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Amazon's price-reduction scheme used to boost sales

Amazon.com Inc, the biggest retailer on the Internet, is borrowing a strategy from Wal-Mart Stores Inc, the biggest retailer in the world, to get customers to buy more. It's cutting prices.

Before the holiday season, Amazon.com began offering discounts of at least 30 percent on books costing more than US$20.

The discounts will be extended to other kinds of products as well, company spokesman Bill Curry said. Discounts breed customer loyalty and keep the competition at bay, Chief Executive Officer Jeff Bezos said in an interview last month. They also may hurt profit margins. Investors said the company had few other options after US sales of books, music and videos fell 12 percent in the third quarter.

It was the first year-to-year drop for the company's biggest and oldest business.

"They have to do it," said Alan Loewenstein, co-manager of the John Hancock Technology Fund, which held 700,000 shares of Amazon.com as of September.

Domestic sales of books, music and videos probably fell again in the fourth quarter, analysts said. Amazon.com, which has yet to turn a profit, will disclose quarterly results on Tuesday.

Price cuts may help Bezos persuade customers to spend more on the Seattle-based company's Web site, just as steep discounts allowed Wal-Mart to pull ahead of rivals in the 1990s.

Discounts don't always translate into better sales. Kmart Corp. slashed prices on 38,000 items last year to revive sales. Sales dropped and the earnings expected for the year never materialized, leaving the company in search of additional financing.
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