Amazon.com running three lines?

[Chillin-the-Most]

It seems that big business can learn from bookmakers who deal to faces.

[Chillin-the-Most]

Amazon.com variable prices rile customers
BY DAVID STREITFELD
Washington Post Service
'Amazon was trying to figure out how much their loyal customers would pay. And the customers found out.'

-- BARRETT LADD, a retail analyst


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Few things stir up a consumer revolt quicker than the notion that someone else is getting a better deal. That's a lesson Amazon.com has just learned.

Amazon, the largest and most potent force in e-commerce, was recently revealed to be selling the same DVD movies for different prices to different customers. It was the first major Web test of a strategy called ``dynamic pricing,'' which gauges a shopper's desire, measures his or her means and then charges accordingly.

The Internet was supposed to empower consumers, letting them compare deals with the click of a mouse. But it is also supplying retailers with information about their customers that they never had before, along with the technology to use all this accumulated data. While prices have always varied by geography, local competition and whim, retailers were never able to effectively target individuals until the Web.

NEW REALITY

``Dynamic pricing is the new reality, and it's going to be used by more and more retailers,'' said Vernon Keenan, a San Francisco Internet consultant. ``In the future, what you pay will be determined by where you live and who you are. It's unfair, but that doesn't mean it's not going to happen.''

With its detailed records on the buying habits of 23 million consumers, Amazon is perfectly situated to employ dynamic pricing on a massive scale. But its trial ran into a snag early this month when the regulars discussing DVDs at the website DVDTalk.com noticed something odd.

One man recounted how he ordered the DVD of Julie Taymor's Titus, paying $24.49. The next week he went back to Amazon and saw that the price had jumped to $26.24. As an experiment, he stripped his computer of the electronic tags that identified him to Amazon as a regular customer. Then the price fell to $22.74.

``Amazon was trying to figure out how much their loyal customers would pay,'' said Barrett Ladd, a retail analyst with Gomez Advisors. ``And the customers found out.''

A number of DVDTalk.com visitors were particularly distressed to find that prices seemed to be higher for regular customers. ``They must figure that with repeat Amazon customers they have `won' them over and they can charge them slightly higher prices since they are loyal and `don't mind and/or don't notice' that they are being charged 3 to 5 percent more for some items,'' wrote a user whose online handle is Deep Sleep.

Amazon says the pricing variations, which it stopped as soon as the complaints began coming in from DVDTalk members, were random.

``It was done to determine consumer responses to different discount levels,'' spokesman Bill Curry said. ``This was a pure and simple price test. This was not dynamic pricing. We don't do that and have no plans ever to do that.''

But an Amazon customer service representative called it exactly that in e-mail to a DVDTalk member.

APOLOGY OFFERED

``I would first like to send along my most sincere apology for any confusion or frustration caused by our dynamic price test,'' wrote the company's Galen Sather. ``Dynamic testing of a customer base is a common practice among both brick & mortar and Internet companies.''

Physical stores have always had varied pricing. Prices might be higher in an affluent neighborhood or lower, depending on the goods being sold. A stereo system or camera purchased in certain neighborhoods of Manhattan would almost always be cheaper than in a small town with only one electronics store. Industries as basic as airlines and automobiles routinely adjust their prices because of the consumer's negotiating skills and general savvy.

Still, these traditional methods used to calculate prices are sledgehammers compared with the Internet's scalpel. For one thing, the Web provides a continuous feedback loop: The more the consumer buys, the more a website knows about him and the weaker his bargaining position is. It's as if the corner drugstore could see you coming down the sidewalk, clutching your fevered brow, and then double the price of aspirin.

``Any retailer would love to do dynamic pricing if they could,'' analyst Ladd said. ``If you could make the optimum amount of money from a consumer who's willing to pay more, that's a beautiful thing.''

Amazon's interest in dynamic pricing extends at least as far back as the spring, when it was discovered to be selling the Diamond Rio MP3 player, which it listed at $233.95, for $50 less to some customers.


`RANDOM' TEST

That time, too, the complaints first surfaced on a message board, with the posters mystified about why some were getting better deals on the player than others. Amazon's explanation was also the same: that this was a random test. It offered anyone who had paid full price a refund.

While electronic-commerce experts said they didn't know of any other examples where consumers were being subjected to dynamic pricing, they agreed that it was only a matter of time.

For one thing, the tools are there. The software company BroadVision, for instance, offers a Retail Commerce Suite, which it says will allow any e-commerce player to do dynamic pricing.

Mike May, an analyst for Jupiter Communications, says this was ``a major moment'' in e-commerce -- not only because it was the first widespread test of a powerful pricing tool, but also because Amazon backed off so quickly and so definitively.

``This is an admission that, online even more than off-line, the consumer is always right,'' May said. ``Word of mouth spreads quicker online. Amazon can't afford to alienate its most important asset, its customer base.''