New White Paper Reveals Amazon’s Strategy of Low Price Perception

A recently released white paper by Boomerang Commerce revealed that, while Amazon may be perceived by consumers as having the lowest price, oftentimes that’s not the case. Amazon studies the most popular items amongst retailers – both at competitors and on it’s own site – and adjusts pricing on those items that shoppers are most likely to price compare. An example reported involved a popular television. Amazon studied the pricing and traffic for 6 months prior to Black Friday of last year. Once the Black Friday specials were announced, it came in a full $100 less expensive than all of their competitors including WalMart. At the same time, they increased pricing on accessories and related items that are often purchased along with the television (like HDMI cables) by as much as 33 percent knowing that consumers were less likely to price compare on these items with the low price perception they achieved with the television.

The perception of having the lowest price is often more important than actually having them, reports the white paper. Amazon doesn’t just employ this psychology during large consumer shopping times, but in daily pricing practices. According to Boomerang Commerce, the authors of the white paper, “Overly aggressive price matching pushes the market to the bottom and erodes profitability.”

Pricing has increasingly been a pain point for dealers – especially those located in dense markets. With very little profit built into new vehicles across the board, competition for car shoppers via pricing is at an all time high. Consumers have access to more tools with which to do that than ever before in the automotive industry. Dealers have long employed “loss leader” strategies in similar manners through advertising. Consumers, however, understand that these low price units are typically limited in numbers and not equipped with desirable features. These strategies may help drive traffic to the store but are not conducive to building consumer trust. Boomerang Commerce’s white paper introduces the concept of “Price Perception Index.” This concept is designed to help retailers “[achieve] competitive pricing without racing to the bottom.”

Many markets have dealerships that market themselves as the low price leader and/or willing to beat any price. It’s not uncommon for dealers to offer deeper discounts on slower moving or less popular vehicles while attempting to hold gross on more popular ones. Applying this concept to automotive sales would suggest to dealers that they could be analyzing their most popular units on a regular basis and ensuring that they have the lowest advertised prices on those particular vehicles while deliberately holding gross on less popular vehicles rather than the opposite. This pricing strategy on new vehicles could build consumer trust and the perception that a dealership has the lowest prices across the board when, in fact, they don’t.

It would be interesting to see a dealership attempt to duplicate Amazon’s very successful strategy in the automotive arena through the use of the Price Perception Index outlined in this white paper. As every dealer knows, it’s not price that creates an excellent customer experience but rather the customer’s perception of receiving a good deal. Perhaps the adoption of this concept could assist dealers in participating in the race to the bottom while holding gross more consistently at the same time.