Online price wars happen in minutes

Stephanie Clifford / New York Times News Service /

Published Dec 1, 2012 at 04:00AM

The day before Thanksgiving, Amazon was offering a discounted price of $49.96 on a popular Xbox game, the same price as Wal-Mart and 3 cents lower than Target.

Then the holiday pricing shuffle began.

Amazon dropped its price on the game, Dance Central 3, to $24.99 on Thanksgiving Day, matching Best Buy’s “doorbuster” special, and went to $15 once Wal-Mart stores offered the game at that lower price. Amazon then brought the price up, down, down again, up and up again — in all, seven prices changes in seven days.

The unluckiest buyer paid more than triple the price that the luckiest buyer paid.

Retail price wars have entered a new era of speed and precision, creating a confusing landscape for shoppers in which online prices leap and plummet on short notice. In the old days, merchants sent employees into competitors’ stores to check on pricing, and days later “sale” signs reflected new markdowns. Now, sophisticated computer programs accomplish the same goal online within hours, and even minutes.

The battle was fierce over the holiday weekend. At the request of The New York Times, the pricing firm Dynamite Data tracked prices at three major online retailers — Walmart.com, Amazon.com and Target .com — starting the week before Thanksgiving and going through Tuesday, after most heavy promotions ended.

The data shows that retailers paid close attention to competitors’ online prices and in-store specials, battling to undercut one another by as little as 2 cents and forcing each other into out-of-stock positions as they pushed prices down.

“There was definitely some gamesmanship going on,” said Diana Schulz, chief executive of Dynamite Data, which tracks online-retail pricing, stock status, ratings and other information for clients like Samsung and Abt Electronics.

While Amazon has long tinkered with prices, its competitors are now fighting back. In the last year, Wal-Mart invested heavily in pricing tools, a Wal-Mart eCommerce spokesman, Dan Toporek, said.

Dynamite Data said there had been a marked increase in how much Wal-Mart played with prices, and smaller retailers, including GameStop, Best Buy and Toys R Us, were now also adjusting some prices at least daily.

The goal is to attract shoppers with competitively priced products that show up on Web searches, but there is risk, too: some consumers tire of price whiplash.

“People are starting to realize, ‘I can’t trust the price I’m getting, because it might change,’” a pricing consultant, Rafi Mohammed, said. Shoppers have few ways to game the system — ordering the same product at different prices requires expensive return shipments — but Mohammed said retailers had an opportunity to soothe consumers by offering refunds for price adjustments.

Schulz said sophisticated retailers set algorithms to change prices in response to competitors. “Retailers pipe a bunch of information in electronically, like internal information — cost, availability of inventory, sales goals,” along with competitors’ prices, she said.

The software also lets retailers establish rules on the pricing of certain products: always price Furbys 5 percent below Kmart, for example, or make sure we are priced at an average of Amazon and Wal-Mart. Generally, employees also step in and manually adjust prices, too.

Toporek said Walmart.com used a combination of computer tools and human adjustments. On popular items, like Wal-Mart’s best-sellers, the site tries to “maintain low prices on the items people want the most,” meaning it usually responds to competitors’ price changes.

Toporek said, however, that the site also tried not to jostle shoppers.

“Clearly we are making changes, but it’s not the kind of constant change you’re seeing on some other sites,” he said.

An Amazon spokeswoman, Pia Arthur, declined to offer details on Amazon’s pricing strategy, and said in an email that the company was “working hard to meet or beat the lowest prices out there.” Target declined to comment.

A retailer can increase its sales volume when it has the lowest prices, especially because it will appear prominently in price-comparison tools. For the children’s tablet LeapPad1 Explorer, for instance, Wal-Mart appeared to be purposely undercutting Amazon, even if by a matter of pennies. When Amazon offered the tablet for $59.99 on the Monday before Thanksgiving, Wal-Mart priced it at $59.97. On the Sunday after Thanksgiving, Amazon raised the price to $69.99, and Wal-Mart followed, going to $69.97.

Sometimes a retailer cuts prices to tempt a competitor into offering a money-losing price and depleting its inventory. “They’ll wait until their competitor has sold out, and jump back into the game when the prices rise a little bit,” said Schulz of Dynamite Data.

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