Walmart Subsidizes Vendor Price Cuts To Gain Edge Over Amazon

Price wars usually only have one winner: Consumers.

Price wars tend to be decent short term strategies to lock in customers.  But then, what happens when the price wars stop and pricing levels return to some degree of normality?

Welcome, perhaps, to the eCommerce platform pricing wars.

Bloomberg reported Monday (Oct. 14) that retail juggernaut Walmart is subsidizing some of its third-party vendors that sell across its online marketplace. The move, of course, is a shot across the eCommerce bow of Amazon, and it comes just as the holiday selling season is about to kick into high gear.

In terms of the overarching strategy, subsidizing vendors is a Walmart move that comes after Amazon has been able to set the pricing on items sold across its platform. And as Bloomberg reports, Amazon has been requesting, as of last summer,  that vendors selling on Walmart or other sites not sell at prices lower than they post on Amazon. The third parties on Amazon get what is termed a “minimum payout” and the program is known as “Sold by Amazon.”

The report states that according to a plan (seen by Bloomberg and confirmed by Walmart), the prices vendors offer under the new Walmart program are lower for the merchants that pay a fee to list items. Walmart, in turn, makes up the difference, and thus the subsidy is in place.

“The price reductions won’t affect shipping fees,” said Bloomberg.

The stakes are high, of course, as eCommerce is worth hundreds of billions of dollars annually.

The program, through Walmart, has a dedicated name — the Competitive Price Adjustment program, and will be in place for “selected sellers and selected items only” and sellers cannot request to join.

Thus far, we note, the details are nebulous. We don’t know, yet, who is included in the Walmart program, or how long “temporary” means. The fact that the holiday season starts in earnest very soon means that the program will get a quick and rigorous test right out of the gate. In a market where Amazon is estimated to have garnered 40 percent of eCommerce sales, Walmart has its work cut out for it, and one way to chip away at Amazon’s dominance is to gain the hearts and minds of vendors themselves. Also, the sheer scale of Amazon means that it can race Walmart to some continuous ladder of price cuts to spur sales.

The problem is, consumers like low prices — and they get used to them. It might not be a stretch to think that, where they can, other sites will try to beat even the pricing offered by Walmart and Amazon. As reported earlier this month, Zulily, the flash sale site, has introduced a feature that lets shoppers compare prices across all three sites (with an eye, of course, on pointing out instances where Zulily is cheaper). The problem with price wars is that the advantages are ephemeral — the negative impact can be firmly entrenched and may hurt smaller players disproportionately. What starts as “temporary” becomes long-lived, and the platform price wars may have begun in earnest.