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Price War: Retail’s Latest Self-Destructive Addiction | Retail Touch Points

Because the pricing lever is so easy to pull and generates quick results for investors, retailers are often tempted to make quick, gut decisions to generate foot traffic with low prices. But this addiction is unstainable and not an isolated incident. Major companies are buckling down for bigger investments on price in the absence of other avenues to compete.

For example, Walmart and Amazon. These two omnichannel retail giants are in an all-out price war, and while that battle seems great for shoppers seeking low prices on the items they buy most often, their retail competition and the consumer packaged goods (CPG) companies that serve them are feeling the heat.

To protect their margins during this price war, Amazon and Walmart are putting pressure on CPG companies to help fund the investment in lowering prices. For retailers that don’t have this type of clout, they are faced with the dilemma of finding other ways to fund a price war or risk being left behind. This battle, fighting for share in an increasingly crowded and transparent market, will continue to send shock waves through the retail ecosystem.

Amazon is also pressuring manufacturers by ditching the brands and goods that don’t turn a profit — known inside the company as CRaP (Can’t Realize a Profit) products. Separate from the pressure of these retailers’ pricing algorithms is the challenge posed by shipping costs. Profitable low-price items in brick-and-mortar stores can quickly become unprofitable when sold online after factoring in the cost of shipping.

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Price War: Retail’s Latest Self-Destructive Addiction.

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