Amazon and Walmart Are in an All-Out Price War

Two giant retail companies are battling in an all-out price war and that’s a good news to customers. For years, Walmart had dominated the retail landscape on the back of its “Everyday Low Price” guarantee. But now, Walmart was too often getting beaten on price. An article on Recode reported:

The result in recent months has been a high-stakes race to the bottom between Walmart and Amazon that seems great for shoppers, but has consumer packaged goods brands feeling the pressure.

The pricing crackdown also comes in the wake of Walmart’s $3 billion acquisition of Jet.com and its CEO Marc Lore. Lore now runs Walmart.com and has said one of his mandates is to create new ways for the retailer to beat everyone else on price, including Amazon.

One piece of the battle, executives say, is an Amazon algorithm that works to match or beat prices from other websites and stores. Former Amazon employees say it finds the lowest price per unit or per ounce for a given product — even if it’s in a huge bulk-size pack at Costco — and applies it across the same type of good on Amazon, even when the pack size is much smaller.

So let’s imagine Costco is selling a pack of 10 bags of Doritos for $10 — or $1 per bag. Amazon’s algorithm notes that one bag is $1 at Costco and, in turn, lowers the price on Amazon of a single bag of Doritos to $1.

That is a great deal for customers — something that is likely driving the decision at Amazon, where an obsession with customer value dominates its strategy.

Walmart wants to have the lowest price on 80 percent of its sales, and Amazon is willing to lose money for some period of time on a product it feels it has to have. While the two titans fight each other, customers everywhere benefit from the low prices.

Hopefully, both giant retailers thrive in this price war to the benefits of consumers. Amazon is well know for its ruthless tactics. For instance, it had driven down the prices so low by discounting most pop music titles by 35 percent to drive Virgin Records, HMV and Tower Records out of business. Afterward, Amazon jacked up the prices after the competitors went out of business. Hence, in this price war between the titans, it’s in the best consumers’ interest for both online and brick-and-mortar retailers to succeed.