The company's defence that the price was part of a "random price test" and could be refunded solidified the suspicion further it was into dynamic pricing activity, as similar instances were far too many. Just like the company offered $51 less by Amazon than its own usual price on a dedicated bargain website (ramasastry, cnn.com).
An analysis can be done from figures provided as quarter wise sales data, of a particular book sold through this portal, (Niles, R., ojr.org). It shows that the company had skimmed high earnings through a dynamic pricing policy in the first quarter sales. Eleven and twelve copies of the same book were sold at the prices of $11.02 and $11.50 each respectively while in the second quarter the same book sold sixteen and eleven copies each at the prices of $11.02 and $11.70 respectively meaning a highly elastic nature of the book's demand can be computed at a elasticity demand- coefficient of two, which is greater than unitary. It may be noticed here that there was an increase in sales of the books even when the prices charged were higher. If total earnings based on variable pricing quarter - on - quarter are considered , then they range from 15% to almost as high as 40%. This is where the marketers like Amazon.com have the opportunity to maximize their earnings from unsuspecting customers through their dynamic pricing strategy as even against a higher price Amazon sold more number of copies. The remaining quarters also showed a similar effect.
Benefits & disadvantages
The benefits of dynamic pricing comprise of stimulating demand which helps to churn inventory quicker translating into more revenue and greater margins. The new focus is on target pricing, with technology profiling the price sensitivity of customers to determine the selection of groups which can be discriminated on pricing. . It is believed by the company to help in maximizing the total revenue for the company. The associates and partners of Amazon even share historical data of their dynamic pricing. (Liquid commerce, information-age.com). The disadvantages are also quite a few such as customer loyalty start disappearing once regular customers find out that they are being overcharged in contrast to a new customer offered a lower promotional price . This could drive customers to bargain counters where everyone is treated fairly and there is no discrimination through dynamic pricing. The other drawback of this method may be a legal threat incase it appears that the firm is violating antitrust laws or not having a fixed price policy.
However, it may be an end of an era of list prices where the product life cycle is short, (Strategic interactive marketing, managing change.com), the distance minimized and delivery lead times lessened with the help of technology and modernization. Industry experts have reportedly observed dynamic pricing to be a boon to high fixed and low marginal cost industries and also as a necessity for e commerce (Weiss, R., M. & Mehrotra, A., K.,