Amazon Accused of 'Surge Pricing,' Misleading Consumers During Prime Day
According to a recent report, a vendor who sells direct through Amazon has stepped forward to accuse the e-commerce giant of misleading business practices. Specifically, the vendor said that Amazon jacked up the suggested retail price of its product on Prime Day 2017 to make it seem like the discount consumers were getting was far better than it actually was.
In the report, Jason Jacobs, founder of Remodeez — a company that makes nontoxic foot deodorizers and other odor-defense products — said he’s been doing business with Amazon since 2015 and has an agreement with the company that lists his product with a suggested retail price of $9.99. However, he found that on Prime Day, that price was nearly doubled.
“They showed the product at $15.42 and then exed it out to put ‘$9.99 for Amazon Prime Day,’” Jacobs told FOX Business. “And on the final day, the price was like $18.44. So, we put a support ticket in right away and I rallied some friends through social media to go to their complaint board and complain.”
Jacobs said the suggested price came back down to $9.99 the following day, but a little more digging showed that this wasn’t the first time Amazon did this to this product. Over the past year, Jacobs found that the suggested price of the product had been bumped up on two different occasions to more than $15. Important to note, Amazon’s agreement with Remodeez does enable it (Amazon) to set its own pricing as it sees fit.
Jacobs noticed that each time the price was increased over the past year, it correlated with media attention directed at its product. That coverage, in BuzzFeed on numerous occasions and in Forbes, led to an increase in demand for the product and, as it turns out, an increase in the suggested retail price. And those increases, according to Jacobs, caused sales to tank.
"It’s not like they’re bumping it by a buck and making a little bit more money,” he said. “They are really tanking sales and it kind of has a ripple effect to us, being a small company trying to do demand planning.”
Dynamic Surge Pricing
This kind of business practice from retailers isn’t uncommon. In fact, dynamic surge pricing — where retailers quickly change the price of products based on data-driven algorithms that look at things like demand, inventory and competitors’ prices — is a hot trend in the industry.
Think of it like surge pricing on an app like Uber. Though it did get out of hand and cause quite a controversy at one point (because of a screwy algorithm), Uber’s surge pricing is designed to enable the cost of a ride to reflect the current level of demand at any particular point in time.
It’s a practice that could make sense if executed correctly at retail. But without proper explanation to the customer, it more or less reads as a shady business practice. And the Federal Trade Commission keeps an eye out for that type of misleading sales information. Its recommendation is to make an item available at “list price on a regular basis for a reasonably substantial period of time” before setting a sale price. If a retailer appears to be veering away from that recommendation, the FTC can go after it.
And that’s the case right now with Amazon. As part of its review of the company’s agreement to buy Whole Foods, the FTC is reportedly looking into whether the discounts that Amazon offers are actually as good as they seem to be. The FTC’s interest, more specifically, stems from a Consumer Watchdog complaint. In a report published in early July, the organization claimed that Amazon “routinely uses inflated and fictitious previous prices” to offer misleading discounts.
Not the kind of thing you expect from a company that claims right there in its mission statement that it puts the customer first…
Amazon refuted the Consumer Watchdog report, calling the study “deeply flawed” and based on incomplete data and improper assumptions. “The conclusions the Consumer Watchdog group reached are flat-out wrong,” the company said in a statement. “We validate the reference prices provided by manufacturers, vendors and sellers against actual prices recently found across Amazon and other retailers.”
And in response to the vendor accusations reported by FOX Business, Amazon said “Our customers expect to come to Amazon and find the lowest prices and we work hard to meet or beat them for all customers, across our entire retail selection. The world's prices fluctuate all the time and we seek to match the lowest price.”