Amazon Error May End 'Dynamic Pricing'
S E A T T L E, Sept. 29, 2000 -- In the space of two weeks, online retailerAmazon.com has been forced to apologize, issue refunds and appeaseangry customers after it was found to have charged some people morethan others in random price testing on its Web site.
With the virulent reaction of Internet-savvy customers, andAmazon.com’s rapid decision to drop the tests, those tempted tooffer different prices to different customers online had betterthink twice.
Amazon.com has faced allegations — which it denies — that thedifferent prices were based on customer data, such as where aperson lives and how much he or she might have previously bought atAmazon.com.
“We’ve never tested and we never will test prices based oncustomer demographics,” founder Jeff Bezos said in a news releaseThursday.
Consumer-Friendly Net
Online retailers in general may never get the chance to do so,since customers have proven to be sharp-eyed when it comes toprice. The Internet itself encourages comparison shopping, andswapping of information by consumers.
“With popular sites like Amazon, you really can’t get much pastthe consumers anymore,” said Tom Wyman, electronic commerceanalyst for J.P. Morgan. “They’re out there trading notes all thetime, looking for the best deals.”
The problem started a few weeks ago, when Amazon.com customerswho bought digital video disc (DVD) movies began comparing notesonline. The media picked up on the disparity, forcing Amazon.com toadmit it had been conducting random price tests.
Amazon.com spokesman Bill Curry said the tests were useful indetermining a price point — the right balance between how muchAmazon.com could charge and still maintain a good sales volume.Nevertheless, because of the consumer outcry, Amazon.com ended uprefunding 6,896 customers an average of $3.10 each, or a total of$21,377.60.
Amazon.com has no immediate plans for more random testing, butCurry wouldn’t rule it out in the future. He said customersinvolved in any test would get a refund if they paid more than thelowest price used in the test.
Privacy Issues
Such pricing tests have privacy advocates concerned, sinceconsumers have only a company’s word and their own observationsthat personal information isn’t used.
“Certainly, the Internet is wonderful for trading informationfor consumers,” said Jason Catlett, president of the advocacygroup Junkbusters. “And, Amazon.com is under a tremendous amountof scrutiny. But until the U.S. adopts laws protecting the use ofconsumer information, many of these companies won’t get caughtmisusing this data.”
The idea of so-called dynamic pricing isn’t new. Stores inwell-off neighborhoods may charge more than stores in poorer areasfor similar goods. But the vast databases of the Internet createthe possibility of targeting prices directly to individuals, basedon their billing information and purchasing history.
Wyman said Amazon.com’s misadventures may help to preventwidespread use of such practices.
“Most e-commerce sites right now need to charge as close to thesuggested retail price as possible. They need the money,” Wymansaid. “I think the days of deep discounts are done. And dynamicpricing really only works online when you’re below the normalretail price.”