Thursday, 12 November 2009

Amazon's behavioural pricing

I'm studying behavioural pricing as part of my response to the forthcoming OFT market study, and Amazon has an interesting history of this.

Whether or not they still offer personalised prices to different customers for the same product (probably not, as they were shot down for it last time), their pricing strategy is still fascinating. Take a look at this screenshot:

Because I have a ton of books in my 'Saved for later' list, I get a message like this nearly every time I visit the Amazon checkout. Often the same book moves up or down by £1 or 50p several times over the course of a few weeks.

The only plausible explanations for this are that Amazon either:
  1. has an incredibly sophisticated demand management process and knows exactly when people will pay more or less for a book
  2. or, is testing different prices to measure the overall demand curve (or my personal one, which is even more interesting).
Either way, it's fascinating to watch one of the most sophisticated behavioural marketers in the world optimise their revenue before our eyes. Even though Jeff Bezos said "We've never tested and we never will test prices based on consumer demographics", there are much more subtle ways to make personalised offers to customers which are in the mutual interest of both buyer and seller - and I expect Amazon is at the forefront of researching them.

These pricing mechanisms, the recommendation engine and related techniques are likely to be responsible for up to 40% of Amazon's revenue. If you happen to know someone who'd like to get that extra revenue in their business too, do put them in touch...

And I'm not even getting onto the Amazon Mastercard promotion at the top of every checkout page...hyperbolic discounting FTW.

Update: Another example about three days later:

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