AMAZON IN THE NORDICS - The conglomerate's competitive pricing can pressure Nordic e-commerce players - Boston Consulting Group
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
AMAZON IN THE NORDICS The conglomerate’s competitive pricing can pressure Nordic e-commerce players
Amazon in The Nordics
The conglomerate’s competitive pricing can pressure
Nordic e-commerce players
Emil Stamp, Managing Director and Partner, Copenhagen
Boston Consulting Group (BCG) is a global
David Sandberg, Managing Director and Partner, Stockholm
management consulting firm and the world’s
leading advisor on business strategy. We partner Øyvind Torpp, Managing Director and Senior Partner, Oslo
with clients from the private, public, and not-for- John Dannberg, Managing Director and Partner, Helsinki
profit sectors in all regions to identify their
highest-value opportunities, address their most
critical challenges, and transform their enterprises.
Our customized approach combines deep insight
into the dynamics of companies and markets with
close collaboration at all levels of the client
organization. This ensures that our clients achieve
sustainable competitive advantage, build more
capable organizations, and secure lasting results.
Founded in 1963, BCG is a private company with
offices in more than 90 cities in 50 countries. For
more information, please visit bcg.com January 2021October 28th, 2020, Amazon launched its e-commerce platform in Sweden, marking a Amazon.se prices competitive – but appears not yet adjusted
key milestone for Nordic e-commerce. The conglomerate and tech giant could become to the Swedish market
the leading Nordic e-commerce player and capture 5-10% of the e-commerce market Judging from the prices on amazon.se, the pricing strategy is not yet fully adjusted
within 5 years. Incumbent players are left with a strategic dilemma – should they join to Sweden. Prices are odd and often directly converted to SEK from Amazon’s
with Amazon or should they fight back? Either way, they need to make sure their German EUR prices. The company has not adjusted prices to local market levels,
houses are in order and prepare for what could be a bumpy ride. except for very competitive products. This causes large price variations across both
products and categories, with both significantly lower and higher prices compared
Following our main article addressing Amazon’s entry in the Nordics, we cover to price leading peers.
deep-dive perspectives on three core elements of Amazon’s success; Product
offering, Pricing and Loyalty (including delivery). This perspective covers the second Shortly after launch, Amazon is offering competitive prices on overall level.
one -- Pricing. Examining prices on selected top products in six key categories for Amazon vs. well-
known Swedish retailers, provides a first indication of Amazon’s price position. The
conglomerate offers lower prices than peer average in all studied categories, but
Pricing is one of Amazon’s core strengths – data driven pricing there is significant variation. Amazon’s Home & kitchen as well as Electronics
capabilities allowing giant to adjust prices almost instantly prices are most in line with peers, 4% and 5% lower than peer average respectively.
Three of the main reasons for consumers to buy online are price, assortment Looking deeper into Electronics, Amazon offers slightly more attractive prices on
availability, and delivery speed and convenience – areas where Amazon has Cameras, Speakers and Smart watches, while pricing higher on TVs compared to
invested heavily and holds a strong position. As for price, two kinds of pricing peers. For Sports & outdoors, Toys & baby, Beauty & health and Hand tools Amazon
mechanisms are at play on Amazon’s platform – pricing of products from third offers significantly lower prices, 14-23% below peer average depending on category
party vendors on Amazon Marketplace, and pricing of Amazon’s own products. (see Exhibit 1).
An important element of the third-party pricing is the combination of vendors
setting their own prices and multiple vendors offering the same product. This Exhibit 1 | Amazon overall competitive prices on top 50 products in each category –
creates price competition and drives down prices. As for Amazons own prices, their significant variation across categories
overall strategy is built on investing in competitive pricing to drive volume and
scale. The company has demonstrated a willingness to operate at breakeven or very Amazon average prices compared to peers on top products, %
low margin and has historically cross subsidized its retail business from e.g.
Amazon Web Service. Its retail business is today overall profitable, even though its Peer cheaper
international part historically was operating at a loss.
Amazon takes an extensive price follower strategy and seldomly drives a price
leading position. The company thinks holistically about pricing and profitability, - 4% - 5%
prioritizing gross margin by household and even lifetime value over product and
basket profit. Amazon applies a highly granular approach and selectively prices Key - 14%
Value Items (KVIs), products disproportionally driving price perception, below
Amazon cheaper - 21% - 21%
competitors to gain market share. Furthermore, Amazon leverages its capability to - 23%
take data-driven pricing decisions. The company monitors competitor’s prices
carefully and has capability to dynamically change prices at a high frequency. Home & Kitchen Electronics Sports & outdoors Toys & baby Beauty & health Hand tools
Note: Top products selected based on 1) being tagged as ‘popular’ on price comparison websites (Prisjakt, Pricerunner) and/or tagged as ‘favorites’
on Amazon and 2) being available in Amazon’s assortment; Categories and sub-categories selected based on availability of comparable products;
Sources: Company websites Nov 2020; BCG analysis
2 Disruption at Our Doorstep Boston Consulting Group 3Exhibit 2 | Amazon not always cheapest – offers lowest price on 26-76% of top 50 products per category Going forward, retailers and e-tailers should consider fostering an even more
compared to price leading peer unique value proposition to coexist with Amazon. With data-driven pricing being
one of Amazon’s key strengths, incumbents should also consider accelerating
Share of top products where Amazon is cheaper than cheapest peers (%) pricing capabilities to take data driven pricing decisions. There can be significant
opportunities in optimizing across promotions, black prices and mark-downs,
100% leveraging Advanced Analytics and Artificial Intelligence. Many incumbents could
22 optimize prices more dynamically and on a more granular level, requiring
46 48 42 44 2
56 capabilities beyond what humans alone can do. Private label can also play a role in
2 improving price perception, as well as exclusive brands and / or SKUs.
