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3 Times Amazon Responded Directly to Competitive Threats

By Jeremy Bowman – Mar 1, 2017 at 7:44PM

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Amazon likes to claim it's concerned with customers rather than competitors, but the facts don't bear that out.

There are many factors that make Amazon.com (AMZN 2.55%) a unique company. It has plunged itself headlong into a number of emerging markets, including e-commerce, cloud computing, and video streaming. It's been willing to sacrifice profits for long-term growth and market share in a way that no other company of its size has. But the company's culture has also set it apart.

There are many Bezos mantras that guide the company, but none does more so than this: "Put the customer first. Invent. And be patient." Bezos says those three guidelines have been the secret to the company's success.

Amazon Founder and CEO Jeff Bezos

Image source: Amazon.

Elaborating on the first point, Bezos has repeatedly said that the company is obsessed with customers rather than focused on competitors, and that it responds to customer needs rather than competitive threats.

However, Bezos is well known as a cutthroat competitor, and fosters a competitive environment both within the company and the markets it does business in. He has famously said about rivals, "Your margin is my opportunity." Though the idea that Amazon only cares about customers and not competitors may buffer the company's image as a consumer darling, it's far from the truth. Here are three occasions, including one just last week, when Amazon responded directly and determinedly to competitive threats.

1. Free shipping and Wal-Mart

A year ago, Amazon lifted its minimum order for free shipping for Non-Prime members from $35 to $49. The move was seen as a push by Amazon to encourage customers who hadn't already to sign up for Prime memberships, and to trim exploding shipping costs.

In the past year, Wal-Mart Stores, Inc. (WMT 2.18%) has stepped up its focus on e-commerce, expanding its online grocery pickup program and acquiring Jet.com for $3.3 billion. As part of that strategy, Wal-Mart said a month ago that it would offer free two-day shipping on orders of $35 or more in an attempt to challenge Amazon Prime. Just a few weeks after Wal-Mart made that announcement, Amazon lowered its free-shipping minimum again to $35, back down from $49, in a clear response to Wal-Mart. Notably, Amazon does not promise two-day shipping for such orders, reserving that benefit for Prime members.

Still, the move shows how closely Amazon is guarding its advantage in e-commerce and its reputation for fast, free shipping.

2. Diapers.com face-off

In 2010, Amazon noticed that its diaper sales, a key category as it helps bring in new parents, were slipping, going instead to upstart Quidsi, which owned Diapers.com. Amazon dealt with the problem by attempting to buy Quidsi, but when it was rebuffed it responded by dropping its diaper prices by as much as a third in an attempt to strongarm Quidsi into a sale. Although Quidsi also received a bid from Wal-Mart, Amazon's strategy proved successful and it bought Quidsi for $545 million in November 2010.

Notably, Amazon is facing off again with Quidsi co-founder Marc Lore, who went on to found Jet.com after a two-year stint with Amazon following the Quidsi purchase. Lore now has Wal-Mart's backing as he attempts another assault on Amazon, yet another reason why this rivalry is only heating up.

3. Everyday pricing algorithm

Amazon's sophisticated pricing algorithm, which it adjusts millions of times a day, is perhaps the best example of how the company is often more focused on competitors than customers. The company, for instance, often prioritizes products it sells over those sold by thrid-party vendors on its marketplace even when those are cheaper, according to a study by ProPublica. Amazon also gives an advantage to vendors who pay it for services such as fulfillment.

Oddly enough, Amazon's closest competitors are sometimes those vendors selling on its website.

Another study showed that Amazon manipulates price perception by often offering a discount on the most popular items, but rarely doing so on less popular ones, creating the perception that it offers the lowest price when that's often not the case.

The company may deserve its reputation for putting the customer first, as it often makes allowances that other businesses might not, and programs like Prime have been customer favorites -- but it's foolish to assume that Amazon ignores competitive actions just because it says so. Like any other business, it needs to respond to rivals in order to grow and succeed.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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