Trending: It’s true: Amazon has been profitable for nearly two years, even without AWS cloud windfall

tide in boxJames Froelich’s daughter asked him to buy her a magazine for the low cost of $5.21, but when he logged into Amazon to order the item, he saw a much higher price tag of $11.

The difference between the two prices highlights one of Amazon’s biggest challenges today: Explaining its very complex algorithm technology to a father who simply wanted to buy a gift at the lowest price possible.

The super-short explanation is that when logged in, Froelich, who is an Amazon Prime member, would see a Prime-eligible item as the top selection, but as he found out, that is not necessarily the cheapest item available in many cases.

“I too have noticed this many times in the past,” he wrote in Amazon’s help forums. “It should be illegal: You pay $80 for ‘free’ shipping,’ then you get higher prices on products than those people who don’t pay the $80.”

But as Amazon rejiggers its Amazon Prime program, and begins charging $99 for it this year, customers have begun looking closely at their purchases and asking whether it is worth receiving some of the program’s benefits, like free two-day shipping.

Amazon CEO Jeff Bezos

As a result, the company’s help forum topic, “Amazon Prime Product Prices Higher for Same Non-Prime Item,” has become one of the most active boards on its site, registering nearly 250 comments since it started a year ago. It still receives nearly daily posts, with customers sharing a stream of examples of how they were purportedly robbed of lower prices.

The stakes are high for Amazon, as CEO Jeff Bezos made clear this morning in his annual letter to shareholders.

“More than one million customers joined Prime in the third week of December alone, and there are now tens of millions of Prime members worldwide,” he wrote. “On a per customer basis, Prime members are ordering more items, across more categories, than ever before. Even internally, it’s easy for us to forget that Prime was a new, unproven (some even said foolhardy) concept when we launched it nine years ago: all-you-can-eat, two-day shipping for a flat annual fee. At that time, we had one million eligible Prime products. This year, we passed 20 million eligible products, and we continue to add more.”

Amazon spokeswoman Julie Law quickly responded to my questions about pricing, so unlike some sticky issues, this is clearly a subject that the retailer is willing to discuss.

“Prime customers are not charged more for products,” she wrote, in an email. “Prime is an express shipping service – not a pricing program.  What often happens is that a customer does not realize they are looking at a Prime shipping eligible item that may be sold by several different third party sellers. They appear to be identical items at different prices – but Amazon’s more than 2 million third party sellers can set their own pricing on the millions of products they sell in the Amazon Marketplace.”

Lawsuit questions shipping benefit

The concerns posted by consumers in the forums echo those a lawsuit filed in February, alleging Amazon of encouraging third-party sellers to inflate prices to help cover the cost of shipping — even though customers who pay for Amazon Prime, are supposed to get that benefit for free. Last month, a copycat version of the case was filed, also in Seattle’s federal court.

amznpullKim Stephens, a Seattle-based attorney for Tousley, Brain, Stephens that is representing the plaintiff on that case, told ABC News: “The bottom line is the free shipping that Amazon offered to its Prime members wasn’t free,” he said.

It will be up to the court decide if Amazon is guilty of any wrong-doing, but as part of the case, Amazon may have to pull back the onion on how it recommends products, or else many die-hard fans may end up feeling deceived by the online retailer.

The topic is complicated, which makes it even more difficult for the casual shopper to understand what the tech giant is doing.

Amazon’s recommendations are part of Amazon’s secret sauce. It takes into account many factors when deciding which product should earn the buy button, including a seller’s reputation, price and whether or not it is an item Amazon stocks in its warehouse or if the product ships from the vendor’s fulfillment center.

Because of those factors, customers may not always be presented with the cheapest item. Not to mention, prices are always fluctuating, which makes this an even more complex problem. Amazon product pages often note when an item “may be available at a lower price from other sellers that are not eligible for Amazon Prime,” and this is an important warning for customers to listen to.


To demonstrate how it works, let’s take a couple of searches I conducted recently as a Prime member.

For example, when searching for a Hamilton Beach Slow Cooker, I was presented a Prime-eligible product that costs $49.95 for free two-day shipping. And, when I clicked on more options, I saw six other offers from different merchants. The top result was from a merchant offering Prime, but in close second was East Central Hoosiers, which was charging $38.01 plus $11.99 for shipping, for a total of $50.

In this case, as a Prime customer, I was saving 15 cents.

In another scenario, a vacuum cleaner filter from Dirt Devil was actually cheaper if you didn’t use your Prime account. The Prime item cost $13.49, and Larry’s Bicycles was charging $12.74, plus FREE shipping.

Free shipping: An issue of speed

But before you get your Prime-eligible panties in a wad over these examples, there are two major exceptions to think about:

Amazon Prime purchases arrive to your house in two days, and non-Prime eligible items, even with free shipping, are likely to take five to eight days, so if time is of the essence, then Prime still offers more value. As Amazon says, it’s a shipping program, not a pricing program. Plus, if you take advantage of any of the other perks of the Prime program, like free streaming video, or free e-book rentals, then maybe saving 15 cents is fair.

amzn2This all goes without saying, but clearly consumers always have the right to choose which seller they want to buy from, even though it takes a few more minutes to do so. But some of these consumers are angry and argue that it is Amazon’s responsibility to share the better price, otherwise, they feel they are being swindled. And since Amazon has the reputation for offering the lowest prices, then maybe the item behind the buy button should always be the cheapest?

Amazon also provided a statement on pricing: “We are obsessed with maintaining customer trust that Amazon will have the lowest prices possible,” said Amazon spokeswoman Law. “Amazon scours prices — both offline and online — in order to make sure we meet or beat the lowest prices out there.”

Another customer on the help forum summarized the Prime discussion succinctly: “I don’t feel like its a ‘scam’ necessarily, but I’m a prime member and I consistently see that if I select the prime option, the price IS higher than non-prime sellers, and the difference is usually about the cost of shipping. So it’s like the shipping is just built into the price. Kinda hard to feel like that’s worth $80 over the course of a year…”

Now that the price of Prime is $99 a year for consumers, many will be thinking long and hard about whether to re-enroll.

But maybe there’s a way for Amazon to get across why it operates the way it does, or to provide a running tally on how much consumers are saving. After all, it’s a fact: shipping is extremely expensive.

Somewhat amazingly, Amazon will ship you a two-pack of 50 oz. Tide laundry detergent jugs for about $18. Shipping all six pounds of that myself from Seattle to Florida in two days via the United State Parcel Service would cost $45 (for just one jug)!!! Realistically, it seems there’s no way that Amazon could foot the bill for “free” two-day shipping. If anything, a Prime membership over the year is maybe paying for the difference between regular shipping and two-day shipping.

First and foremost, Amazon is a technology and logistics company that has done an excellent job becoming an “everything store.”

What it hasn’t done well enough, it seems, is explaining to consumers what’s happening behind the scenes and why one particular item at a certain price is the one it is presenting to you first.

If it can accomplish that — and that’s a steep order — it can probably win back the hard-earned loyalty of some of these customers.

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