers and capture brand loyalty quite like an eCommerce site can. So, show your customers what they want to see and give them what they want. By optimising your customer journey for all it is worth, and making drop-offs at key touchpoints a thing of the past with personalised overlays, you nurture and develop the customer experience and  shine a light on what Amazon can’t do. 

Customisable overlays - Visit Capture, Exit Capture and Cart Reminders - are able to offer discounts, encourage newsletter sign-ups and provide offers that resonate with your audience.  These can drive customers down the purchase funnel and incentivise them to complete a purchase, giving you a solution to level the playing field with bigger industry players. Cloud.IQ’s platform is able to bring you these solutions and help you win back customers in the holiday season. For a free trial click here. 

In an upcoming with webinar with BlackCurve & Cloud.IQ, we cover how retailers can use marketing and pricing to deliver results this holiday season.