ME2 - Price Differentiation assignment
Amazon vs. Amazon Prime
What is Amazon? Why do people across the world prefer Amazon? The answer is simple.
Amazon is an online marketplace for a variety of products ranging from books, apparel, electronics and even grocery products. This online store is named after the largest river Amazon and is fondly known as the Walmart of the internet. Touted as the world’s fourth largest retailer today, according to a survey and trends, Amazon is slated to be the second largest retailer by 2015.
Here under Amazon, we will look at two variants, Amazon regular and Amazon prime. Amazon Prime - Amazon Prime is a premium service (read membership ...view middle of the document...
* Orders over $35 often would be shipped for free anyway. Amazon has always offered free standard shipping at no extra charge for larger orders. Further, if a customer requested for the item to be shipped within two days, it would be chargeable. Prime however, sold all its products under the unlimited two-day free shipping.
* Free shipping is the big draw, but Prime offers other benefits. Prime Instant Video was Amazon's answer to Netflix (whose steaming service starts at $95.88 a year), and Kindle owners with Prime can borrow from a limited selection of books for free.
This means, that a customer who wants to avail a product in 2 days and uses /needs the service frequently should ideally be using the prime service as it would be more cost efficient for him than the regular standard shipping.
The Amazon prime seems to have everything going for it. The customers can not only avail the two day shipping benefit but also the free access to their services like instant video and kindle library which are also integral in the drive of its sales. Amazon recently upped annual subscription from $79 to $99, first since its debut in 2005 on account of rising of fuel and shipping costs. Seems ok? – Considering inflation?
But then what is the catch in relation to Prime’s price and why is it important for us to discuss Amazon in relation to the price discrimination?
Recently as per a lawsuit, Amazon is being accused of encouraging third-party sellers (known as fulfillment by Amazon) 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 i.e. the prices shown on the system for Prime customers and regular customers are different with the prices being higher for the prime customers. Further, Amazon allegedly then gives these vendors the priority by showing (marketing) their items in the Prime Member’s product search results first.
By increasing the prime consumer’s product price, the suit further says that Amazon is able to meet or rake in the cost of shipping because it receives a percentage of the product price. The lawsuit is seeking a refund of all annual Prime Program membership fees from 2007 to 2011; damages as provided under the Washington Consumer Protection Act; and attorney’s fees.
The lawsuit is requesting the refund of 2007 to 2011 fees as though free two-day shipping is the core offering of Amazon Prime, in recent years it has expanded much further to include a Netflix-like streaming video service and free book downloads on the Kindle.
Now if the lawsuit is traced with Amazon being held guilty for the same, the onus will be on the customer perception that whether Prime will still be the best pick notwithstanding the reputation loss for the company.
The reasons for price differentiation can therefore be as under:
1) The customer’s belief in the brand – The customers believe that Amazon will fairly charge them.
2) The Time cost of the...