Amazon’s Friendly Deception

According to Dale Carnegie, the best way to make friends is to call people by their names. The personal touch has always been a big hit in business, as well. It’s why many customers remain loyal to their “friendly” store, even when the prices are a little higher than the one down the street, where they’re treated like strangers.

So it’s only natural that e-commerce businesses should make every possible attempt to create a personal touch in the digital world. Scores of software programs have sprung up promising to do just that — to learn shoppers’ habits, to direct them to their favorites, to separate the wheat from the chaff.

A lot of consumers are on board, too. They’re happy to save time and go straight to the Web pages that excite their interest. So how is it that Amazon.com has turned this harmonious and potentially lucrative setup into something of a train wreck?

Special Offer — Just for You

It all began about a week ago when some shoppers in the DVD section of Amazon noticed that prices were not always the same. It was soon revealed that indeed, some shoppers were getting “test” prices. Amazon was trying to gauge what impact price variations have on buying habits.

The company insists that the prices were randomly raised or lowered. And really, that would have been fine. After all, retailers do similar tests all the time, hiking prices 10 percent in one store, dropping them 10 percent in another, and crunching the numbers.

Do sales come down in the higher-priced store? If so, do the fatter margins offset decreased revenues? Or do sales go up enough in the lower-priced store — assuming margins stay in the comfort zone — to warrant price reductions across the board?

Marketing tests are nothing new. But there are two big problems with Amazon’s approach. In the brick-and-mortar world, customers rarely cross over geographic boundaries and discover the price inconsistencies. When they do, they attribute them to regional differences.

Cyberspace has no regional divisions, though, and Web surfers e-mailing friends, neighbors or co-workers — or even chatting at the water cooler about their purchases on the Net — can quickly discover that not everyone gets the same deal.

Consumer Anger

That leaves consumers feeling duped. And given Amazon’s recent history, it might also leave them feeling suspicious.

Point number two. Amazon’s timing for its price test makes everyone — consumers, analysts quoted in the trade press and even (especially?) skeptical journalists — question just how random those price shifts were.

After all, it was not even two weeks ago that Amazon told its 23 million customers that it had their personal information, past buying patterns and shopping preferences locked up in the Jeff Bezos safe. That data was an Amazon business asset, they were told.

Watching Closely

So it stands to reason that Amazon, being a savvy, forward-thinking company, would want to put that information to use. After all, an asset is one thing, a working asset another.

Amazon’s privacy policy change informed users only that their data could be shared with third parties. Amazon itself, the implication seems to be, has been collecting, storing and using it all along. That’s why it’s difficult to believe that Amazon’s marketing test was random.

Go back to that retail chain example. Tweaking the “one store up, one store down” test would be as simple as identifying stores in areas with higher incomes and hiking the prices there. Or prices could be raised on items viewed as luxuries, following the logic that people who buy them can afford to pay a little more.

Digging for Gold

Why wouldn’t Amazon try to leverage its gold mine of data? Since customer X has made 10 purchases from Amazon in recent months — all single-item, apparent impulse buys — why not tack an extra dollar or two onto the prices that pop up on his Web page?

Or Amazon could go in the opposite direction and reward that customer for his 10 purchases by lowering the price of his favorite products by a buck.

Somehow, the second scenario seems less likely. Not just because it’s less sinister, but because it’s less profitable, and Amazon is — by all accounts — approaching put-up or shut-up time when it comes to making at least some of its retail divisions pay for themselves.

So why wouldn’t they try to find ways to plump up a margin here or there? An extra 50 cents on a DVD isn’t much, but if that half a buck is pure profit and the company rakes it in 10,000 times a month, the total could move that stubborn bottom line.

I would like to take Amazon at its word. I really would. But even though the company calls me by name when I log on, I just don’t feel that friendly right now.