Amazon Tries an Innovative Discounting Method for Third-Party Products

Amazon discounting third-party seller products

The holiday season is almost upon us, and America’s largest retailers are once again fighting tooth and nail to gain our attention – and our credit card numbers. Exclusive deals, special deep discounts and unbelievable promo offers have already started to flow, and Amazon is predictably trying to stay ahead of the discounting game.

The e-comm and tech giant is cutting prices on third-party seller products on its website, packaging it as a “discount provided by Amazon” deal. The offer has been seen on tech gadgets as well as other products from third-party sellers on its platform in an attempt to take away the price advantage of other deep-discount retailers like Wal-Mart.

This is a bit of a twist on the discounting game because the sellers receive the price they want, which means Amazon is using its own money to subsidize the merchandise for its customers. In that sense, it’s very different from the usual practice of reducing margins on the products that it sources from third-party manufacturers and then sells on its platform.

But there’s a catch to this type of discounting. Once the holiday season is over, consumers might feel that these third-party retailers have hiked up their prices. the “discount provided by Amazon” tagline might not be understood by many shoppers.

That’s one of the dangers of deep discounting. If a product that is selling for $80 during the holiday season suddenly jumps to $100 in January, customers will tend to get the feeling that the item is overvalued at $100, and may end up not buying it even though it might be worth the money. It’s a nuance of consumer psychology, but one that needs to be carefully considered when offering discounts and crafting offers.

Many retailers try to counter that by using wording such as “introductory offer”, “discount ends on” and so on, but there will inevitably be a dip after the offer period is over, and all of that can’t be attributed to just the price increase alone.

The other danger, a slightly less pronounced one, is that customers will once again wait for deal-time before purchasing the product. In the meantime, they could end up choosing another brand.

That said, Amazon is not like other companies, and has no qualms about moving prices up and down as it sees fit. It’s worked for them so far, and there’s no reason for them not to try something innovative like this in an aggressive sales environment, and that too at a crucial time like the shopping season.

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Source: Reuters