Amazon has built its reputation on being a company that is customer-centered. It markets itself and its brand as a company that always puts its customer’s first. In fact, the company has frequently suspended or revoked selling privileges when it determined that sellers were, in some way, deceiving the buyers. This is why the latest controversy swirling around the retail giant is so unnerving, to say the least. There have been recent accusations hurled at Amazon, suggesting the company is using specified algorithms to guide certain customers to more expensive purchases when less expensive purchases are available.
A number of customers have complained about situations in which they clicked on a product that was advertised at one price, but they were directed to an item that was significantly more expensive than the advertised price. It has been suggested that this bait and switch is due to an algorithm that benefits Amazon and its sellers, while taking advantage of the buyer.
While the executives, including founder and CEO, Jeffrey P. Bezos, have been barking about how customer centered the company is, it appears that the company is using proprietary algorithms and its market power to develop an advantage at the expense of its customer base.
The use of algorithms to control any of a number of functions online, and through mobile applications, is becoming increasingly prevalent in a technology driven culture. These algorithms are virtually unregulated, which is frightening when considering the massive impact they have on everyday life. These algorithms figure into decisions that range from small to large. They impact whether a person will be approved for a mortgage or not, and can even impact the sentence that a person convicted of a crime may receive as punishment.
The numeric and coding sequences that drive these algorithms are normally only privy to a select few; however, although the math may be hidden from the masses, the effects of these algorithms are externally measurable and highly detectable. It is important to understand that a giant like Amazon — with more than 300 million active customers that generate more than $100 million in annual revenue — has the power to use algorithms to literally break their competition.
A brief look into Amazon’s algorithms led ProPublica, a consumer interest organization, to look at 250 items on Amazon that are purchased at a high frequency. The goal was to see if they could detect erroneous product selections that would cause customers to spend more money that was necessary.
What is of note is that the product that was featured in the “buy box” that pops up to suggest the best purchase was an Amazon product 75 percent of the time. So, this means that Amazon is suggesting its own products 75 percent of the time, even when it is not the best purchase option. Why is this significant? Because studies reveal that a large majority of shoppers have been conditioned to click that box to add the product to their shopping cart. According to Shmuli Goldberg, a technologist who invested a great deal of time studying Amazon, the “buy box” is the most valuable small button on the entire internet.
ProPublica did find that Amazon does offer is shoppers an opportunity to compare prices with a uniform listing of like products that are listed in order of price; however, they also found that Amazon gives itself a decisive advantage in this listing as well. The rankings omit shipping costs only for its own products, which give the impression that the Amazon products are less expensive, when they may not be. This is substantial because this practice earned Amazon products and the products of those sellers they provide services to a higher ranking in more than 80 percent of cases. For a tube of superglue sold by Amazon had a very respectable ranking of 5th on the list of products, but when the shipping and handling costs were added in, it dropped all the way to 39th on the list.
According to Amazon spokesperson, Erik Fairleigh, the algorithm does not only consider price, it takes into consideration a number of other variables as well. He says that while customers trust Amazon to have great prices, they also have other expectations, but the variables he listed, such as customer service and free delivery were actually variables that actually caused Amazon products to drop from the top of the list once the “buy button” was pushed.
Fairleigh was less forthcoming when asked more detailed questions, such as why Amazon’s product rankings excluded shipping costs only for itself and its paid partners. It must be understood that allowing non-Amazon companies to sell products on the site was a very controversial issue internally; however, Bezos was determined to push ahead. His reasoning was that he was willing to lose some sales if this move made the company more competitive in the long run.
There was a point, several years ago, when Amazon’s algorithm placed the most affordable product in the “buy box” as long as the product was in stock and could be delivered in a timely manner. It is not clear when the company switched to an algorithm that is more centered on moving Amazon products than it is giving the customer the best deal.
One consideration that came to mind is that this practice could push regular customers to become a member of their Prime program, which offers unlimited free shipping for $100 per year. It is worth noting that the difference in buying the “buy box” recommended product can add up with time. According to the findings of ProPublica, the average difference in cost between the recommended product and the actual cheapest product was $7.88 for the 250 products that were tested.
This practice also negatively impacts companies that are looking to sell products on the site. In order to increase the probability of winning the “buy box,” many companies are paying Amazon to warehouse and ship their products through a program known as “Fulfilled by Amazon” or FBA. The cost of this service, which varies by weight and size can amount to as much as 10 to 20 percent of the total sale.
It is not certain if the accumulating pressure from the public will lead to Amazon changing the algorithm, but one thing is certain; the public needs to be made aware of this situation.