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Amazon Makes a Game-Changing Move to Keep Prices Low

By Steve Symington - Dec 13, 2014 at 10:43AM

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Look out, eBay! Amazon's new pricing feature wants shoppers to make an offer.

The next time you're browsing for collectibles on Amazon.com (AMZN 2.07%), you might notice a new way to make them your own.

On Tuesday, Amazon rolled out a pricing feature called "Make an Offer" -- just as it sounds, the new option allows online shoppers to negotiate directly with sellers for lower prices on merchandise. Initially, Make an Offer will be limited to 150,000 items that uniquely lend themselves to the barter-style process, including sports and entertainment collectibles, collectible coins, and fine art. 

The start of something big
That number might seem low considering the several hundred million products Amazon carries and the fact that Amazon Marketplace sellers currently account for 40% of all items sold on the website. However, this seems like a logical starting point for a widespread program should Make an Offer prove successful in this limited scope.

In a press release, Amazon Marketplace Vice President Peter Faricy went so far as to call Make an Offer a "game-changer" for both customers and sellers, as it enables them to negotiate for items just as they would normally in a physical store or gallery.  

But it's not an entirely selfless proposition. For Amazon, this represents a clear shot at eBay's (EBAY 1.79%) online auction wheelhouse, a market that is ripe for picking. Last quarter, 152 million active buyers perused 800 million listings on the eBay Marketplace, driving segment revenue to $2.2 billion on 9% year-over-year growth in gross merchandise volume. By integrating the new pricing feature into its website, Amazon might have found a relatively low-cost way to gain both market share and sales growth.

A win-win-win
Amazon insists Make an Offer is "not an auction format." It pointed out that all negotiations are one-on-one and private between the buyer and seller. The system ensures consumers will never pay more than the original listed price for an item.

Buyers will almost certainly take kindly to the potential lower prices, greater control, and more customer-centric experience afforded by the Make an Offer feature.

But it's not just online shoppers who will appreciate the option. Amazon indicated that nearly half of sellers who participated in a recent survey said the ability to negotiate prices with customers would significantly drive additional sales for their products on Amazon.com. For those who would rather not participate, the Make an Offer feature must be enabled by the seller and is optional for any given item. 

This is also an obvious win for Amazon, which should build additional rapport with both buyers and sellers through the program, while also increasing referral and closing fees from Marketplace retailers.

The Make an Offer feature is in its early stages -- Amazon investors will need to wait and see whether it meaningfully contributes to the sales qualified for the program. With the company planning to expand the initiative to even more items in 2015, Make an Offer could potentially change the way we think about shopping online.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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