For the customer, the price is always a big factor when it comes to shopping. It is especially important for Walmart and Amazon customers. They are shopping from the two largest retailers because they advertise the lowest prices available on products. Consumer Packaged Goods (CGP) are starting to take a hit, though, with a price war that is becoming heated between Amazon and Walmart. Walmart wants to sell its CPS\u2019s at the lowest price point possible and is feeling pressure from an algorithm that Amazon uses to price the products it is selling.\nWhat does the Amazon Price Check Algorithm Do?\nAmazon prides itself with being the best at pricing. It uses an algorithm to do its work by finding the lowest price on an item throughout the internet. There is a catch, though. The algorithm does not discriminate between bulk items and single use.\nFor example, a 114-ounce ketchup bottle retailing at $5.99 has a per ounce cost of $0.05. A single-use bottle that is 20 ounces is currently retailing at $2.99, making it $0.14 an ounce. Amazon\u2019s algorithm will detect the price as lower on the 114-ounce and now sell the 20-ounce bottle for $1.00 even though it is a different size. Customers will most likely buy the item from Amazon as its price is about 66% lower than its competitors. They might sell more, but it is highly unlikely that it will result in increased profits as their costs will remain the same.\nThe Algorithm is Disrupting the Relationship Between Buyers and Sellers\nAmazon\u2019s mantra is putting its customer first. If that means they will be making less in margins, they are okay with that. How long will that last is anyone\u2019s guess. The company has plenty of different services that can offset some of the lost profits on CPS\u2019s they are undercutting on. Overall, it is important to note that this model cannot be sustained for long periods of time. A loss is a loss no matter how large or small. Will Amazon raise its price to be comparable to competitors? Time will tell.\nConversely, when competitors like Walmart see Amazon\u2019s price drop, they want to take action immediately. The first step will be looking at their own margins. How low can they go with their current negotiated wholesale rate? Can a promotion be put in place? Competitors will also question. How can Amazon sell at that rate? What must their wholesale rate be? They might even get to the point where they will call their CPG sellers. They will demand a rate reduction in order to compete with Amazon. While there might currently be room to negotiate rates, at what point can Walmart no longer be a viable competitor? Or, for that matter, does a CPG no longer want to be harassed to drop prices and stop dealing with Walmart?\nPossible Retail Dynamic Changes\nIf Amazon keeps their price changing algorithm as it is, there are some possible outcomes that may change the retail landscape. First, sellers of CPG\u2019s would reduce their wholesale cost and sell at price points much lower than they have in the past. The CPG\u2019s will have to sell only to retailers like Amazon and Walmart. The price point that they are selling their product to other retailers cannot compete. That means that things like ketchup, diapers, and paper towels will no longer be available at your local grocery store. They cannot sell the volume that would demand the lower wholesale price. However, CPG\u2019s will have lower profit margins which could have implications with stock holders as well as stunting growth potential.\nCPG’s Fight Back\nAnother possible outcome is that CPG\u2019s fight back. They place a baseline on the retail selling price of their products. This helps to retain their profits. It is something that is being seen in the travel industry currently. Hotels and airlines are selling their services lower than major third party sites like Hotels.com and Expedia. However, this means that the seller has to spend more advertising dollars, increase customer service staff, and add more money to operating costs. This can shrink their margins, but this will retain pricing control by the seller. In a retail space, this might look like CPG\u2019s selling at Walmart exclusively or only at local supermarkets.\nSince the latter outcome is a possibility, Amazon should reconsider its price check algorithm\u2019s flaws. It could be the difference in brands choosing to sell exclusively through Walmart and not with them.\nSharon Shichor is the CEO of Eighteen Knowledge Group LLC, your solution and knowledge base for brand building and getting your products in the hands of consumers. With over 15 years of wholesale-retail experience, she speaks the language of Walmart fluently. Want to learn more about e-commerce trends? Visit our Company page and blog for more on the subjects that affect your company\u2019s daily operations the most!