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Amazon.com: Cutting Prices to Make More Money?

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July 02, 2009 – Comments (5) | RELATED TICKERS: AMZN

There's been a paperback copy of Harry Potter and the Deathly Hallows sitting in the Saved Items section of my Amazon.com shopping cart for what feels like ages. (No, I haven't read it yet. As both a cheapskate and a completist, I want to add it to my complete set of the other paperback editions. No spoilers, please!) I'm not sure why it's had a Spell of Eternal Preorder cast on it or something, but clearly, J.K. Rowling is not in desperate need of additional money. I hear she has a mansion made up entirely of smaller mansions, each of which are built out of bricks of tightly compressed 100-pound notes.

Anyway, I noticed recently that Amazon had slashed the price of Harry's final adventure (cheapskate edition) by a few bucks, from around $11 to just under $9. With such a popular book, and such a relatively low price to begin with, I was surprised they'd even bother. But I have a sneaking suspicion I wanted to share with y'all: Amazon's shaving back prices on its smaller, lower-margin items to keep them under the threshhold for Super Saver Shipping.

I love me some Super Saver Shipping. (Like I said: cheapskate.) And if I've got a couple of items I want, and they still don't add up to that magic $25 threshhold, I'll often cast about for something else I might have wanted, but wasn't necessarily planning to buy yet, just to spend a few extra bucks on something I actually want, instead of spending it on postage. Result: Amazon turns my cheapness into a small but welcome trickle of additional revenue.

Now imagine a whole world of thrifty people doing this. Amazon's all about maximizing revenue, since -- like most megaretailers -- it shaves margins to the bone and hopes to make it up on volume. Here, the $25 limit for free shipping, a restriction Wal-Mart or Target simply can't impose, may be a real benefit. If Amazon can keep the cost of two or three small items, like books or movies, below the $25 mark, it may encourage people to spend even slightly more than they would have otherwise, just to snag that free shipping. Which, in turn, will increase its sales volume and boost that all-important revenue. Counterintuitively, it seems to be making more money by cutting its prices.

Just a theory I wanted to share. Now, if you'll excuse me, I have to go hunt for a graphic novel or something that'll help me get Harry and co. over the $25 mark.

5 Comments – Post Your Own

#1) On July 02, 2009 at 11:18 AM, lemoneater (71.15) wrote:

Yes, I agree. It takes real willpower to turn up the free shipping. :)

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#2) On July 02, 2009 at 11:24 AM, ChrisGraley (29.81) wrote:

You might want to check this link.

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#3) On July 02, 2009 at 11:49 AM, ikkyu2 (99.10) wrote:

To start, you need to understand that if you're logged in, or using a browser that has a cookie from when you were logged in before, you are being shown prices that are personalized for you.  I might see different prices at the same time on the same items.

Amazon knows so much about what will get you to buy something and what price you'll bear, that your little analysis falls laughably short of the mark.  They've had legions of Ph.D statisticians, behaviorists and computer scientists working on this full time for 15 years, which probably adds up to more manpower than you put in writing the above paragraph.

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#4) On July 02, 2009 at 4:11 PM, capsoregime (69.55) wrote:

ikkyu, can you give a reference on the difference in prices between user accounts?  I'm often logged on from multiple accounts (one on which we spend thousands and thousands, and one which has no purchase history) and I've never seen a "different price." 

 

 

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#5) On July 16, 2009 at 12:10 PM, TMFNato (98.64) wrote:

ikkyu2, the army of Ph.Ds, behaviorists, and computer scientists I consulted during the ten years it took me to write that post are very sad now. I think you made some of them cry. I'm going to have to get cake in the break room for them or something, just to get their spirits back up. I hope you're pleased with yourself. (:

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