Behind Amazon's preferential pricing

Are some Amazon.com customers more equal than others?

An interesting story in Computerworld last week detailed yet another of the wonders of the Internet. The story, "Amazon charging different prices for some DVDs," informs us that the premier online retailer sometimes charges people $10 more for the same item than other people buying it at the same time!

According to the newspaper, Amazon's DVD pricing depended on "many different factors … which browser was being used, whether a consumer was a repeat or first-time customer, and which Internet service provider a customer was using."

I hate to quote so much, but Linda Rosencrance, the reporter on the story, tells it pretty well: "Computerworld also checked the price of the "Men in Black" DVD and discovered that on Netscape the quoted price was $25.97, while it cost $23.97 on Internet Explorer. After completely flushing the cache and cookie files of the PC being used, the price remained $25.97 using the Netscape browser but had risen to $27.97 with Internet Explorer."

The company confirmed that different customers could be charged different prices, describing the practice as a "test" but declining to say exactly what was being tested or how long the tests would last.

Here's what I think Computerworld caught Amazon doing: It's called "dynamic pricing," and in this case it involves putting customers into groups based on how price-sensitive they appear to be. If someone accepts the $10-higher price, say, three times in the row, maybe that's all they will ever get in the future. Customers who always turned down the higher price could always be given lower prices. I can't prove it, but it wouldn't be the most underhanded thing a retailer has done. And this dynamic pricing is perfectly within the capability of today's technology.

Another potential for dynamic pricing: I've read an article in Fortune that talks about Coca-Cola investigating how to build soft drink machines that increase its prices as the outdoor temperature goes up. Apparently, a Coke is worth more on a hot day than a cool one. (Pepsi responded saying it would never consider "exploiting" consumers in this manner, which I take to mean they regretted not thinking of it first.)

My friend Richard Hart likened Amazon's pricing to walking up to the counter at Safeway and having your items ring up higher than the person just ahead of you. What's the difference between you and the next guy? "This is what we think you're willing to pay," the checker responds. Given the slow but steady move to electronic shelf labels, we can soon expect groceries to cost more at busy times and less at slow ones.

No, I don't go to Amazon for great prices but I don't like the idea that someone is paying less than I am for the same item at the exact same instant. If I want that, I can compare ticket prices with the person next to me on the airplane. But thanks to the wonders of Internet personalization, I can get higher prices from Amazon, just for being the special person -- or sucker -- that I am.

Industry analyst David Coursey is vice president of news for PennNET Inc., a Silicon Valley B2B startup. He responds to readers on his site at www.coursey.com.