Amazon raises prices with a "free shipping promotion"
Wall Street Journal:
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Amazon's Free-Shipping Promotion
Provokes an Outcry From Customers By Nick Wingfield
Staff Reporter of The Wall Street Journal
Since late last Wednesday, Amazon.com Inc. has blitzed visitors to its Web site (www.amazon.com ) with promotions for a new free shipping offer that applies to orders of two or more books, music CDs and videos.
Turns out the deal isn't so great for some customers. When it launched the offer, Amazon simultaneously modified the prices of many items, jacking up the prices on some goods and lowering them on others. As a result, the new promotion has provoked an outcry from customers who say it's a price increase cloaked as a shipping discount.
"I think Amazon is playing the same game the credit-card companies are playing, which is if you don't read the fine print, they've gotcha," said Glenn Fleishman, a former Amazon employee who also runs a Web site, isbn.nu, (www.isbn.nu ), that compares book prices at Internet retailers. "They're changing these policies and hoping a majority of customers won't notice."
Amazon won't say exactly how many prices it changed, but it insists that the vast majority of book, music and video prices either decreased or stayed the same. For instance, the discount on New York Times bestsellers has remained 40%, but the company has cut the shipping fee on single unit orders to $3.48 from $4.48. The company says customers are now spending anywhere from 4% to 9% less on the average order than they would have before the new promotion. "When we run the numbers, we expect in the end customers will pay less," said Bill Curry, an Amazon spokesman.
That wouldn't be the case for Karen Wickre. If the free-lance writer and editor were to again order the same six books, including several travel guides and a vegetarian cookbook, she purchased on Amazon less than two months ago, she would spend $12.03 more than before, based on her customer records and calculations based on Amazon's new posted prices. For his part, Mr. Fleishman says that a technical book he co-authored called "Real World Adobe GoLive 5: Industrial Strength Web Techniques" used to sell on Amazon for $35.99 plus a $4.48 shipping fee for a total of $40.47. Now the same book is selling for $40.49 plus free shipping -- but only if a customer buys another book, music or video along with it. Purchased alone, the customer would pay a shipping fee.
Price increases and free shipping offers, of course, aren't unusual at retailers, but Amazon is under a mountain of pressure to reverse its history of steep losses. Since the new free shipping offer requires customers to buy two or more items, Amazon may be able to use the promotion to get customers to buy more than they would normally. Last-minute sales are important for the company this week as it closes its second financial quarter in the midst of a tough climate for retailers, though Amazon denied that its promotional offer indicated it was fighting to make its numbers for the quarter.
Amazon has increasingly begun using free shipping offers to increase the profitability of the average customer order. In the past, the company has offered free shipping on electronics, for instance, because DVD players, television sets and other such items contribute higher gross profit dollars to the company than, say, most books, said Jeetil Patel, an analyst at Deutsche Bank Alex. Brown. Mr. Patel said Amazon's latest shipping offer, if successful, could improve the economics of customer orders, since the company may incur nearly the same warehouse costs whether a worker is packing one book into an order or three.
Amazon's promotion also underscores the psychological tripwire that shipping charges present to Internet shoppers. Surveys have found that most consumers -- 63%, according to Jupiter Media Metrix -- tend to ditch online-shopping transactions when they find out how much shipping for an order will cost. Amazon says part of the reason it is experimenting with the free-shipping promotion is so consumers don't have to calculate extra shipping charges.
Some Amazon customers seemed more put off by the way Amazon disclosed the price changes than by the changes themselves. For a complete explanation of them, visitors to Amazon need to click a link to a separate page, where the company says "for some products prices have stayed the same, for some products prices are lower, and for some products we've reduced our discounts." For venture capitalist John Shoch, the notion of a "reduced discount" was "classic marketing doubletalk."
While some customers say there are better places for low prices on the Web, Amazon still retains a strong hold over many customers. Ms. Wickre, for instance, said price increases won't cause her to stop shopping on the site, in part because Amazon has made it convenient for her to shop by storing all her shipping and credit-card information.
Amazon customers appear to have found at least one way to game the system -- namely, by purchasing an extremely inexpensive second item to qualify for the free shipping offer. Since Amazon's promotion went into effect last week, word has spread through Internet discussion sites that one of the cheapest products on Amazon's site is a 64-page religious volume called "The Book of Hope," which sells for 50 cents. The title is Amazon's number one "mover and shaker," meaning that its sales have increased more than those of any other item on the site in the past 24 hours. By late afternoon, "The Book of Hope" ranked 75 on Amazon's best-selling books list, up from 995 a day earlier. Internet news site News.com (www.news.com ) reported the jump in sales of "The Book of Hope."
Write to Nick Wingfield at nick.wingfield@wsj.com |
