How Amazon is using analytics to beat Walmart on price

Price optimization is the next frontier on the retail battle lines, with Walmart and Amazon waging a fierce battle to best each other on price. It's a fight that Amazon is winning thanks to its pricing strategy, according to the Price Perception Index (PPI) for digital retail.

The index, created by Boomerang Commerce, measures how retailers optimize prices to attract buyers, compete with other retailers and build their business on a mix of profit margins and volume. The inaugural report found that Amazon (NASDAQ:AMZN) is consistently undercutting Walmart's (NYSE:WMT) online prices.

Amazon was priced 4 percent lower on the most popular products, while Walmart is following a price-matching policy with 63 percent of its products at the same price as Amazon's. Additionally, Amazon has a sophisticated pricing strategy to own a majority of the SKUs for the most popular items and undercut third-party resellers on those products.

While Walmart price-matches Amazon on 63 percent of items, Amazon is able to drive lower prices on the most popular products and obtain a much lower overall PPI.

Retailers are splitting products into three groups—popular or lead products, core products and add-on products—and price each differently by category. During the holidays, prices on add-on items rose as shoppers added phone cases and cables to baskets.

Being competitive on popular or key items is important, particularly to consumer perception, but pricing of add-on items brings much needed margin.

Amazon sellers don't seem to be benefitting from Amazon's pricing technology. The report found that Amazon's shipped and sold products are generally 2.5 percent lower than the same products at Walmart, while Amazon third-party sellers offer those same products for 9.7 percent more than Walmart.

"Competitive pricing has moved beyond weekly adjustments and price matching," said Guru Hariharan, founder Boomerang Commerce. "The PPI sheds light on the complexity and the speed at which retailers adjust their pricing to drive buyers and revenue."

Boomerang analyzed 39,122 products on Walmart.com and their exact-match products on Amazon.com on January 5th, 2015.

For more:
-See this Boomerang Commerce blog post

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