Every penny counts in online retail wars
Wal-Mart, Target and Amazon are continuing their online pricing battles. The subject of this week's contest? DVDs. And the back-and-forth is down to the penny. Jeremy Hobson reports.
A shopper peruses newly released DVDs. (Tim Boyle/Getty Images)
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KAI RYSSDAL: The online pricing war continues between Wal-Mart, Target and Amazon. This week's victim? DVDs. Wal-Mart said yesterday it would lower the price of some popular DVDs to $10. The point is to lure customers to the Web site to buy the DVDs at a discount, hoping they'll buy other things while they're there. In response, Amazon is now offering DVDs at $9.99. So Wal-Mart came back with -- you guessed it -- $9.98.
Marketplace's Jeremy Hobson reports from New York on the difference a penny makes.
Jeremy Hobson: The thing about companies like Wal-Mart and Target and Amazon is, they sell enough products in enough categories, that any loss they take on a book or a DVD can easily be made up for when they sell a grill or a big screen TV. But then why stop at $9.98? Why not go down to $9.95 or $9.50?
Here's Jeff Dotson, who teaches marketing at the Owen School of Management at Vanderbilt University.
Jeff Dotson: These companies are already operating on relatively thin margins, and so if you think about a product that's going to sell a million copies, right, a penny per copy is a pretty substantial hit to these firms.
Although for Wal-Mart, that would be $10,000 for a company that just did $100 billion in sales last quarter.
Frank Luby: The penny compounded if they sell enough, obviously, can make a small difference. The real point is in messaging.
That's Frank Luby, a pricing expert at Simon Kutcher and Partners. He says each of these companies wants to be known as the lowest priced retailer, and they've got to prove it with every item.
Raul Vazquez agrees. And he should know -- he's the CEO of Walmart.com.
Raul Vazquez: Every penny matters, because it's about trust with the customers. We are going to have the lowest price, so if someone matches us at $10, we'll go down to 9.99. If someone matches us at that price, we'll go down to 9.98, because it's about trust.
That's especially important, as retailers like Wal-Mart compete to lure customers to their Web sites, for what's already turning out to be the biggest online shopping season ever.
In New York, I'm Jeremy Hobson for Marketplace.
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From Greensboro, NC, 11/07/2009
This was a very informative story as we begin to make holiday purchases! I wanted to point out an additional important reason online retailers play penny wars. A substantial amount of online shopping comes from Comparison Websites or marketplaces like Pricegrabber, Google shopping or even the Amazon marketplace. A difference of a penny in the price places the retailer above others in the search results by price. In the highly competitive online shopping arena, each click matters and this visibility leads to higher clicks and sales.
(I was Dir of Marketing at an online retailer who sold over a million books annually through their own website and the Amazon marketplace. Comparison shopping websites generated 80 - 90% of the online sales at times and therefore many online retailers have automated systems built to change prices to compete more effectively.)
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