‘Jittery’ prices will come back to hurt Amazon

Discussion
Aug 28, 2018
Paula Rosenblum

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

Amazon, famous for its continual price changes and (maybe) dynamic pricing, might well be killing the goose that laid the golden egg. A recent experience really caused my head to snap back.

A couple of years ago, I found out about camelcamelcamel.com, a site that sends alerts when the price on a particular item on Amazon drops below a user-defined level. At one point, I set an alert to inform me when Unicel pool filters dropped below $45, well below the $65 my local store charges. A $20 difference is incentive enough for me to do some “pantry packing” and buy a new filter well in advance of need.

I don’t receive the alerts often, in fact, I couldn’t remember the last time I’d gotten one, and wasn’t even sure the site still existed. Recently, however, an alert arrived revealing the site had made some significant enhancements. The high-water mark for the pool filter price was pretty close to what I’d pay in a store, and the low had just been reached. Of course I bought one.

The alert system has become quite sophisticated, but the notable part for me is the graphic showing the entire price history of the item. I can kinda sorta understand why there would be a price drop in August with pool use winding down in many U.S. cities. But generally, the price history is borderline senseless: high prices at odd times, low prices at odder times.

When price becomes this transparent to the end-consumer, even a retailer like Amazon will find itself in some trouble.

Basically, this kind of behavior erodes trust. Rather than just blithely asking Alexa to please ship a new item, or push a “dash” button, it encourages the consumer to look around for better pricing.

This is the long way around suggesting that perhaps it’s time to wind down the incessant price changes that the industry has been using. The transparency on steroids shown in the graph above will erode trust quite quickly. As an industry, we’re better off with the old fashioned EDLP and promotions. Bouncing prices around like this is a bad thing.

DISCUSSION QUESTIONS: Do continual online price changes undermine consumer trust? Will ever-increasing transparency of price changes become a problem for retailers? What’s the solution?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Amazon’s erratic price swings have in fact altered my shopping behavior — and all in ways that do not favor Amazon."
"The question is who wins when both consumer and retailer are willingly and knowingly playing that game?"
"Pricing swings will drive customers nuts and make them “hard” shoppers. I call it the “gas station mentality.” "

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22 Comments on "‘Jittery’ prices will come back to hurt Amazon"


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Charles Dimov
BrainTrust

Dynamic pricing was a great idea for Amazon. This was a brilliant way of using tech to maximize their profits. Full control of pricing as a lever. But this leaves the consumer with that feeling of being manipulated. I completely agree with Paula, this erodes consumer confidence. At the very least, it invites customers to look for ways to game the system (beyond the standard group of fraudsters).

To build trust, retailers may want to try greater transparency (risky, but worth an experiment). Many consumers are reasonable. Many consumers are willing to stand up for what they believe in, like retail social responsibility, retail sustainability and trustworthiness beyond profit. There is a wide open window of opportunity for other retailers to focus their messages on the fact that they don’t do dynamic pricing. I can already imagine the inventive ads.

Paula Rosenblum
BrainTrust

Hi Charles. What profits?

Dave Bruno
BrainTrust
I completely agree, Paula. While all my “evidence” is anecdotal, I do believe these pricing strategies are hurting Amazon. I recently realized that Amazon’s erratic price swings have in fact altered my shopping behavior — and all in ways that do not favor Amazon. I now find myself delaying non-urgent Amazon purchases in hopes that the prices might drop. I definitely price compare now (something I didn’t always feel compelled to do before, and I even try to game the system by reviewing an item of interest, placing it in my cart, leaving it in my cart for several hours or more and even deleting it from my cart to see if the price will drop as an incentive for me to convert! And believe me when I tell you I get really frustrated when my efforts and tactics fail me and I see the item offered for a lower price not long after I finally hit the buy button, which is definitely not a good sign for my long-term affinity for Amazon. And my… Read more »
Jeff Sward
BrainTrust

I don’t see this so much as a trust issue as an issue of training the customer to wait. Customers are easily trained to wait and happy to do so. More race to the bottom stuff. Doesn’t feel healthy for margins. But sometimes competition is a little messy.

Lee Peterson
BrainTrust

I think that worse than the continuous price changes is the simple fact that it’s confusing to shop. You can look at the same item from six different marketplace traders all with different prices. So you start thinking, “why wouldn’t I just buy the least expensive one and, by the way, why is it the least expensive one?” And sometimes there’s vast differences in prices of the same item. All this causes hesitation. The opposite of the one-click buy mentality.

So to me, the confusion is going to hurt them more than the pricing. You have to ask yourself, “why are you showing me all this stuff?” Which is exactly the opposite of what made them great in the first place.

Keith Anderson
BrainTrust

Amazon dynamically re-prices based on competitors’ prices and promotions, stock on-hand, third-party sellers’ prices, item-level economics and other factors.

