These Secrets of Amazon's Pricing Strategy Will Help You Find the Best Buys

By Kyle James on 25 May 2015 16 comments

It can be easy for Amazon customers to assume they're always getting the best price. As a matter of fact, that's exactly what the marketing geniuses at Amazon want you to do. They don't want you to compare prices with Walmart; instead they want you to perceive them as always having the lowest price.

They do this by pricing a few, popular items lower than Walmart does in an effort to build your perception of them as a low-price leader. By knowing which items undercut Walmart's pricing — and which don't — you can become a more informed shopper and save money in the process.

Items That Are Cheaper at Amazon

Spotting the loss leaders at Amazon is not hard. After all, they want you to find the lower prices for their marketing to work.

Items With a High Customer (Star) Rating

A recent study from Boomerang Commerce showed that, in an effort to be perceived as a low price leader, Amazon purposefully undercuts the Walmart price on products with a high star rating. (A high rating is anything over four stars.)

By analyzing millions of orders over the years, Amazon has realized that a great way to build loyal customers is to beat the competition on products that people are gobbling up due to the glowing opinions of fellow shoppers. Use this to your advantage by gravitating toward products with at least a four-star rating, especially when there are at least 50 reviews. It's a bit of a follower's mentality, but you'll find it really does hold true, especially when shopping for small electronics, toys, and video games.

Highly Visible Products

Another category of products that Amazon sells cheaper than Walmart is highly visible and popular items. In other words, items that have a lot of buzz around them and are often featured on the Amazon homepage or highlighted on specific product category pages. Again, the perception of having the lowest price means a lot to Amazon, so when a product has a lot of eyes on it, Amazon will tend to price it lower than Walmart. Examples of some popular and highly visible items that consistently beat Walmart include the popular Fitbit Charge Activity Wristband, Dyson vacuum cleaners, Keurig coffee makers, and the Jawbone Wireless Speaker.

Items That Are Bad Buys at Amazon

Amazon obviously can't undercut the Walmart price on every product. With Walmart's enormous buying power, and reputation for pressuring suppliers to lower prices, it simply can't be done. This means Amazon often raises the prices on other products to make up the difference. These "other products" are items that are not very glamorous in nature and tend to be more "needs" than "wants."

Consumer Electronic Add-Ons

If you score a great deal on a HDTV from Amazon, beware of add-ons like cables, wall mounts, and screen cleaners, as they're typically marked-up. Other examples of add-ons that can be marked up include things like a wireless mouse when buying a laptop, and a protective case or charging station for your new Kindle. In many cases, Amazon will try to pad their profits on these add-ons making them not such a great deal for shoppers.

Household Items

Amazon has the reputation of being up to 20% more expensive than Walmart when shopping for household items like laundry detergent, paper towels, toilet paper, and the like. While this margin is definitely getting smaller in recent years, you'll still typically end up paying more compared to Walmart and Costco. If you are going to shop for household items at Amazon, I highly recommend signing up for their Subscribe & Save program, which allows you to get items sent on a monthly schedule with free delivery. The best part is you'll get 15% off your total when you have at least five items in your monthly subscription plan. The extra 15% savings brings Amazon very close in price, or in many cases, under the Walmart price for identical products.

Clothing

The problem with buying brand name apparel from Amazon is they rarely mark down prices and seldom have coupons. You'll typically score a much better deal by shopping at discount clothing stores like TJ Maxx, Ross, and Marshalls.

Shoes

When shopping for brand name shoes, especially online, you'll find much better prices at websites like Shoebuy, 6PM.com, and ShoeMall. Not only do all three sites offer free shipping, but they also regularly have coupon codes in the 25% off range. For example, a new pair of top of the line women's New Balance 990V3 running shoes is selling for $149.95 at both Amazon and Shoebuy, with free shipping. But with a little digging, I found a 20% off coupon code for Shoebuy, bringing my total down to $119.96 — a price Amazon can't touch.

While having the perception of being a low price leader is something Amazon strives for, it's up to us, as smart consumers, to see through the charade and always do our due diligence when making significant purchases. This means always price comparing, looking for coupons that'll beat Amazon pricing, and understanding the types of products Amazon purposefully prices higher than the competition. Do that and you're guaranteed to always find the lowest price.

Have you noticed Amazon offering certain items cheaper than the competition?

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Guest's picture
David

A slight tangent from this article but it is helpful for finding low prices. Amazon's prices are very dynamic with changes daily or even hourly for some items. I keep my shopping cart empty but my "saved for later" full. Everyday, if you check your shopping cart, it will tell you if something has gone up or down since you last checked in both the shopping cart and the "saved for later" lists. Sometimes, there will be a great price drop and I move it to my shopping cart. It can last for a few days or a few hours. An annoyance with this is that for some items, the price will change a few cents everyday so that every time I check, it tells me that item on my list has a had a change in price. In effect, it brings it to my attention every time. Regardless, I frequently find better deals than I would normally by just doing a daily check of my shopping cart.

Guest's picture
Tolana

YES! I use "Saved for Later" as my wishlist.

