Amazon.com is not always the cheapest place to buy everything. And neither is Wal-Mart.
Both giants bill themselves as places for good deals, but a new report from retail analytics firm Boomerang Commerce compares their strategies and sheds light on the ways they engineer pricing to get that reputation.
What the authors find is that Amazon has carefully priced some items low, while leaving others more expensive -- in some cases, much more expensive -- to bolster its reputation as a place for deals.
For instance, items with high consumer ratings tend to be priced lower than what you'd find at Wal-Mart. Boomerang provided the example of the Belkin N450 Dual Band Wireless N Router (despite the complex name, it's just a standard WiFi router). On Amazon, it gets only 3.5 stars and is ranked 4,285 in the electronics department. Its price: $56.43. Wal-Mart's Web site has it for $39.99.
Also, stuff that's highly visible -- products that either customers rave about or Amazon itself promotes -- also tend to be cheaper than at other places. But items that you wouldn't naturally associate with online retail, such as tires for cars, aren't cheap at all. And accessory items to highly promoted products -- think cable connectors for your new flat-screen TV -- aren't always that cheap.
And then there's this: Amazon seems to know, likely by studying billions of shopping transactions, exactly the time of year when many people will buy an item even if the price is high, the study said. For instance, the online retailer seemed to know that a lot of people would be buying HDMI cables in the fall and the run-up to Christmas. Boomerang found that a pack of Twisted Veins HDMI cables went from just under $5 in the summer to more than $8 before Christmas. (Amazon.com chief executive Jeffrey P. Bezos is the owner of The Washington Post.)
The good folks at Boomerang created a chart that shows how prices interact with people's perceptions of Amazon and Wal-Mart. Below, the firm's chart shows common categories of products -- listed in the left column. The next column looks at what percentage of each category of products are sold by both retailers. The last two columns show how customers perceive the price differences between the two retailers (PPI stands for Price Perception Index).
So, for instance, the first line in the chart shows 7 percent of the auto products sold at Wal-Mart are also sold by Amazon. The perception by consumers is that Wal-Mart's prices are 3.3 percent lower than Amazon's. Unfortunately, the chart does not have another category to tell us the difference in the real prices between the two companies. The authors provided only a few anecdotal examples from their research.
As you can see, in the war for perception, Wal-Mart consistently beats Amazon in several categories, including automotive products, pet-related items, and household and home goods. People think those items will be cheaper at the big-box store than they are on Amazon's site. And that perception appears to have encouraged Amazon to leave the prices of those items high.
Amazon, meanwhile, takes the low-price perception prize for video games, toys and a variety of electronic goods such as wearable tech, accessories, phones, GPS units and cameras. And the researchers indeed could find examples where perception matched reality. The two retailers are more or less evenly matched when it comes to computers, televisions, cellphones and sports equipment, according to the report.
In a statement, Amazon called the Boomerang paper “flawed” and said that Amazon is “obsessed” with providing low prices for its consumers.
“We do the hard work for [consumers] by scouring prices – both offline and online – in order to make sure we meet or beat the lowest prices out there," said Amazon spokesman Scott Stanzel. "We are obsessed with maintaining customer trust that Amazon will have the lowest prices possible."
In a statement, a Wal-Mart spokesman said, "We’ve built sophisticated pricing tools that are being applied to a bigger number of items this year. As we apply these tools to the most popular items, nearly 4 out of 5 times, we show the same or a lower price than our online competition."
So how should this shape your shopping decisions? In some cases, it may not matter; you may be willing to pay for the convenience of having an item shipped to your home or, conversely, to be able to pick it up that afternoon in a store. And for some smaller items such as shampoo or paper towels, you may not be as inclined to comparison shop. Overall, sticking with the pack and looking at the most popular items on Amazon seems to be the most efficient way to shop there.
And if you're really looking to pinch pennies, you should do a lot of comparison shopping even on mid-range items, to make sure you're getting the best deal.
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