This story was written by Keith Dawson for the Industry Standard's Shop Grok email newsletter. It is archived here for informational purposes only because The Standard's site is no more. This material is Copyright 1999-2001 by Standard Media.

Amazon Says 'Oops' to Keep the Press at Bay

Sep 28 2000 12:00 AM PDT

Two weeks ago, Amazon customers comparing notes in online forums noticed that the retailer was charging different people different prices for the same DVD movies and raised the suspicion that Amazon might be charging based on visitors' demographics or buying history. After early news reports picked up on the story, Amazon quickly admitted that the variable prices were part of an experiment to gauge consumer price sensitivity - denying the tests were anything but random - and announced it was halting the practice.

When the questions and the press coverage showed no signs of going away, Amazon issued a formal apology for the five-day price test yesterday. E-Commerce Times quotes Amazon CEO Jeff Bezos mincing no words in the mea culpa: "What we did was a random price test, and even that was a mistake because it created uncertainty for customers rather than simplifying their lives."

E-Commerce Times reports that Amazon promised it would never base variable pricing on demographic information or on any other data it has gathered about customers and said that if any further random tests are conducted, the e-retailer will refund people's money after the fact.

Most of the press, however, didn't seem overly impressed by the apology. Some of the outlets that jumped to cover the issue of variable pricing ran only a wire brief on the apology and continued to talk about the issue.

Janet Adamy's reporting in the Chicago Tribune is fairly typical of the skeptical tone the press adopted toward Amazon's disclaimers before it moved to the stage of an outright apology. "The Amazon test shows that Internet retailers have the power to make dynamic pricing the norm," writes Adamy. "Technology allows them to gather information - where you've shopped, if you only buy when the price is low, where you live - to predict how much you're willing to pay."

A brief analysis by the Yankee Group's Rebecca Nidositko, dated Sept. 19, gives the retailer the benefit of the doubt: "Presumably, Amazon is testing product prices to gain a better understanding of price elasticity and consumer demand in order to maximize its margins." And Nidositko concludes that dynamic pricing will not become the norm any time soon - as Amazon clearly realized. "Even if the FTC were to tolerate variable retail pricing, online shoppers would not," she says.

The bottom line: Although the online medium makes it far easier for retailers to tailor pricing to individual customers, the Net facilitates open communication among customers, who will sound the alarm if any retailer dares to do so.

Count on the media to sound the alarm, too.

Amazon Apologizes for Pricing Blunder

E-Tailer Price Tailoring May be Wave of Future
Chicago Tribune's Price-Testing Problems
Yankee Group

DVD Test Prices Were Random, Amazon Says
Seattle Post-Intelligencer Apologizes for Random Price Test (Reuters)
ZDNet DVD Pricing Test Was Random

On the Web, Price Tags Blur
Washington Post Owns Up to a Mistake (Reuters)