An employee places an item into a box at the Amazon.com fulfillment center in Hemel Hempstead, U.K., Nov. 25, 2015. (Chris Ratcliffe/Bloomberg)
Amazon may have a reputation for offering the lowest prices, but it turns out that isn’t always true. It’s another case of buyer beware, even when buying from a trusted source.
A recent pricing study found Amazon to be more expensive on some grocery items than TargetTGT -0.01% and Walmart. The study—by Boomerang Commerce, a company that analyzes and makes price optimization software for merchants—compared prices on a number of grocery products from beverages to breakfast cereal.
Among the key findings were that for the top 100 beverage items listed on Target’s website, the identical items were 97% more expensive, and the top 100 identical breakfast items were 93% more expensive.
When compared to Walmart, Amazon was on average 105% more expensive when it came to the top 100 beverages and 73% higher on the top 100 breakfast items.
The average is skewed a bit, thanks to a handful of items that are dramatically higher-priced on Amazon. For example, a six-pack of chocolate flavored Ensure was $7.99 at Target on the day comparisons were made and $19.39 on Amazon.
On Thursday, that same product was listed on Amazon for $16.17.
More shocking is the Tazo iced passion herbal tea (36 fl oz) for $3.29 at Target and $17.87 on Amazon. On Thursday, that same item was $37.18.
Amazon did come in less expensive for some items, and it’s entirely possible that multiple listings are posted on the site for the same item at different prices. That is often true in my personal experience with products available from a variety of sellers, some eligible for free shipping, Prime or Prime Pantry (Amazon’s program that adds $5.99 to the Prime order but includes as many small items as can fit in a specified box).
Boomerang’s report mirrors my personal experience shopping Amazon in the past year. As a member of Amazon Prime, I try to use the program as much as possible, but lately have found dramatically lower prices from competitive retailers on everyday items including hand soap and shave gel.
I asked Boomerang for the product and price list used in the study and found that while many items were priced identically across the three retailers—proving that dynamic pricing technology that crawls the web to match and lower prices, does work—some items were up to four times more expensive on Amazon, the presumed low-cost leader.
“We’re not making a sweeping statement that Amazon is more expensive period, just that on the items we measured, this is what we found,” Boomerang’s CEO Guru Hariharan told me. Amazon offers a complex value equation that includes price, selection and quick availability.
Even in some cases where it had higher prices, that value equation is ultimately more appealing to the customer. In previous studies from Boomerang, Amazon did have lower prices than other retailers in different product categories such as toys and electronics.
Which makes the disparity in grocery items stand out so, until you realize that the higher prices are coming from third party sellers on the Amazon platform. Merchandise from these sellers have been found to be more expensive than those sold through Amazon or other retailers.
It explains a lot about the grocery pricing report.
There are countless sellers on Amazon, eBayEBAY +0.97% and other online marketplaces that buy goods from other retailers and sell them at inflated prices. Often these are closeouts or sale items that the seller buys on sale and then unloads for a profit. Some are resold at the original retail price so buyers don’t notice the item was available for less elsewhere and the seller makes a tidy profit.
Sometimes they are just in-demand items and shoppers either assume it’s the lowest price since it’s listed on Amazon, or are so wedded to the Amazon Prime program that two-day shipping completes the value equation.
But the truth is something different, thanks to sophisticated pricing tools and arbitrage.
Chris Green was so enamored of arbitrage that he wrote a book about it—which was self published and sold on Amazon, of course—and created a software program called ScanPower that helps sellers scan items on a smartphone and then sell them on Amazon.
Amazon’s policy regarding arbitrage isn’t clear, and it didn’t respond to requests for comments or clarification. Sellers are welcome to list items purchased anywhere, but selling items on Amazon and having the order fulfilled from another retailer is apparently prohibited.
Still, it’s a practice that seems to be going strong, as described in this April 20 Recode story of a customer buying something from Amazon and receiving the order shipped from Sam’s Club. In fact, Amazon encourages arbitrage as it expands inventory and selection, according to Green. Amazon has access to more inventory without the costs associated with accumulating and warehousing it.
When I reached Green by phone he was buying closeout items at a Kmart store in Massachusetts, caught in the act of arbitrage. The goods were half price and he planned to list them on Amazon for the full retail price, or twice what he paid.
It can be a lucrative, if time-consuming business. One seller Green knows had $2 million in sales last year, thanks to arbitrage. Green estimates that once fees and costs are factored in, sellers walk away with roughly 30% of those sales in profit.
Arbitrage is made easy by Fulfillment by Amazon (FBA), a program that lets sellers send items to Amazon, which then packs them and sends them out as if they were its own. Satellite companies much like Green’s own, have sprung up to support the practice and sellers can buy items and hand them off to another party which then takes care of everything needed to send the orders to FBA. Which in turn sends orders out to customers, sometimes as part of Amazon Prime.
“Most of the big players use FBA, it’s the only way to scale up,” said Green. “If you have $2 million in merchandise, you would need a warehouse and employees.” With FBA, those costs are shifted to Amazon, and the customer hardly knows the difference.
Except when pricing is out of whack. Remember the Tazo tea? Reviews on the product page show customer dissatisfaction and confusion. At such inflated prices, it’s easy to understand why someone thought the listing was for a case or six-pack, rather than a single container. I had the same reaction when a can of shave gel was listed at four times the average price elsewhere. But nowhere on the pages does it say that more than one unit is included, and buyers assuming otherwise are out of luck, and money.
Amazon does try to deter some sellers of overpriced items, by discouraging the listing or throwing roadblocks and warnings up on the product page, according to Green. Sometimes a buy button is missing and the user is redirected to another page with the disclaimer saying the item is available from other sellers at a lower price.
But it’s confusing and not a terrific customer experience. Still shoppers are usually willing to tolerate some confusion or inconvenience if the price is the lowest.
Which they think Amazon offers, even when it doesn’t.