A new research published in the journal Marketing Science and posted on INFORMS.org has unveiled the prevalence of a scheme of framing price increases as discounts, which it calls “price-increase and list-price synchronization” (PILPS) on the Amazon marketplace. Using PILPS, Amazon sellers are able to beef up their sales volumes by offering fake discounts and actually making customers pay more than the original price.
According to its abstract, the study investigates a newly observed pricing practice by which a seller frames a price increase as a discount by simultaneously increasing the price and introducing a list price.
According to the study, “By pairing a price increase with the introduction of a previously unadvertised “list price” for a product, Amazon signals to shoppers that they are receiving a discount when they actually pay 23% more, on average, for their new vacuum than they would have just a day earlier. Days after the price hike, the price drops and both the list price and misleading discount claim disappear.”
This means that Amazon sellers might be using the appeal of a discount claim to actually sell items for significantly more than their non-discounted price. Current regulations of deceptive pricing focus on the legitimacy of the value of a reference price by, for instance, deterring the use of fake or inflated list prices. PILPS, which misleads consumers by synchronizing the timing of a price increase with list-price introduction, has so far managed to fly under the regulatory radar.
The study observed the pricing of household products on Amazon from 2016 to 2017 and followed more than 1,700 vacuums and gathered nearly half a million individual observations of prices. PILPS has also been observed in sellers of digital cameras, blenders, drones, and books, which are pretty hot commodities during the Black Friday and Cyber Monday weekends.
The study was conducted by professors from different universities, Jinhong Xie at the University of Florida, Sungsik Park at the University of South Carolina and Man Xie at Arizona State University. They tracked multiple product categories on Amazon over a 13-month period.
Two Birds, One Stone for Bad Actors
As a result of this deceptive pricing scheme, not only do customers end up paying a lot more than without the discount, but sellers are using it to generate proxy sales volumes for their products in order to rank them higher on the marketplace, which is a big no-no insofar as Amazon Terms of Service is concerned.
Jinhong Xie, one of the researchers, says that the seller achieves a 15% advantage in their sales rank among all products in the home and kitchen category, essentially hitting two birds with one stone and achieving the impossible: increasing margins and increasing sales simultaneously.
Currently, regulations prohibiting deceptive pricing require that sellers use truthful price comparisons. Consumers have won class-action lawsuits against big-name retailers and grocery stores in the past, and while Amazon is not exactly quick to respond to every instance of fraud on its platform, it has successfully punished illegal price-fixing conspiracies and insider bribery in the past.
While this study can help online shoppers shop more intelligently on the platform and really evaluate their purchases before hitting that checkout button, these insights are equally important for third-party sellers on Amazon.
Increasing your bottomline, whether it be implementing efficiencies into your supply chain or using TOS-approved strategies to help you get product reviews, is the name of the game on Amazon. Although pricing schemes of this nature is not uncommon for seasoned sellers, insights like this help inform marketplace sellers about how their unscrupulous competitors are staying ahead of the competition and help them report cases to Amazon and potentially beat these bad actors.
While ecommerce has come a long way since Amazon started selling books online, it’s evidently still an evolving industry, studies that challenge the legal and ethical standards by which these online spaces operate are welcome help for sellers, consumer advocates, and regulators alike.