Image Credit: Larry Page/Flickr
On December 9, Amazon surprised the retail world with “Make an Offer”, a new system that allows shoppers to negotiate prices on over 150,000 collectible and antique items. While some news outlets have compared “Make an Offer” to eBay’s “Best Offer” and Priceline’s “Name Your Price,” they undersell its potential significance.
As a co-founder of Netotiate, a company that makes a negotiations platform for online retailers (one that’s similar in some ways to Amazon’s), I see a different story. Sure, Amazon might be trying to win a bigger share of the collectibles market, or perhaps it will integrate negotiations into its new hotel booking platform to gain an edge against industry incumbents. However, if Amazon were to apply “Make an Offer” to all 300 million or so goods listed on the site — instead of just 150,000 — the company could ignite a revolution in online pricing.
If Amazon wishes to provide the best buying experience on the web, they should expand “Make an Offer”. The company has an opportunity to circumvent price wars, increase profit margins and improve customer loyalty.
A Smarter Way to Compete
The web is currently a buyer’s market because shoppers can quickly compare sellers and choose the lowest price. Unlike shoppers at a flea market or car dealership, online shoppers assume that negotiating isn’t possible. Nobody emails customer service asking for 10 percent off on an iPhone. So, online retailers either drop prices or offer coupons to attract buyers, increase revenue and move items off the shelf. While strategy mirrors what we see in brick-and-mortar stores, web-based negotiations could allow retailers like Amazon to be far more strategic.
Offline and online, blanket discounting cannibalizes profit margins. Typically, when a company tries to offload an item, they offer a sizeable discount — say 30 percent. This fixes their profit margins, but many consumers would have been very happy with 5, 10 or 20 percent off. Given the chance to “Make an Offer”, many consumers would pay a higher price yet feel more satisfied. Psychologically, choosing your own price is more rewarding than receiving the generic, 30 percent off that everyone else received too.
This is why giving shoppers a say in pricing is a powerful strategy — especially if a retailer like Amazon applied it to 300 million goods. Customer normally think, “How do your prices compare to other sites?” However, if suddenly they could make an offer on any item, the question what change to “What do I want to pay for this item?” If shoppers could get the price they believe is fair, more would complete purchases and retailers would achieve a higher average profit margin. It’s a win-win.
Automation Will Be The Key
Amazon may feel like giving consumers the ability to negotiate is a threat to their control, but it’s quite the opposite. Instead of being a victim of pricing wars, Amazon (or any retailer) would become more competitive by individualizing prices. The final price would remain private between Amazon and the buyer and therefore unknown to competitors. But to the implement negotiations on a large scale, Amazon would need to automate the process.
Currently, Amazon’s “Make an Offer” system is manual. When a buyer makes a bid, the seller receives an email notification and can either accept, counter or reject the offer. Back-and-forth email negotiations continue until an agreement is reached.
For negotiations over a low volume of high value goods, this system works. For 300 million items, it isn’t scalable. The burden on the sellers to manually respond to bids would be overwhelming, and the lack of immediate gratification would deter buyers. Instead, a retailer like Amazon would need to implement a real-time, rules-based system that can automatically accept or reject bids. The algorithm would accept bids within a predetermined range to safeguard profit margins on every purchase. With the opportunity to bid and get an immediate answer, shoppers would have much less reason to price shop.
New Powers for Retailers and Customers
For consumers, the most important parameter in any transaction is price. When prices are fixed and coupons generic, consumers have no say in what they spend. While listed prices may protect shoppers against the variability they would encounter in a flea market, commerce is still a social interaction and therefore should include a conversation about price.
“Make an Offer” could empower shoppers to speak up and choose a price they deem fair. The experience would provide Amazon’s customers with a feeling of victory and even gratitude towards the seller.
I can’t claim to know what’s happening in the ‘mind’ of Amazon. However, were it my responsibility to increase sales, protect margins and boost customer loyalty, I’d would now take steps to automate negotiations and implement them on a far greater scale.
Amazon launched “Make an Offer” as a test, and I’m glad they’re doing it. We’re all consumers of something, and widespread use of negotiations in e-commerce would be a true win-win for buyers and sellers. Amazon, think big with “Make an Offer”.
Keren Zimmerman is the co-founder and Chief Product Officer of Netotiate. Previously she held an executive position at Oberon Media, was GM and VP of Products at SmartShopper and Quigo.com, and Director of Merchant Integration at Shopping.com.
Amazon.com, Inc. (NASDAQ: AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth’s Biggest Selection. Amazon.com, Inc. seeks to be Earth’s most customer-centric company, where cu… read more »
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