Consumer

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

Here's a heartfelt Thanksgiving message for retailers: Amazon is killing you, and you are missing the best shot to fight back.

Shopping with Amazon.com Inc. has become an ingrained habit for many of the world's consumers. Thanks largely to the hugely successful Prime shopping club, many consumers automatically turn to Amazon when they need to replace their coffee filters or find new headphones.

Its dominant position is even more pronounced this time of year. About 55 percent of Americans surveyed by Kantar Retail say they plan to shop on Amazon for holiday gifts. That's up from 41 percent two years earlier.

Tipping Point
For the first time, more than half of all consumers surveyed by Kantar said they would shop at Amazon for holiday gifts this year, a jump of more than 5 percentage points from 2015
Source: Kantar Retail, Bloomberg Intelligence
Note: Respondents can make more than one selection. Surveyed 3,617 people in 2016 and 3,697 in 2015.

Competitors can trot out all the Black Friday door-busters they want, but it's now Amazon vs. everyone else, and the boys and girls in Seattle are winning.

Still, Amazon does have a vulnerability many retailers haven't fully exploited: prices.

Amazon built its reputation as an everything store with razor-thin profits. It has convinced shoppers it always has the cheaper choice, regardless of the reality. 

Amazon's Optics
Walmart and Target are perceived to be fairly more expensive than Amazon
Source: Boomerang Commerce
Note: The price perception index factors in product popularity, such that the price competitiveness of more popular items are given more weight than less popular items.

It turns out Amazon doesn't actually have the lowest prices. Its special sauce is knowing how to create a low-price halo by cherry-picking the most popular products and undercutting its competitors there, while maintaining list prices on other products, according to Boomerang Commerce, which makes price-tracking software. 

When analyzing toys and games last month, Boomerang found Amazon discounted 32 percent of its most-popular items, but only 9 percent of what it calls "core" items and 1 percent of the least-popular items. That let it maintain the perception of having the lowest price, without having to take margin-squeezing discounts on all its offerings. While media outlets have written about Amazon's pricing tactics, it is not common knowledge among many consumers. 

Balancing Act
Amazon prices the most-popular products most competitively, driving consumer perception of it as a low-priced retailer, while other retailers discount across the board
Source: Boomerang Commerce
Note: Categories divided into the most popular 20 percent, middle 50 percent and bottom 30 percent of 1,800 items. The data was compiled during October 2016.

Retailers this holiday season can pounce on this gap between consumer perception and price reality. They can advertise head-to-head price comparisons on their websites and in their stores. They can call out Amazon, just as Sprint's television commercials target Verizon directly, and as Apple once went after Microsoft for selling dowdy PCs. Want to stretch those holiday shopping dollars further? Turn to us, not to Amazon. 

It's not enough to just be cheaper. Retailers have to be louder, and more targeted. Some booksellers are already doing this, putting tags on popular novels comparing their prices to Amazon's. The website of The Strand, a New York-based bookstore, has a section called Real Books Cheaper than E-Books. 

Yes, it is dangerous for retailers to engage in a price war with Jeff Bezos, Amazon's famously aggressive CEO. He can simply drop the price on KitchenAid mixers if Walmart brags about undercutting Amazon. But the goal here isn't to sell more kitchen appliances. It's to plant a seed in consumers' minds that Amazon may not be the smartest place to turn first. 

Right now, they definitely are turning to Amazon, particularly during the holidays. More than a third of visits to retail websites last year were to Amazon, according to eMarketer. The next-closest retailer, Walmart, only grabbed a 6 percent share. 

Amazon Dominates The Discussion
Top 15 U.S. Retail websites, ranked by visit share in December 2015
Source: Connexity, eMarketer

And while Amazon's value perception has slipped a bit over the past year, consumers still rate it the highest among big retailers at providing good value for their money, according to YouGov BrandIndex. 

Value Trap
Among big retailers, Amazon gets the highest rating from consumers on the question "Does it give good value for what you pay?" -- but that value perception is down from a year ago
Source: YouGov
Note: A Value score can range from -100 to 100 with a zero score equaling a neutral position. Example: A score of 35 means that 35% more people said they were positive than negative about the brand. 35,000 adults 18 and over interviewed over the past year, with a margin of error of +/- 3%.

Getting the lowest price -- particularly around the holidays -- is still very important to shoppers. More than 50 percent of consumers surveyed by Kantar said "getting a good deal" was the most important holiday shopping priority, while 34 percent said the top priority was "spending as little as possible."

Deal Hunters
Finding a good deal is still the top priority for holiday shoppers, despite dropping from a year ago
Source: Kantar Retail and Bloomberg Intelligence

If retailers such as Walmart, Target, and Toys "R" Us are going to convince shoppers to open their wallets and spend with them this holiday season, they need to challenge their biggest enemy explicitly. Retailers are losing the war to Amazon. It's time they used some new weapons to fight back. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. During the holidays, Amazon prices are lower in some categories. Toys on Amazon this holiday season are 0.6 percent cheaper than at Walmart and 3.7 percent cheaper than at Toys "R" Us, according to a study conducted by Bloomberg Intelligence. 

  2. The share of shoppers who cited price as a top priority declined somewhat from prior years' surveys.

To contact the authors of this story:
Shira Ovide in New York at sovide@bloomberg.net
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net