So, you woke up today and checked your credit card to make sure that the money is still there. Your palms have just got wet, and you’ve taken a deep breath.
You’ve been nurturing this idea for a couple of months already and today the moment has finally come. You’re very determined to do that now, and nothing can stop you. Looking at this precious thing, you’re still hesitating whether or not you should do it.
You hold your breath. Click. You’ve just purchased a new pair of shoes for 100$. You feel this nice tension release. You’re still looking at the product on the website, and you’re not 100% sure if you should have waited till tomorrow. However, what’s done cannot be undone.
Suddenly, the price drops 50%.
As a client, you’ve just lost the price war. On the other side, a business owner has just changed their strategy and is very likely to expect a new wave of eager to buy clients. Why they did so? Well, either because they are practicing dynamic pricing or leading a war with their competitors who also lowered their prices.
What is a price war?
A price war is a hard time for businesses who are in a severe competition which is based on lowering prices and trying to undercut competitors. It’s done to win the market share and attract more customers.
If you do some research on the web about a price war, you’ll find that there are usually no winners in this war. Well… there has to be a winner otherwise it would not be done.
A price war is usually initiated by big brands and companies to disrupt the market and eliminate weaker competitors since they can’t resist the price fall downs and thus the competitors fall themselves.
Price wars have always existed since the first somebody decided to sell something. But how did they evolve as the Internet of Things has kicked into our lives?
“Price wars are becoming more common because managers tend to view a price change as an easy, quick, and reversible action.”, according to HBR’s article. Indeed, a lot of software, tools and big data solutions allow e-commerce businesses to change prices in the blink of an eye. However, the consequences of such changes may be pretty irreversible, and even lead a business to quit the game.
How big corporations leverage Big Data to win the price war
Amazon tactics: The best defense is a good offense
Amazon changes their prices more than 2.5 million times a day, according to Quartz’s article. Using price optimization tactics and tones of data that Amazon collects on users they easily managed to increase their annual profits by 25%, according to Investopedia.
The airline industry is well known for the dynamic pricing tactic that helps them sell as many seats as possible in the most profitable way. Just like the airline industry Amazon is also using this tactic to sell their products and win customers in all of the Amazon categories.
The automatic price changes at Amazon create really difficult obstacles for other e-commerce businesses, who are trying to extract Amazon data to adjust their marketing strategies to one of the global e-commerce market leaders. Constant price changes make scraping Amazon website even more challenging if you’re willing to extract real-time product data and do a price comparison. The price changing tactic is only one of the strategies that Amazon is using to lead price wars.
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What also makes Amazon such a strong player on the market, according to Keith Anderson, e-commerce analyst answer at Quora are:
- Algorithmic pricing (segmented, peak, time and penetration pricing);
- Scale;
- Low-cost operations;
- Asymmetrical competition;
- Third-party marketplace.
Amazon is a first-party seller that allowed third-party merchants to sell their products under strictly regulative rules. One of these rules also explain that a customer doesn’t belong to a third-party vendor – it’s Amazon’s customer.
Amazon’s third-party marketplace is highly competitive and transparent, and this is exactly what brings prices down. If you come up with an original idea of how to sell a particular product you’ll get an amazing guarantee that within a couple of days all the competitors will steal your idea and undercut you.
There is a competition within the Amazon website among merchants worldwide. The complexity of price manipulations may vary significantly from quantity discounts, price promotions, free shippings, customer loyalty programs (such as gift cards, promo codes, etc.) all these things result into better customer retention and customer acquisition.
Vendors within the platform use different tactics and strategies to win customers through enhancing product design, product quality, adjusting prices and segmenting clients. But this is what’s happening internally. The external “politics” of Amazon as one of the leading e-commerce sites is even more aggressive and competitive. Amazon beats the daily online prices of Walmart, Target and Jet across 12 of 13 categories, according to Retail Dive.
How does Walmart use Big Data to own the market?
Walmart is one of the biggest retail leaders with more than 20,000 stores in 28 countries. To operate such a huge amount of stores you need some really big database and fast servers.
They also recently launched Data Cafe (which stands for Collaborative Analytics Facilities for Enterprise) which helps Walmart to satisfy 250 million weekly customers at a much higher level.
Just like many other companies, Walmart collects information from their clients directly, from tools and software their using and also third-parties. When a client takes part in any programs from Walmart, goes through polls and quizzes, makes a purchase using a credit or a gift card, etc. all these things help Walmart create a customer portfolio.
Walmart uses all the collected information to fight against their competitors one of which is Amazon. They were actively trying to undercut Amazon from 2016, and by the end of 2017 Walmart has almost equaled the prices and became only 3% more expensive, according to Business Insider.
In 2018 Walmart prices were just 19 cents different from Amazon’s from a sample of 20 items of price comparison.
However, speaking about the full scale, scraping 606 million Amazon products would be impossible without an automated software and real-time monitoring which means that like any other business big brands also watch their competitors closely on a regular basis. Walmart would not be interested in 20 products, they need all of them. And that is a big number. How do they access Amazon product listings?
Amazon, as well as Walmart, has open APIs that allow developers and business owners to extract product data directly from their websites. It means that this may be one of the ways these corporations access competitor’s data and utilize it to lead the price wars.
What helps these brands to stay afloat for many years and sink their weaker competitors are the huge data capabilities that they constantly update and probably heavily invest into. And by heavily I mean $319 000 annually for only 3 the most essential team members who are a data engineer, data scientist and data manager to process massive amounts of data.
Conclusions
A price war is a tough game to play. It requires a lot of resources such as time, money and efforts to win loyal customers and gain market share. For small business owners, the best advice would be to not enter this war and wait until all the competitors eliminate themselves by running out of resources.
However, if you choose to fight, then the best solution to stay aware of the prices and of what’s happening on the market is to look for third-party APIs and web scraping service providers which are easily available on the web today. The con of already made solutions is that they may be limited in functionality and definitely lack customizability, however, they can solve most of the business problems with competitor analysis and help to compete on your current level.
