While e-commerce is driving retailers to change prices more frequently, it is also leading to more uniform pricing across online and offline retailers, according to a new National Bureau of Economic Research working paper by Alberto Cavallo, Harvard Business School professor. Those conditions are giving consumers less reason to comparison shop since it’s unlikely they’ll find a better price.
That could produce a significant benefit to Amazon.com Inc., given that 76% of consumers in a March Internet Retailer/Bizrate Insights survey said that Amazon was the first or second place they look online when shopping for a product. That far outpaced the next-most-visited online destinations: Google (37%) and Walmart (20%).
The working paper is based on a large data trove that examined several large multichannel retailers’ daily price changes from 2008-2017, along with other databases that examine 50,000 products sold by Walmart in March 2018 and that contain ZIP code-level pricing data from Amazon, Walmart, Best Buy and Safeway across 10,292 products.
The growth of e-commerce, and Amazon in particular, has led retailers to change the prices of products more frequently than they did in the past. For example, 15.4% of the products that Cavallo examined had a price change in the course of an average month from 2008-2010. That percentage nearly doubled to 27.4% between 2014-2017. And regular prices (excluding sales and other discounts) lasted 6.5 months, on average, between 2008 and 2010, nearly double the 3.7 months, on average, between 2014-2017.
The frequency of price changes is especially pronounced in retail categories where e-commerce accounts for a larger share of overall retail sales, such as electronics. And, looking at a sample of products on Walmart.com from 2016-2018, Cavallo found that items that can be easily found on Amazon tend to maintain their price for 20% shorter duration than other items. The reason, he argues, is the intense online competition environment that’s characterized by retailers’ use of dynamic pricing strategies and their constant monitoring of competitors’ prices.
At the same time, those conditions have created an environment in which prices are consistent from retailer to retailer and across ZIP codes, the report finds. For instance, examining grocery product prices at Walmart, Cavallo found that items sold on Amazon are more likely to have the same price regardless of a Walmart’s location or online. That phenomenon played out across a broad swath of merchants; the report found that traditional retailers that sell online tend to standardize their pricing across most items and to do so in line with Amazon’s behavior.
The dynamic nature of retailers’ pricing strategies can have an adverse effect on consumers because it means that merchants are more likely to quickly respond to conditions such as changes in average gas prices or import tariffs. As a result, retail prices are less insulated from “shocks” to the economic system than they were in the past, Cavallo argues. The result is a situation in which retailers’ prices may change due to global conditions far beyond their control.
Amazon is No. 1 in the Internet Retailer 2018 Top 1000. Walmart is No. 3.Favorite