Merchants carefully design their pricing and promotional plans for the crucial holiday season in order to meet revenue and profitability goals, but those well-crafted plans can be driven off course by unanticipated price wars, precipitated by e-Commerce sellers that violate brands’ Minimum Advertised Price (MAP) agreements.
Unfortunately, according to data from Oris Intelligence, pricing violations spike at a time when the margins for most retailers are already razor-thin — the two peak periods from Thanksgiving through Cyber Monday and during the week of Christmas.
- The average number of MAP violations per day increased 179% during the week surrounding Christmas (December 20 to 28 last year) compared to the rest of the year;
- During the peak holiday periods around Thanksgiving and Christmas last year, the average amount that prices were discounted below MAP was 23.4%, compared to an average of 16.3% outside the holiday season;
- MAP price undercutting on Thanksgiving, Black Friday and Cyber Monday was approximately 18% on all three days;
- Amazon offered its best deals on Christmas day, when it offered an average discount of 34.3%; and
- December 21, 2016, was the most active day for price cutting on non-Amazon marketplaces such as eBay.com, Jet.com, Walmart.com, Houzz.com and Sears.com.
Amazon’s Lowering Marketplace Prices Could Have Wide Impact
As the Wall Street Journal reported, Amazon is reducing the prices of products offered by independent third-party (3P) sellers on its marketplace, adding the notation “discount provided by Amazon.” Amazon will absorb the price difference and 3P sellers will get credit for the list price they initially set. Amazon is not disclosing how products are chosen for discounts or how the price reduction amount is determined.
“We don’t know whether these discounts will bring prices on the marketplace below MAP,” said Pamela Springer, President and CEO of ORIS Intelligence, adding that brands that enforce MAP are certainly watching this development closely.
Even though Amazon is compensating sellers when it lowers prices on 3P merchandise in the Amazon marketplace, there could be financial implications for those sellers on other marketplaces, said Springer in an interview with Retail TouchPoints. Many of Amazon’s 3P sellers have “price parity” agreements with other marketplaces, meaning that they must match the lowest price they offer at any one marketplace at other marketplaces. Therefore, Amazon’s discounts could set off a chain of price reductions across the marketplaces of eBay, Walmart.com/Jet.com and Sears.com, among others.
Retailers outside the marketplaces selling the same products would then be left with profit-impacting decisions about whether to match the lower prices and sacrifice margins or retain the prices originally planned, possibly reducing sales.
The impact on the retail industry “will depend on which categories and products Amazon chooses to discount,” Springer said, adding that both brands and retailers will have to be even more vigilant about monitoring online pricing as this new program rolls out.