Amazon’s ‘dynamic pricing’ strategy will play a key role in tempting South African shoppers to make the switch, as smart pricing methods become an essential competitive advantage in the online retail space.
This was the word from e-commerce pundits, discussing SA’s online shopping landscape during the launch of the Online Retail in South Africa 2023 study conducted by World Wide Worx, in partnership with Mastercard, Peach Payments and Ask Afrika.
Amazon, which opened shop in South Africa this week, is expected to shake-up the e-commerce space and take on established local players such as Takealot.com, Bob Shop, Massmart-owned Makro Marketplace and Zando, as well as global players such as Temu and Shein, among others.
According to the experts, the arrival of Amazon in SA is expected to add a few billion rand to the total online retail pie over the coming seven months.
They added it will play a key role in transforming the local logistics industry in SA, as courier and warehousing services ramp up to meet the additional demand created by the US e-commerce giant.
Its approach to pricing will be an integral part of its winning strategy, they said. Amazon uses a ‘dynamic pricing’ approach, also referred to as ‘demand pricing’, described by Wikipedia as a revenue management pricing strategy where businesses set flexible prices based on various external factors. These include current market demand, the season and supply changes.
“Amazon is wickedly successful, not because of the cheap prices, but because it individualises its prices,” explained Andrea Rademeyer, founder and executive chairperson of Ask Afrika.
“For instance, if you are an Amazon Prime customer, it means you will be treated differently to another customer based on your shopping preferences. You will get discounts based on your profile.
“What they are doing is they're trying to monopolise the market by offering customers loyalty discounts for staying with them. And that’s what I think makes them dangerous to Takealot and other e-commerce suppliers.”
The dynamic pricing approach, which is driven by algorithms and customer data, tailors prices to individual customers and encourages them to make purchases during periods of low demand.
Value-based pricing
ITWeb’s comparison of the e-commerce giant’s tech category prices to those of Takealot shows the US online retail giant’s pricing is competitive with its local rival – offering similar pricing on most products.
However, in some cases, Amazon offers marginally more affordable products (for example, Xbox Series S 512GB), while in other cases, its prices are slightly higher than those of Takealot’s (for example, Sennheiser CX Plus wireless earbuds).
This could be due to the fact that Amazon’s pricing strategy also extends to value-based pricing, where the product’s market value is used to determine the price of the product listed on its platform.
On its website, Amazon says it aims to provide the best shopping experience by offering customers the lowest prices.
“When it comes to pricing, we do the work to compare and match Amazon’s retail prices to competing physical and online competitors’ stores to keep our prices low. Third-party sellers set their own prices – and Amazon offers optional tools to support them in offering competitive, low prices,” says Amazon.
Arthur Goldstuck, CEO of World Wide Worx, has been tracking and analysing the pricing of some of Amazon’s products.
Answering a question on whether low pricing is a top priority for Amazon, Goldstuck pointed out: “It does depend very much on the product that you are comparing, because some of the products that we have been tracking came in at a much lower price on Amazon than on other sites. So, it's not a hard and fast rule. And usually, the very cheap prices seem to have limited stock, which kind of balances everything else out.”
Amazon.co.za is also likely to have a more sustainable impact on the local online retail landscape than the likes of low-cost international e-commerce sites Shein and Temu, he noted.
This is because Shein and Temu’s presence in the local market is not supported by the kind of supplier-based ecosystem pioneered in SA by Takealot – based on the Amazon.com model – and is now likely to be driven by Amazon.co.za, he asserted.
“Low-cost Chinese online suppliers like Wish and Gearbest have declined in popularity after also making a massive initial impact. As their prices normalised from subsidy-driven bargains, and poor product quality was found over time, they became part of the background noise of e-commerce,” notes Goldstuck.
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