Overstock Undercuts Amazon

Overstock (Nasdaq: OSTK  ) CEO Patrick Byrne is taking all sorts of bold steps these days.

First, he buys $4.2 million worth of his own company's stock last week. Then, today, he announces that Overstock is dropping prices on best-selling books to a flat 25% off what Amazon (Nasdaq: AMZN  ) charges for the same books. (Here's a side-by-side comparison.)

Overstock's new pricing structure represents a calculated risk, one that will be measured over the course of September, according to Byrne:

"We have decided to conduct an experiment, taking books from leading best-seller lists and re-pricing them to be a flat 25% below the price on Amazon.com. This test will run for the remainder of September: we are interested in seeing how customers respond to such significant discounts on the most popular titles. We believe that our unique combination of low pricing and fast, efficient customer service will prove enormously attractive to readers."

Overstock's motive here isn't to start a price war, but to make a splash with low prices on popular books, and thereby acquire customers.

A relative newcomer to e-commerce, Overstock is aiming to become the Internet's liquidation outlet. Offering discount prices on popular books could prove a low-cost way to get shoppers to give Overstock a try. If so, these money-losing book sales could, in the long term, result in a profitable repeat-purchase customer.

Smart strategy.

Never heard of Overstock? The company was featured in the June edition ofTom Gardner's Motley Fool Hidden Gems.


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