Online retailer Amazon.com learned a valuable lesson yesterday. Its customers can figure out when they're being charged different prices, and they don't like it a bit. Amazon responded, apologized, and tried to explain itself. Most of all, it said it wouldn't do it again.
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Does that sound insidious to you? A misuse of Amazon's tracking power? Well, it did to a group of Amazon's DVD-buying customers. They discovered the differing prices some of them were charged for the same DVDs via a discussion among them on DVDTalk.com. The story of their discovery and a look at the practice of dynamic pricing appeared yesterday in The Washington Post.
Dynamic pricing is not that unusual
Dynamic pricing isn't as uncommon as you might think. As pointed out in the Post, the same goods bought in different neighborhoods routinely cost different prices, according to the affluence of the neighborhood. Car dealers offer an example of another type of dynamic pricing. A buyer who goes in and haggles will always be charged less than someone who isn't prepared to negotiate (unless you're buying a Saturn, I guess, since they have the no-dicker sticker policy).
The point is that dynamic pricing does happen, and there's certainly no law against it. Buyers don't have the right to equal pricing, nor should they. In our free market system, buyers and sellers agree to the prices goods are sold for -- if something's too expensive for you, you just don't buy it, right?
Amazon, information, and Internet
What makes this story interesting, though, is that because of the Internet, companies like Amazon have unbelievable tracking power over their customers. They know who you are, where you are, what you buy, how you have it shipped (will you wait five days, or do you always go with the overnight option?), and how often you buy. This allows them to fool around with dynamic pricing like the local corner store never could. The information Amazon has about its customers is head-and-shoulders above what most "real world" retailers could ever hope to have.
Information is not perfect, however, and does not flow evenly. There are always people and organizations who know things others don't, and there are always variables unaccounted for. On the Internet, though, information is as close to perfect as it's ever been. And information flows are, too. (Unless you're someplace like China, but even there the government has to struggle to control information online.)
Sure, Amazon has the power to track its customers, and to test out a little dynamic pricing, but what Amazon forgot in this situation is that its customers also have the power of information and its increasingly free-flowing nature. Just as the Internet has empowered businesses with greater information about their customers, it has also empowered customers to figure out what the heck is going on. They did, and Amazon got a red face.
Amazon says it didn't do it
The company issued a statement categorically denying that it ever engaged in dynamic pricing, explaining the differing prices on the DVDs as a "random" pricing test. They also called the testing a "mistake" and vowed not to do it again without notifying their customers and making sure that those who are affected by the test eventually get the lowest price for the product in question.
Unfortunately for Amazon, one of its customer service folks who reportedly replied to a customer via e-mail about the DVD pricing did refer to what happened as a "dynamic price test," so the seeds of doubt may have been planted for many. What's striking, though, is that Amazon apologized so strongly for what happened and promised not to do it again. For the company that lives and dies by its customer satisfaction-centered image, being seen as a sneaky price "discriminator" is no good.
There's no reason to doubt Amazon's apology. Whatever it was really doing, be it random testing or demographics-based testing, you better believe the company has learned its lesson. Online consumers are a smart bunch and won't be had, especially since they do compare prices -- sometimes vigorously.
Your Turn:
What do you think of dynamic pricing? Did Amazon learn its lesson? Will you wonder now when you shop at Amazon if you're being charged more than other customers? How would you have handled this situation if you were a PR person at Amazon? Talk about it on the Amazon discussion board with other Fools.
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