Whole Foods Is Becoming Amazon’s Brick-and-Mortar Pricing Lab

The answers to all of these questions are probably “yes.” But the most important implication of this acquisition lies buried under a barrage of headlines about cheaper avocados and stacks of Amazon Echo speakers in the aisles at Whole Foods stores.

Last month, Amazon bought a laboratory.

More precisely, it bought a network of 456 customer-friendly testing facilities which welcome roughly eight million “volunteers” each week. Amazon’s relentless price testing in the online world anchors its competitive advantage. Its unrivaled base of knowledge allows it to use price as a communications tool, a recruiting tool, a psychological weapon, and a value driver in ways that transcend the basic mechanics of supply and demand and profit and loss. Now Amazon can supplement that knowledge with direct, proprietary insights about the offline retail world.

The importance of price in Amazon’s strategy with Whole Foods extends far beyond the recent, simplistic “Hey, lower prices at Whole Foods!” headlines. What Amazon will now study in the brick-and-mortar world – and more importantly, what it learns and how it applies the insights – can transform consumer retail in the United States. By buying Whole Foods, Amazon gets virtually limitless possibilities to test products and services, test price points and assortment interactions, redefine the price perception for organic and healthier foods, merge offline and online shopping experiences, and perhaps test home delivery or store pickup with ideal early adopters.

I see Amazon’s price strategy with Whole Foods, fueled by constant testing and experimentation, to evolve in three steps: changing price perception, growing the market for healthy foods, and then applying insights to other offline retail sectors and services.

Changing price perception

In the first week alone, the way which Amazon announced its price changes at shelf showed the sophistication it brings to such challenges. For many of their key value items, shoppers saw large, co-branded posters which announced the price change. The posters prominently featured the product name, the former (higher) price, the new (lower) price, and the message “more to come” at the bottom. Including both prices, as opposed to an “X% off” approach, reinforced the fact that many of the changes crossed key “whole dollar” thresholds. Avocados went from $2.50 to $1.99. Almond milk dropped from $3.99 to $2.99. Vine-ripe tomatoes were reduced from $2.99 to $1.99. While price research is not universally clear on the subject, the presumed power of undercutting these psychological thresholds is high.

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