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Amazon’s Ever-Changing Price Appeal

March 2014 Pricing

With many large online retailers using algorithms to manage pricing, we see items change their prices multiple times over the course of a month, week, or even in one single day!  Are these constant price changes good for consumers, or are they ultimately confusing, or harmful?  Are they signaling us to buy?  Are constant price changes communicating to consumers that these items are less valuable?

My Amazon Cart

As a frequent shopper on Amazon.com, I will often browse the site and leave items in my cart without making a purchase.  I believe that this practice is quite common in the online retail world, as many shoppers select things that they like and then come back later to actually make a purchase or never end up making the purchase at all.  In a brick-and-mortar store, you have the ability to see and touch the items and gain that sense of ownership before you’ve even made your purchase.  Placing objects in an online imaginary cart doesn’t have that same magical effect over our psyche.  We place items in our cart, but can get distracted by a banner ad, new email, text message, dog barking, doorbell, et cetera, and move on to the next thing without making a purchase.  If the item wasn’t a necessity, we may never go back and purchase.  In a brick-and-mortar store, when we put items in the cart, they more often than not make their way to the register with us where we purchase them and make them ours!

How do online retailers combat this unpurchased items in the cart phenomenon?  Well at Amazon, when I go back to my cart at a later date, often the price of at least one of my items has changed.  I always found this odd, but have since realized that I am more enticed to make a purchase because I find myself questioning how long this new lower price will be in effect for and how bad I will feel if I miss out on the lower price.  Oh, Amazon, you sneaky pricing guru.

AmazonCart

My Value Perception

Now that I have made my purchase and it is on its way to my front porch, I can sit back and relax and start to ponder what that item is actually worth.  When it was priced at $25 I did not proceed to the checkout but a week later when I returned to Amazon and looked at my cart I noticed that the item was still waiting for me and it now had a price tag of only $24.48!  At this lower price I was moved to make the purchase.  Why did I not buy this item last week when it was only 52 cents more than it is today? Well when I logged in and clicked on my cart, Amazon made sure to alert me of the lowered price with a banner across the top of the page.  Ah-ha…now I feel like I am getting a deal on said item, and I wanted to buy it before this deal went away!

Constant price changes can play into the psychology behind pricing.  Lower prices make people feel special, and when we feel special we are more likely to purchase.  Did I really only value this item at anything lower than the $25 mark?  Probably not, seeing as I had moved it into my cart when it was priced at $25 and I am not generally moving things I have absolutely no intention of ever purchasing into my cart.  I might browse for things I cannot afford or do not plan on buying but the likelihood of those items making their way into my imaginary shopping cart is slim.  It might not be exactly like walking into a store where tossing things into an actual cart means those items will probably find their way into your home, but when shopping online we still make rational purchasing decisions.  Perhaps our online purchases are even more rational because we are in front of the computer, our portal to price comparisons and product reviews, so when we are contemplating making an online purchase the research needed to come to the final conclusion is just a few clicks away.

There is not an implied loss of value when the prices in my cart go down, but there is now that sense that I am getting a deal.  And deals make me happy, and when I am happy I want to buy more things…

Next Time You Shop Online…

Amazon and other online retailers might be playing with pricing to stay one step ahead of their competitors, but they are also playing with pricing psychology and encouraging (and in some instances of price increases, discouraging) customers to purchase.

Next time you throw some questionable items into your imaginary online shopping cart, keep an eye on the prices.  Ask yourself “Would I purchase this item at the current price?” and you might see yourself in the same predicament as I often find myself in: one where the answer is yes, but I don’t know if I really need this item.  Maybe you want to do a little bit more research before you commit to buying.  If you keep the item in the cart and it doesn’t sell out (this is true for Amazon, but not all online retailers will remember items in your cart once you leave the website), you will more than likely notice some price fluctuation over time.  This lowered price may or may not decrease the overall perceived value over time, so Amazon may want to make sure to not be making those fluctuations too large as to discourage customers from purchasing at higher prices in the future.



About the author

Mary DeBoni is a Senior Pricing Analyst at Wiglaf Pricing. Before coming to Wiglaf Pricing, Mary spent her post-graduate-school years working as a data analyst and as an adjunct instructor of Economics and Statistics at Moraine Valley Community College and Richard J. Daley College. Mary is a member of the Professional Pricing Society. She holds a BA in Economics from Michigan State University and an MA in Economics from The University of Detroit Mercy.

Mary DeBoni
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