Amazon is well-known for its price leadership through dynamic pricing—a strategy dependent on technology. At the same time, it’s also common knowledge that endless price competition hurts margins and ends up becoming a race to the bottom that trains consumers to chase after the cheapest product, sidelining loyalty and long-term relationships.
As the online behemoth has proven again and again, Amazon is no dummy. It is starting to move beyond price comparison, as delegates to the National Retail Federation learned on Sunday in a presentation by 360PI. Amazon has added marketplaces strategies, private labels investments (mostly in electronics), strategic product availability, exclusivity of certain offers, and different propositions for Prime members. That adds up to a significant push into building loyalty and customer lifetime value.
More than 3 million people joined Amazon Prime the third week of December alone. That’s a sign of things to come. Prime, wisely, lined up toys as its exclusive items during that period, making sure that these SKUs were among the most sought-after by parents and hard to find elsewhere. Smart. And speaking of smart, Amazon doesn’t just slap up an “out of stock” banner when something isn’t available any longer. Instead, it deletes the listing, thus keeping shoppers on its site rather than sending them elsewhere to find something it no longer has in stock.
When one looks deeper, one finds Amazon’s sophistication is even more impressive. Amazon may go out of stock faster than other e-tailers, but it has the ability to restock faster, especially in line with big shopping events. That leads any conscious observer to conclude that Amazon holds stock back and puts it back online when that item is sold out elsewhere. This requires a very close monitoring of popular items and labels and a very careful inventory planning.
Given Amazon’s size and smarts, e-tailers and retailers shouldn’t play catch-up game with the online giant when it comes to pricing and assortment availability. That’s a losing game. But there is room to compete—and even win—by adding services, highly-specific product offerings, additional value, and loyalty rewards.