Caveat emptor. “Let the buyer beware.”
Two little words that are among the most important to know before you go shopping–all the more so in the modern era when so much shopping is done via the Internet, of things you can’t even see before you buy them. Every so often, a little reminder pops up that you should keep this in mind even when dealing with companies you like.
ProPublica brings us the latest such reminder, in a feature article that looks askance at Amazon’s price-comparison algorithms. In their experiments, the ProPublica journalists found that Amazon’s algorithm that picks the seller with the “lowest price” to assign to their one-click purchase “buy box” actually does not function properly for customers who aren’t members of Amazon Prime.
In the example that opens the article, Amazon brushes aside merchants selling Loctite super glue for $6.75 or $7.27, with free shipping in both cases, for an Amazon-fulfilled vendor selling it for $7.80 plus $6.51 shipping. And they found the same pattern repeated time after time.
We looked at 250 frequently purchased products over several weeks to see which ones were selected for the most prominent placement on Amazon’s virtual shelves — the so-called “buy box” that pops up first as a suggested purchase. About three-quarters of the time, Amazon placed its own products and those of companies that pay for its services in that position even when there were substantially cheaper offers available from others.
That turns out to be an important edge. Most Amazon shoppers end up clicking “add to cart” for the offer highlighted in the buy box. “It’s the most valuable small button on the Internet today,” said Shmuli Goldberg, an Israeli technologist who has extensively studied Amazon’s algorithm.
Much of the rest of the article goes into the pressure Amazon puts on vendors to use the Fulfilled By Amazon program that gets their items into Amazon’s warehouses. Vendors who don’t use it often find their items ranked below Amazon’s even though they’re cheaper, and with cheaper shipping.
When Gokhan Erkavun was told of his lotion’s poor ranking despite its cheaper price, he just sighed and said, “Amazon is not really fair in terms of competition, but we don’t have much choice. We have to be there.”
Vendors like Gokhan hope that Wal-Mart’s recent purchase of e-tailer Jet.com will help put pressure on Amazon to give small retailers a better deal.
In a response to the article, Amazon explained that its algorithm is tuned to find the best bargain on the 90% of its items that ship free with Super Saver Shipping on orders of $49 or more, or with its $99 per year Amazon Prime membership. That still doesn’t explain why Amazon picked the one selling for $7.80, which was more expensive than the others even without the shipping costs. But in another statement, Amazon said:
Price is one component of being customer centric. Suggesting the lowest price item that may not land on the doorstep quickly isn’t being customer centric. If a customer is solely looking for the lowest price available, we clearly alert them our product detail pages (sic) that lower prices may be available.
I do have to say that, as an Amazon Prime subscriber, I’d probably be more inclined to buy the $7.90 Loctite just because I know it’ll be on my doorstep in two days at most, whereas I don’t have any way of knowing how long it could take one of the cheaper options to get to me. It’s worth kicking in another buck or two for that guaranteed speed. Plus, Amazon’s really good about taking back items that were damaged in shipping or otherwise aren’t as promised on arrival.
I’d probably be less sanguine about it if I weren’t a Prime subscriber, though. I can’t say as I’d want to buy $42 more worth of products to get free shipping on a tube of super glue, nor would I have any way of knowing that Super Saver Shipping would reach me any faster than someone else’s free shipping. But then, as a non-Prime subscriber, I’d have incentive to try to find the best price, not just take what Amazon immediately offers. I usually do that myself anyway.
At root, it doesn’t seem like there’s all that much that’s surprising here. You wouldn’t think it would necessarily be hard for Amazon to come up with two versions of its algorithm–the existing one for Prime subscribers, and one that just found the lowest price for non-Prime subscribers.
But on the other hand, Amazon is a business, run for the purpose of making a profit. One of the ways it does that is by selling more Prime memberships, and it sells more Prime memberships by making Prime more attractive. Every item that pops up with a shipping cost is a chance to tell customers that it would ship with no-cost two-day shipping if they were a Prime subscriber. Apparently Amazon believes their way works better from the standpoint of making money. And given how big Jeff Bezos is on statistical analysis, they may well have run the numbers to back that up.
In the end, Amazon is going to keep right on being Amazon, and it’s up to customers to pay close-enough attention to figure out if they’re really getting the best deal.
Or, in other words, caveat emptor.
(Found via Slashdot.)