Does price volatility potentially confuse or frustrate shoppers, sometimes causing them to check prices elsewhere?

Perhaps. But if, when comparing to other retailers, Amazon’s price is ultimately equivalent or cheaper, is trust really being eroded?

We’ve analyzed prices on tens of thousands of items over the last several years and generally found that Amazon’s prices are reliably competitive.

I do think we’ll see more retailers helping shoppers make choices that balance the economics of price and convenience, allowing them to pay less by picking up in-store, waiving return privileges, ordering in larger quantities, etc.

Lyle Bunn (Ph.D. Hon)
Guest

Commerce should be so smooth. It is a no-win situation for consumers to shop based largely on price and I am astounded that every tactic toward “buy for less” approaches becomes just a tactic. Prices will always be dynamic and each part of the supply chain will point its fingers at others as the problem.

David Weinand
BrainTrust

I’ve seen a few studies that show consumers are not that concerned with price changes as long as it is convenient for them — as Amazon as been. However, those studies were showing changes in the +/- $1 range, not the full $20 Paula shows in her example. If these types of changes are becoming more prevalent, this will definitely change behavior — and will hurt the perception of Amazon.

Doug Garnett
BrainTrust

Amazon has pushed a PR program for decades about low prices — driven by Bezos’ claim that “in your margin is my opportunity” (not literal wording) — and that sets them up for catastrophe at some point. Add Paula’s observation on top, and the future disaster Amazon is building gets even more concerning. That said, many consumers won’t have the wherewithal to find the price graph like Paula has.

When will this version of consumer expectation debt come due? And will it trickle in (manageable) or hit all at once (unmanageable)? Hard to know.

Maybe we can learn from consumer cell phones. U.S. operators created huge expectation debt with “free” cell phones in return for long-term contracts. Consumers forgot the “free” part and became angry about the “contract” part. But they’ve been working their way out for the past five years — trying to fix pricing errors that were already clear in 1997.

Camille P. Schuster, PhD.
BrainTrust

Many consumers may not know about camelcamelcamel.com. However if they are doing reorders through Alexa or online automatically and start seeing that they are being charged different prices, they may start investigating. When they find arbitrarily different prices, they may well stop the automatic reorder features that are being used by retailers to build loyalty. This price strategy may well backfire on Amazon.

Rich Kizer
BrainTrust

Pricing swings will drive customers nuts and make them “hard” shoppers. I call it the “gas station mentality.” When the prices of oil increases or drops, the prices at the pumps immediately follow. Sometimes within hours. Confused people refuse to drive around looking for a better price, so they go to their new answer man: an app called “Gas Buddy.” That app discloses, in a second, the very current prices (as reported by gas buyers) in any given area/ZIP code/whatever you want. Is there a new “Gas Buddy” opportunity here?

Jack Flanagan
Guest
6 months 25 days ago

On a related pricing note I used to routinely preorder likely best selling books I was interested in on Amazon, confident I’d get a great (if not the absolute best) price. I now find that the Amazon pre-order price is well above what will be the price when I now buy those books on one of my regular visits to Costco.

I’m still a huge fan (and user) of Amazon. However in the past year or so a number of unfortunate, trust-reducing factors seem to be a part of the Amazon shopping experience.

Ricardo Belmar
BrainTrust
Consumers can be very fickle. For every Amazon shopper that buys and then sees the price get lower hours later, there will be one who hits that buy button at the low point and feels a higher degree of satisfaction! What’s interesting in looking at these price change charts is that what seems to make little sense to us, made sense to an algorithm somewhere in Amazon’s pricing system. Somewhere there was data analysis conducted by a pricing program that determined there was an opportunity to change prices in those drastic jumps at those specific times. I would expect Amazon would stop doing this if it was hurting their sales on any given item. The fact that they continue to do it tells me they see an overall positive. I don’t believe the majority of shoppers are tracking prices in this way so that many of them simply never realize if they pay a higher or lower price so close to their actual purchase. When they do see a price change I’d bet they just… Read more »
Cate Trotter
BrainTrust

I think the more customers are aware of changing prices, the more it can impact on their buying/research habits — to a point. For a lot of people if there’s something they really want or need fast then they’re probably going to be happy with Amazon’s price as they want the service. But if it’s a non-essential or time-sensitive purchase then a lot of people are happy to wait, to check prices and hold out for the best possible deal. The question is who wins when both consumer and retailer are willingly and knowingly playing that game? It’s vital that retailers focus on more than their prices if they want to foster real customer loyalty.

Ryan Mathews
BrainTrust

When Fred Crawford and I wrote “The Myth of Excellence” almost 20 years ago, we did an exhaustive analysis of Walmart’s national pricing model. What we found was tremendous fluctuation on individual SKU prices, but a rigid positioning in the bottom quartile of any individual market’s pricing structure. In other words, you were almost never getting the best deal on an individual purchase, but across a basket of purchases you were probably saving money. This led us to conclude that the price of individual SKUs is less important over the long haul to consumers than the overall price impression a retailer creates.

