By some estimates, Amazon has nearly doubled its ad spend to promote this shopping extravaganza, designed to stimulate excitement and spending during the traditionally quiet summer period.
The true impact of this sale, good or bad, is significant for nearly everyone involved.
Let’s start with Amazon’s competition.
In past years, competitors have attempted to capitalize on the general purchasing hype by having sales of their own, but this year, it was clear they were prepared. Target launched “Deal Days” on July 15 and 16. Google and Walmart joined forces to sell their competitive hardware products with Walmart’s “Google Week Savings” from July 8-16. eBay is hosting three weeks of deals, with a conspicuously-named “Crash Sale” on the July 15.
Retailers don’t want to throw in the towel and let Amazon rule a month of retail excitement, but Google Trends data shows competitors only saw a slight increase year-over-year. Amazon, however, doubled and captured 92% of consumer interest between the four retailers we researched.
Next are the consumers who seem to get great deals. For the most part, they do. Suppliers are obligated to provide their lowest-ever prices for an item to become a “Prime Day deal.” But that isn’t to say it won’t be found cheaper shortly thereafter.
For example, the Philips Pasta maker was a 2018 Prime Day deal at $207.99 (a discount of 20%). However, savvy shoppers could have also bought it for under $200 after Prime Day.
And brands? Well, if you’re trying to maintain market share you need to be involved. The last thing you want is a competitor to steal share and drive loyalty of their own brand. Prime Day can provide a chance to clear excess stock quickly and get it into the hands of consumers, who then recommend it to their friends.
If your product requires accessories or ongoing purchases (think a Sodastream that needs gas and flavors, a Kitchenaid that has multiple attachments, or an Xbox that needs games and a Live membership), getting more products into homes can lead to higher margins and more (full-priced) purchases later that off-set the initial discounting.
On the flip side, discounting can be dangerous on two fronts.
First, Amazon, Walmart and Target all closely monitor the prices offered by their competitors. So, a deep discount with one of them will typically be matched by the others. Ultimately, this loss of margin will be borne by the supplying brand. Second, there are plenty of studies — dating back to the days of Ivan Pavlov — affirming that buyers are conditioned to not spend before upcoming sale dates.
Using data from Profitero for a housewares' client between June 16-August 16, 2018, sales for two weeks prior to Prime Day were approximately 25% lower than normal, implying consumers were waiting. After July 20, sales were back to normal and showed no noticeable long-term benefit.
But on Prime Day, the client sold 35x their normal daily volume and sales averaged 5x their normal level for the following three days. Depending on their strategy (and the discount/margin reduction involved), this could be viewed as a success.
The real beneficiary of Prime Day is no surprise. It’s Amazon.
First, deep discounts reinforce Amazon’s “best prices” reputation. Happy consumers who feel they got a great deal will keep coming back, and Amazon gets their margin on every sale. Whether it’s a high price or a low price, more sales equals more retail margin. More goods sold means shipping fewer, larger boxes per household and greater logistics profit.
Even better, Prime Day is the largest push for new Prime membership sign-ups, and once Amazon lures someone into the Prime program, they spend much more. A recent study by Consumer Intelligence Research Partners showed Prime members buy an average of $1,400 worth of goods and services on Amazon annually, whereas regular customers only spend around $600.
Interestingly, the study also showed Prime members are spending, on average, $100 more than a year ago, while others are spending $100 less on average, widening the gap.
The devices that sell the most on Prime Day are usually Amazon’s own: Echos, Kindles, and Fire TV Sticks. Not only do these devices provide entertainment, they also provide new ways for customers to purchase products and broaden the advertising reach of Amazon’s properties. The more advertising enabled devices, the more ad impressions, the greater ad revenue.
Finally, Amazon asks brands to spend a lot of ad dollars in the lead-up to Prime Day, on the day/s itself, and afterward to capture any customers contemplating a purchase on Prime Day but didn’t follow through.
Prime Day is now firmly cemented in our retail mind-set and there are great deals to be had as a consumer. The benefit for brands is FOMO (Fear Of Missing Out), rather than a tactic that may make commercial sense. In the end, this manufactured tentpole event fuels Amazon’s entire ecosystem and delivers sustained profits across many business lines.
And there’s not much their competitors can do about it.