1. Can consumers actually determine whether Amazon or Walmart has lower overall prices? Explain.

2. For Amazon and Walmart, is it more important to have lower prices or to have the perception of lower prices?

3. Just how far should either Amazon or Walmart take the tactic of warring on price? Base your answer on Figure 11.1 in the text.

4. In the battle for online dominance, just how important is low price? How important are the other benefits that Amazon and Walmart each deliver?

Less than a decade ago, no one believed that Amazon posed a credible threat to Walmart. After all, Walmart was the world's biggest retailer, selling everything under the sun. Amazon was just an online upstart, known mostly as a seller of books and CDs. Back then, Walmart's revenues eclipsed Amazon's by more than 120 times.

But what a difference a decade makes. Although Walmart still dominates the physical retail sphere and remains the world's biggest company to boot, Amazon's growth has put it squarely in the sights of the brick-and-mortar giant. These days, it seems, everyone is comparing the two. Ali had Frazier. Coke has Pepsi. The Yankees have the White Sox. And now these two heavyweight retailers are waging a war online. The weapon of choice? Prices-not surprising, given the two combatants' long-held low-cost positions.

The price war between Walmart and Amazon began three years ago, with skirmishes over online prices for new books and DVDs. It then escalated quickly to video game consoles, mobile phones, and even toys. At stake: not only the fortunes of the two companies but also those of whole industries whose products they sell, both online and in retail stores. Price can be a potent strategic weapon, but it can also be a double-edged sword.

Amazon, it seems, wants to be the "Walmart of the Internet"- our digital general store-and it's well on its way to achieving that goal. Although Walmart's overall sales total was an incredible $444 billion last year-nine times Amazon's $48 billion-Amazon. com's online sales were nearly nine times greater than Walmart.com's online sales. Moreover, Amazon.com attracts more than 100 million unique U.S. visitors to its site monthly, more than double Walmart.com's number. One analyst estimates that more than one-half of all U.S. consumers who look online for retail items start their search at Amazon.com.

Why does this worry Walmart? After all, online sales account for only 7 percent of total U.S. retail sales. Walmart captures most of its business by offering affordable prices to middle Americans in its more than 4,400 brick-and-mortar stores. By comparison, according to one analyst, Amazon has made its name by selling mostly to "affluent urbanites who would rather click with their mouse than push around a cart."

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Hold current price; continue to monitor competitor's price No Has competitor cut price? Yes No Will lower price negatively affect our market share and profits? Reduce price Yes Raise perceived value No Can/should effective Yes action be taken? When a competitor cuts prlces, a company's frst reaction may be to drop Its prices as well. But that Is often the wrong response. Instead, the frm may want to emphasize the value" side of the price-value equation. Improve quality and increase price Launch low-price "fighter brand"