Prime Day

More than 90 years ago, holiday shopping found its official start the Friday after Thanksgiving, eventually becoming Black Friday, the biggest shopping day of the year. Over the years, Amazon has helped make Black Friday even more of a global online shopping phenomenon. Next week, Amazon turns 20 and on the eve of its birthday, the company introduces Prime Day, a global shopping event, offering more deals than Black Friday, exclusively for Prime members in the U.S., U.K., Spain, Japan, Italy, Germany, France, Canada and Austria. On Wednesday, July 15, new and existing members in the U.S. will find deals starting at midnight, with new deals starting as often as every ten minutes. They can shop thousands of Lightning Deals, seven popular Deals of the Day and receive unlimited fast, free shipping. Not a Prime member? To participate in Prime Day, Amazon customers can sign up for a 30-day free trial of Prime at

Amazon is creating its own shopping holiday. Economists and retailers have long debated what would happen if there were two Christmases a year instead of one. Would that just move consumer spending around or would it increase the share of the pie? Amazon doesn't have to worry about that here because they're just focused on their own revenue, and if this shifts retail spending share to them, all is good.

It can be dangerous for a retailer to become dependent on sales, but Amazon is a special case. Restoration Hardware has a twice a year sale on its towels, also on its lighting. Customers feel a bit silly buying those items from them any other time of year. Criterion DVDs go on sale at 50% off from time to time. To buy one at any lower discount feels like you're leaving money on the table.

Amazon has such a large catalog of items, and the items it puts on sale are so random, that it's immune to creating artificial seasonality with its sales. Its customers buy from them so often that it's not practical to wait until items go on sale to shop there.

Besides, the core of Amazon's value is everyday low pricing, so most customers feel like they're getting a great deal on most everything purchased there anyhow. A bunch of random deals on Prime Day are just gravy. And if this goes off well and becomes an annual occurrence, it may drive more people to join Amazon Prime, even better for Amazon because of the loyal customers Prime memberships create and the increase in shopping volume and frequency from that cohort.

When is everyday low pricing the right tactic?

When stores like Wal-Mart, Sam's Club, and Costco began their rapid expansion in the 1990s, supermarkets were thrown for a loop. The limited service, thinner assortments, and “everyday low pricing” of items in these “supercenters” — including foodstuffs — created enormous cost savings and increased credibility with consumers. What was a Safeway or a Stop & Shop to do in the face of such brutal competition?

A new paper from Stanford GSB looks at the strategic pricing decisions made by grocery firms during that period in response to the shock to their local market positions by the entry of Wal-Mart. The paper answers the age-old question in the supermarket industry: Is “everyday low pricing” (EDLP) better than promotional (PROMO) pricing that attempts to attract consumers through periodic sales on specific items? Investigators find that while EDLP has lower fixed costs, PROMO results in higher revenues — which is why it is the preferred marketing strategy of many stores.

The research is also the first to provide econometric evidence that repositioning firms’ marketing approaches can be quite costly. Switching from PROMO to EDLP is six times more expensive than migrating the other way around — which explains why supermarkets did not shift en masse to an “everyday low pricing” format as predicted when Wal-Mart entered the game.

From this article from Stanford's GSB. Ex-Apple exec Ron Johnson can attest to the switching costs of going from EDLP to PROMO pricing; it cost him his job at J. C. Penney.

I'm a Costco regular, but I'll buy groceries at Safeway or other grocery stores sometimes just because or geographic convenience and longer shopping hours. If you have proprietary products, that also allows you to sidestep, to some extent, the EDLP war of attrition.

For commodity products, however, the more retail moves online, the less tenable it is for stores to rely on the sheer convenience of physical store proximity to bypass the EDLP game. The paper above looked at the entry of Wal-Mart, but of course the modern day successor to Wal-Mart as an e-commerce gorilla is Amazon. If you are selling the same commodities as Amazon, it's a brutal game, especially as the eventual customer expectation will likely be same-day delivery AND every day low prices for most retail goods. In that scenario, the findings of the researchers above would not hold. 

Why Amazon wins

Okay, not an exhaustive list, there are many many reasons. But as with other great companies, it's often the negative experiences with their competitors that highlight their strengths.

I've bought a lot of items from The Impossible Project, a company started by some ex-Polaroid employees to try to continue producing instant film for traditional Polaroid cameras. I own a few Polaroid cameras, I love the beautiful-ugly analog quality of the photos they produce (even after it was co-opted by hipster culture), and I was thrilled that someone would fight to keep the film in production.

In the craziness of moving to a new city and starting a company, I lost track of one order I placed with The Impossible Project for two small items. It popped into my head the other day like random things often do, in that "Remembrances of Things Past" way, and I realized I'd never received the items. I went online to check the shipping status, and it was marked as delivered to our office a few weeks ago.

I wrote in to report the shipment missing, and a customer service replied that the company was in an awkward position because the shipment was reported as delivered, so the best they could do is give me a store credit for the price of the shipment less shipping.

A totally fair and reasonable offer. But from my perspective, I'm now down the shipping cost on that order, and it makes me a bit sad to feel distrusted.

This is after ordering a lot of their early test films, some of which came from failed test batches that produced unusable photos. To their credit, they offered ways to ship back the bad film to get replacement film, but the overhead of packaging and shipping up defective products is its own hassle and cost, and I'm almost certain there are some lemons among the batches of film I purcased from them but haven't used yet. I don't mind supporting small companies that are trying to do good things, and the internet and web have created an entire class of entitled, self-important customers who feel aggrieved even when free products don't serve their every whim. But The Impossible Project's products aren't cheap, and I've spent a lot of money with them, so this botched transaction with them feels like a cold reality check about my importance as a customer.

But perhaps it's just Amazon that's spoiled me. I've never had Amazon question any order I've reported as missing. Amazon will ship a replacement order for any damaged or missing item, no questions asked. Once, I reported an order for a DVD as not having been delivered and so they shipped me a replacement immediately. Then the original shipment finally showed up a week later, and now I had two copies of the same product, so I emailed them and asked if they wanted the original back. They said it was okay, just keep them both and save yourself the hassle of shipping the original back.

Amazon competes for your business for life, while other companies compete transaction to transaction. When I hit the 1-click order button at (and I do that a lot, at least twice a week), I do so with zero doubt that I'll get anything less than full satisfaction.

When I was at, the whole company was fixated on eliminating two of the most severe psychological roadblocks to ordering online: paying for shipping and worrying about the cost/hassle if the shipment went bad for some reason. They've effectively cut both of those issues down to size, the former with Super Saver Shipping and Amazon Prime, and the second with their "no questions asked" return/replacement/exchange policies.

And that is why for millions of customers, evolved from a convenient way to shop for long tail items to the preferred way to purchase anything and everything.