2 10
14
18 76
40 50 48 54
26
Exhibit 3 | Amazon likely to pressure e-commerce pure players, already
Home & Electronics Sports & Toys & Beauty & Hand operating at slim margins
Kitchen outdoors baby health tools
Amazon avg. % more
expensive vs. price leader
15 % 11 % 25 % 23 % 31 % 15 % EBITDA margin 2019 (%)
Amazon avg. % cheaper 15 % 9% 19 % 12 % 22 % 16 %
vs. price leader 12.9
Amazon more expensive Amazon approximately same as peers Amazon cheaper
Note: Top products selected based on 1) being tagged as ‘popular’ on price comparison websites (Prisjakt, Pricerunner) and/or tagged as ‘favorites’
on Amazon and 2) being available in Amazon’s assortment; Categories and sub-categories selected based on availability of comparable products; -11.8 pp.
Sources: Company websites Nov 2020; BCG analysis
5.0
1.2
Average prices do, however, not show the full picture. Deaveraging illustrates what
has been seen in many other markets: even though Amazon’s prices are overall -5.1
competitive, they are not always so on a product level. Out of the top products
examined, Amazon offered lower prices on 26-76% of the products depending on Nordic average
category, the rest being priced at par or above cheapest peer (see Exhibit 2). (EBITDA range of top 10 Nordic
online pure players 2019)
Nordic players to consider how to respond to Amazon’s pricing Sources: Orbis, Euromonitor, Valuescience center, Amazon, BCG analysis
behavior to defend slim margins
Amazon’s initially odd prices and large price variations will present noise to the
Swedish market in the short term. However, the company will likely continuously
mature its price setting and further tailor it to the local market. Swedish retailers Independently of what levers Nordic companies decide to focus on, they should
should consider how to respond to Amazon’s pricing behavior. Not the least with consider reviewing and stepping up their pricing strategy to compete with the
pricing being one of the main reasons for consumers buying online and the world’s largest e-commerce player that has now arrived.
increasing price transparency that comes with e-commerce.
In Amazon’s recent launch in the Netherlands, the company stabilized its prices at
6-8% below peer average during the first three months after opening. The tech
giant’s pricing will most likely put pressure on many incumbent Nordic
e-commerce players, especially pure players, currently operating at slim or even
negative margins (see Exhibit 3).
4 Disruption at Our Doorstep Boston Consulting Group 5© The Boston Consulting Group, Inc. 2021. All Rights Reserved.
This document has been prepared in good faith on the basis of information available at the date of publication without any independent
verification. BCG does not guarantee or make any representation or warranty as to the accuracy, reliability, completeness, or currency of
the information in this document nor its usefulness in achieving any purpose. Recipients are responsible for assessing the relevance and
accuracy of the content of this document. It is unreasonable for any party to rely on this document for any purpose and BCG will not be
liable for any loss, damage, cost, or expense incurred or arising by reason of any person using or relying on information in this document.
To the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability
whatsoever to any party, and any person using this document hereby waives any rights and claims it may have at any time against BCG
with regard to the document. Receipt and review of this document shall be deemed agreement with and consideration for the foregoing.
This document is based on a primary qualitative and quantitative research executed by BCG. BCG does not provide legal, accounting,
or tax advice. Parties responsible for obtaining independent advice concerning these matters. This advice may affect the guidance
in the document. Further, BCG has made no undertaking to update the document after the date hereof, notwithstanding that such
information may become outdated or inaccurate. BCG does not provide fairness opinions or valuations of market transactions, and this
document should not be relied on or construed as such. Further, any financial evaluations, projected market and financial information,
and conclusions contained in this document are based upon standard valuation methodologies, are not definitive forecasts, and are
not guaranteed by BCG. BCG has used data from various sources and assumptions provided to BCG from other sources. BCG has not
independently verified the data and assumptions from these sources used in these analyses. Changes in the underlying data or operating
assumptions will clearly impact the analyses and conclusions.
This document does not purport to represent the views of the companies mentioned in the document. Reference herein to any specific
commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its
endorsement, recommendation, or favoring by BCG.
Apart from any use as permitted under the copyright Act 1975, no part may be reproduced in any form.
6 Disruption at Our DoorstepYou can also read
