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Amazon braces for Walmart's newest tactic in e-commerce: Price manipulation

Amazon braces for Walmart's newest tactic in e-commerce: Price manipulation Blog Feature

October 18th, 2019 min read

Walmart has rolled out a new online pricing program to reach new buyers with deeply discounted pricing on some items.

Customers will be able to access lower prices, and third-party suppliers will receive an unchanged payout for every sale, according to Ad Age, with Walmart subsidizing the difference or just taking the loss in revenue. The price reductions may help Walmart gain a better foothold in the e-commerce marketplace as it takes temporary losses to gain online traction.

This strategy is designed to help the company compete with Amazon, which controls approximately 40% of the domestic e-commerce market. The tactic is similar to one tried by Amazon in the past: The "Discount Provided by Amazon" program offered similar incentives to customers and vendors in order to help the platform become a familiar e-commerce destination.

If you sell goods through either marketplace or you operate through a different e-commerce platform, keeping an eye on these price dropping strategies can give you a heads up about how to prepare your own store for holiday shopping.

The price war between Walmart and Amazon

Brick-and-mortar stores and online marketplaces have been natural competitors for years. Both Walmart and Amazon are representatives of each of these spaces, respectively, and they are powerhouses when it comes to consumer purchases.

Physical stores have been adopting online sales platforms almost as soon as the competition started, but many of them haven't gained enough traction to compete for large portions of the online shopping market.

Why would Walmart want to secure more shoppers at a potential loss?

The easy answer is money. Long-term customer loyalty and auxiliary purchases (that is, additional purchases online shoppers make through impulse, convenience, or to access aggregate perks like free shipping) can easily cancel out immediate losses for a colossus with enough capital to pull through. 

According to eMarketer, the e-commerce market is worth approximately $587 billion this year. It has grown 14% since last year and shows every indication of continuing that growth. Established distribution networks, growing consumer familiarity with online shopping, and access to verified, high-quality products are just a few of the benefits consumers have come to expect.

Walmart's strategy is called the "Competitive Price Adjustment program," and it should be a promising way to secure some commerce that Walmart may have lost to Amazon during the upcoming holiday season.

Additionally, Walmart may be securing distribution lines. The start of any streamlined shipping program is inefficient because truckers are delivering half-full loads to meet the deadline, as we see during the holiday season, according to Trucks.com.

By filling up every truck consistently through increased demand for core product lines and building stronger delivery service relationships, Walmart can carve out something of long-term value.

What does the Competitive Price Adjustment program look like for Walmart shoppers and vendors?

Not all Walmart vendors are eligible for the CPA program, and they aren't currently accepting vendor requests. However, an accepted vendor can set their price and shipping price as it usually would. Walmart can display a different, lower price for the customers.

If a vendor sets a product at $100, for example, Walmart could display the price as $85 to generate more consumer interest and increase sales. The vendor, however, will still receive payment based on the original price, with Walmart subsidizing any potential difference or simply receiving less money. Geekseller.com has a clear guide of what vendors can do to verify their status and use the program.

Consumers will also see very little visible change. They'll simply see reduced prices for some items. However, if the vendor establishes a shipping price, the CPA program won't change or remove that charge.

The short-term ramifications of this plan include more sales for Walmart and Walmart vendors. The lower prices will encourage buyers to make purchases they otherwise might not have made through Walmart, or might not have made at all.

The long-term ramifications, however, are much less clear. Shopping on Walmart's online marketplace may not entrench shopping habits the ways Amazon has done with their shoppers, which means any success could be short-lived and buyers will continue to price compare. Amazon may, in turn, lower their displayed prices on corresponding items. 

Another likely turn of events is that both companies may put pressure on their vendors to do business exclusively with them or not provide lower prices on any other platform (online or otherwise).

This can ensure vendor compliance with future programs or draw in audiences who will make auxiliary purchases around their primary purchase. It can also trap smaller vendors in situations where the displayed prices severely limit their ability to make profitable sales elsewhere.

Online shopping as we approach the holidays

Pricing will continue to be a critical decision-making factor in online shopping, especially during the holiday season. However, other factors, such as marketing, shipping, and unique item availability will also be important.

We can see this in both companies' decisions to offer next-day shipping to tempt online shoppers who prioritize convenience or speed. But we won't know how this race to attract online buyers will play out until the shopping season is in full effect.

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