Amazon has long established itself as the go-to for the best prices, but a recent study has challenged this notion and indicated that perhaps the e-commerce titan has lost its edge in this area: consumers can find a better price elsewhere on the Internet more than 50% of the time. In certain areas, however, Amazon is maintaining its pricing edge. L2’s recent Amazon Intelligence Report examined 1,253 SKUs and revealed that 95% of Beauty, 92% of Fashion, and 90% of Hair Care Amazon product listings were priced lower than any other online retailer.
Amazon owes its pricing clout to its third-party merchants. Amazon’s competitive-pricing algorithm selects the cheapest-priced products to win a listing for that particular item. As 90% of Amazon consumers purchase an item featured on the front-facing product page (and not in the “Other Sellers on Amazon” box), this fuels an aggressive race to the bottom. This price-competitive environment repels somebrands as they struggle to maintain brand equity and prevents most luxury and prestige brands from partnering with Amazon as a retail distribution channel.
Even though they are a relationship pricking point between Amazon and brands, third-party merchants offer Amazon competitive prices, cheaply sourced inventory, and high revenues. In the first half of 2013, they contributed 39% of Amazon’s product sales and more than $17 billion of Amazon’s $32 billion gross merchandise value. For this reason, the retailer is reticent to curb third-party sellers from listing brand products.
But Amazon is willing to forge deals with brands. L2’s Amazon Intelligence Report, which assesses 315 brands across six different verticals—Beauty, Personal Care, Home Care, Fashion, Hair Care & Color, and Watches & Jewelry—found that 174 brands officially distribute with Amazon. Of the 27,517 listings analyzed in the report, 12,259 belonged to officially distributing brands. For distributing brand product pages, Amazon Merchant listings revealed lower discounts than third-party merchants for all categories except Fashion. Lowest discount prices usually lead to winning a listing, which triggers a positive feedback loop between sales and search results that leads to greater inventory sales on the platform. This way, brands partnering with Amazon can see a benefit in this relationship as more customers see—and purchase—their products on Amazon.