I suspect the same is true on Amazon today. Yes, you can often beat an Amazon price — often without leaving Amazon’s site, but the public still has the overall price perception of lower prices. So long as you can keep that price impression up — as in the case of Walmart — you have the ability to change prices a good deal of the time.

Ananda Chakravarty
BrainTrust
Pricing isn’t just about the price of one product against another, but the assortment bundles offered as well. The reality is that Amazon has been honing its recommendations engine for years now, and price is a perception. Amazon is a master of recommendations with 10-13 different forms of recommendation on any page. More important, it’s a master of bundling products. A deep dive on pricing can be found on the Atlantic. Airlines already master this space — where almost all surviving airlines adopt it. In the business world, game theory (John Nash) still applies — even to the most mundane products. Amazon’s price engine is one of the fastest and interestingly, many 3rd party sellers on Amazon also use algorithmic pricing to capture the buy box. That said, the customer is not buying from Amazon with trust for the lowest price, but an acceptable price. This opens the door for companies like camelcamelcamel and other price comparators. Few retailers can play on price as their competitive advantage, but Amazon has been able to do so.… Read more »
David Naumann
BrainTrust

The price fluctuations in this example seems very dramatic and would surprise most consumers. As consumers, I think we all understand that Amazon and many e-commerce sites with commodity products have dynamic prices and if we have the time to play the price fluctuation game, we will. However, for most items we accept the fact that we can probably find a lower price if we keep checking, but accept the lowest price we can find a the time we are ready to buy.

James Tenser
BrainTrust

A key lesson learned from my interactions with several “price optimization” software firms is that a retailer’s price image depends on shoppers’ perception of trustworthiness. Trust depends largely (but not entirely) on stability.

Too many price changes can tend to undermine the value message being crafted by the retailer.
This presents quite an irony for Amazon. Its dynamic pricing tactics send a message to shoppers that they should routinely check competing prices, or — as Paula notes here — wait for a price dip on non-urgent purchases.

Craig Sundstrom
Guest

I think the answer depends on what the consumer was trusting the seller to do. If it’s availability or reliability or service or anything other than price, per se, then I think it will be a small issue (within reason). And I think these are (or have been, anyway) Amazon’s selling points. Amazon isn’t really a “low price” seller (at least not to informed buyers).

But in the bigger picture, and as price so often becomes an issue, I think “jittery” prices will erode not trust but rather loyalty. Algorithms and automated buying programs will scan sellers that meet certain thresholds and go with what is the lowest price of the moment.

Peter Charness
BrainTrust

A lowest price comparison on the internet is just a click away. The old adage of 4 “rights” (Product, Place, Price and Time) have largely been replaced by “good price, convenient and friction-less transaction, and trust.” Amazon used to have all 3 of those nailed, but as the internet grew up, there are many retailers who can now hit these “3 new needs.” So Amazon has to keep their pricing competitive which means high/low pricing from time to time. Race to the bottom? As Paula points out, the missing “right” is now often Profit … there is none. Now if only I can get Price, Convenience and Trust into a new adage and trademark that slogan.

Joe Cook
Guest
Great discussion! A few things in play here. Pricing will always be dynamic as long as consumers want more than just low prices, and since not every consumer puts price front-and-center all the time, retailers will have the freedom to exploit that with smart pricing algorithms that fine-tune themselves. More data over time makes them smarter, and I suspect those same algorithms will one day soon be offering the price-first consumer a sharper price than the service-first consumer gets on the same item. Whatever retailer understands me the best will earn my loyalty. I’ve saved lots of $$$ over the years with camelcamelcamel.com by uncovering what constitutes a great price on Amazon, then I save the item in my shopping cart until I see the price drop (which I get alerted to anyway if it’s saved in my cart). With very few exceptions, I’m still buying the item on Amazon. I agree with the earlier comment re: perceptions about jittery prices causing some consumers to pull back from automatic re-ordering. That’s a clear watch-out, but… Read more »
John McIndoe
BrainTrust

The name of the game today for retailers is building loyalty. I do believe pricing is a trust issue, and eroding trust by surprising your customers with ever-changing pricing discourages loyalty. It encourages them to leave your site and look elsewhere, and it inhibits them from considering a retailer as their “go to” source for a given product. Once consumers are off your site, it can be difficult to get them back on. As with so many other retail decisions, marketers should make pricing decisions through the lens of building long-term customer loyalty.

wpDiscuz
Braintrust
"Amazon’s erratic price swings have in fact altered my shopping behavior — and all in ways that do not favor Amazon."
"The question is who wins when both consumer and retailer are willingly and knowingly playing that game?"
"Pricing swings will drive customers nuts and make them “hard” shoppers. I call it the “gas station mentality.” "

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