It used to be that you would only see a notice about the updated prices the first time you visited your cart each day. But now, there are notes on the Saved items telling you if the price went up or down. So if you click too fast and miss that first notice on your cart, you can scroll down and browse your saved items for the updates. To save even more time, hit Control-F to search the page for the word "decrease" to find only the items with a price that went down.

Guest's picture
Guest

I use Amazon like some people use the big box stores to see the product and then buy it online with Amazon. I shop Amazon for the reviews of a product and then buy the same thing on EBAY for less plus free shipping!

Guest's picture
Guest

One big way to save on Amazon that's not mentioned in the article is to buy from Marketplace Sellers offering their items on Amazon, not from Amazon itself. Most Marketplace sellers offer the same item that Amazon is selling for less than Amazon's price. With books, media, and other categories, you can realize even bigger savings if you are buying items for personal use and can buy them used. You'll often pay a fraction of the new price. Look for new and used links under the heading, "Available from these sellers." Be sure to check the seller's feedback rating to help ensure you'll have a positive experience; ratings below 97% are not all that great and anything below 90% positive should probably be avoided.

Kyle James's picture

But...do orders still qualify for 2-day Prime delivery?

Guest's picture
Guest

Yes, there are sellers that offer free shipping under Amazon Prime guarantee. :)

Guest's picture
Guest

I just bought patio furniture from my local Home Depot for about half the price on Amazon.

Guest's picture
Guest

All good info and much appreciated...
We use the big A quite often and signed up for prime to save on S&H plus an occasional movie (cancelled cable-netflix is much better). I price compare extensively before buying most things (including local tax and the $7 gas cost to go to town shopping) and have found Amazon to often be the cheapest route - but not always.

Recently I have noticed Prime prices getting higher and that some of the 'other' sellers listed will have a better price (but offset with S&H)- if you go to THEIR WEBSITE they sometimes offer the same or better price plus free shipping, which then undercuts the inflated Prime price.

Also recently, even with tax and gas, I have found Lowes to be cheaper on a couple Bosch tools when bought with their 5% off Lowes credit card, so it looks like greed is setting in or the cost of drone R&D is going up up and away!

Kyle James's picture

Haha, yeah those darn drones! I think a lot of what is happening is Amazon is realizing that their loyal base is pretty entrenched and not doing much in terms of price comparisons and looking for coupons. So this means they can start inching prices upward and not many shoppers are going to notice, and if they do, they will happily pay a little more for the convenience. I say, "ALWAYS price compare significant purchases!"

Guest's picture
farley.sanchez

I used to buy a whole lot at Amazon because they had the best price. Prime was good, but prices at Amazon went up significantly, Prime TV continued to suck, and I really don't need my crap in 2-days. I still buy stuff at Amazon when I have a 35 dollar purchase (to get the free shipping), but it's obvious they are "punishing" me by holding my order for 5 days and then shipping it the same 2-day prime shipping as before. Bottom line is I buy a whole lot more on ebay and from other reliable online sellers now. There are some deals out there if you look.

Kyle James's picture

Great add-on David. Dynamic pricing is definitely something Amazon, and others, do frequently. Even going so far as changing the price depending on your zip code and how affluent it might be. If you think a retailer is doing this to you, try browsing in incognito mode

Guest's picture
Barbara

You can use camelcamelcamel to track an item's price. It shows an icon in your address bar. When you click on the icon, it will give you a choice of one month up to all and it will show you a graph with the prices in that time frame. You can also put your desired price and they will email you if and when that product reaches that price. Not all products are tracked but the majority of them are. I use it a lot!
When I read the reviews of an item, I go by the ones that are written by verified buyers.

Guest's picture
Guest

yes, brand name vitamins with subscribe and save.

Guest's picture
Stephen Rodgers

Sometimes I wonder about the real price that Amazon advertises against their discount price. I was looking for a cheap watch to knock around with and do landscaping chores. I found a watch with Swiss movement, mother of pearl face and more bells and whistles. Their price listed just under $900.00, 2 left in stock and on sale for $58.00. Its a great looking watch, it doesn't lose a second and I get lots of compliments. Did I really save over $800.00?

Guest's picture
Guest

Books are SO much cheaper on Amazon than in bookstores. I've save over $10 on certain books a number of times. It also really helps if you have Prime. But you'll still save either way. I don't even buy new books anywhere now.

Here's an example: I went to get this new hardcover book at a bookstore. It ended up being about $25. I went on amazon a$ few days later. It's $18.

And I've actually saved even more than that tons of times.

Guest's picture
GuestShanon576

This is what I've noticed with Amazon.ca and I'm sure .com is the same way.
I did a price comparison on numerous Items one of them was a:
Bushnell Scout DX 1000 ARC 6x 21mm Laser Rangefinder, Realtree AP Camouflage amazons list price was $571.14 and sale price $379.99 a savings of $191.15 (35% off) the exact same product at
Canadian Tire regular price (not on sale) was $379.00
Amazon fools you into thinking your getting a good deal but you are not.

I have seen this done with many products such as watches, electronics, range finders, binoculars etc and I have been fooled a few times myself. You have to really watch with them what you think is a good deal may not be due to them increasing the list price and adding in a sale price that is the same as what other stores are selling it for as their regular price. Beware of this. I Hope this helps some people out that may not realize this.