Amazon prides itself on being the most “customer-centric” company in the world, but according to investigative journalism non-profit ProPublica, Amazon’s algorithms are often anything but customer-friendly.
Instead, ProPublica says that Amazon’s algorithm often “substantially favors Amazon and sellers it charges for services” by populating product “buy boxes” with options that are more expensive. Just how frequently is this occurring?
According to ProPublica, which looked at 250 frequently purchased products the course of several weeks, “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.”
For example, ProPublica found that Amazon’s “buy box” for Loctite super glue was populated with Amazon’s buying option even though, at $7.80 with shipping costs of $6.51, Amazon’s offer for this product was far more expensive than that of other sellers, such as TheHardwareCity.com, which offered the same product for $6.75 with free shipping.
When presented with the data, Amazon pointed out that price isn’t everything. “Customers trust Amazon to have great prices, but that’s not all— vast selection, world-class customer service and fast, free delivery are critically important. These components, and more, determine our product listings.”
But is that the end of the story?
Interestingly, ProPublica found that “Amazon’s product rankings excluded shipping costs only for itself and its paid partners,” a topic that an Amazon spokesperson refused to address.
The Amazon Prime effect
One reason for that exclusion could be Amazon Prime, the $99/year program that, among other things, gives customers free two-day shipping. According to a research report published earlier this year by Consumer Intelligence Research Partners, the ranks of Amazon Prime subscribers in the U.S. grew by 35% last year to 54 million, a figure that represents nearly half of U.S. households.
Prime is thus a formidable asset for Amazon, and because of that, its biggest competitors, including Wal-Mart, have launched similar programs of their own.
When free two-day Prime shipping is available for the product Amazon’s algorithm places in a “buy box,” the company highlights this and uses it as an opportunity to promote Prime to customers who might not already have a Prime membership.
ProPublica acknowledges the possibility that Amazon’s behavior is related to Prime, but still argues that Amazon’s preference for itself and sellers that participate in its Fulfilled by Amazon program get top billing most of the time, potentially meaning that some customers are paying more than they have to, and pushing more sellers to pay Amazon in hopes that they’ll win the battle for the “buy box.”
Some suggest that competition from Wal-Mart, which recently purchased Jet.com for more than $3 billion, could help.
But there’s also an argument to be made that consumers are voting with their wallets, and experience and convenience is clearly trumping price, which means that sellers who are allowing Amazon’s algorithm to make or break them have already lost.
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