When a company has access to as much data as Amazon does, it can conduct some interesting experiments with little additional effort. In one of the most notable recent forms, Amazon has been playing around with its provision of list prices, that is, the “regular” price that appears next to a sale price to indicate how much consumers can save by purchasing the item.
Academic and market research have long established that showing customers how much they are saving and prompting perceptions that they are getting a deal causes them to buy. But the vast and widespread use of deal offerings in virtually every retail setting has conditioned consumers. In many cases, people do not buy unless they feel as if they are getting a deal.
The problem arises when sellers make people believe a deal is on offer, when in fact the price is not substantially less than what the seller planned to earn on the sale. For example, some retailers have been accused of falsifying or making up the “regular” prices, simply so that they can list them in comparison with sale prices. They only ever planned to sell the products at those sale prices, but they can prompt more purchases if they can convince consumers they are saving a bunch of money through the sale merchandise. In response, consumer and consumer protection groups increasingly are filing suit, alleging unfair practices and false advertising.
Noting these shifts, Amazon’s pricing experiments are varied, seemingly to consider different options. For some products, the list prices have been removed altogether; shoppers see only the price they must pay to purchase that product at the particular moment they are shopping. For some vendors that sell through the site, Amazon allows them to include list prices but also is being more proactive in checking that those prices are viable and realistic. For example, vendors may be forced to offer proof that the list price actually is being charged by some other seller, before they can claim they are providing any sort of discount. Yet another experimental approach provides the previous price on Amazon specifically, such that consumers can see that the household item they seek was $2 more last week. Sometimes, these prices are insignificantly different, indicating price changes of just a few cents.
Although Amazon is not commenting on its experiments, observers have calculated that when it started the experiment, it removed list prices from about 29 percent of the products for sale. Within just a couple of months, that percentage had increased substantially, such that 70 percent of the listings on Amazon no longer feature the traditional list price information.
The retail giant may be the only one that could conduct such experiments. Considering its vast dominance and popularity, Amazon appears to be realizing that it no longer needs to offer constant deals to get customers to buy. Modern consumers might not be able to live without Amazon, so they might be willing to repurchase the products that regularly show up at their door, whether the products appear to be discounted or not. That is, if consumers rely totally on Amazon to ship them their daily necessities, then Amazon has no need to rely on discounts or provide list price information to get them to buy.
- Do you think Amazon needs to provide list prices? Why or why not?
- Are there any other retailers that similarly could eliminate list prices?
- What advantages does Amazon gain from eliminating list prices?
Source: David Streitfeld, “Amazon Is Quietly Eliminating List Prices,” The New York Times, July 3, 2016