Dive Brief:
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Amazon will pay a $1 million Canadian penalty as well as $100,000 towards the Competition Bureau’s costs as part of an agreement announced Wednesday resolving the Canadian government agency's concerns with the retailer’s pricing practices on its Canadian website.
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At issue: Amazon’s list price comparisons, which the Competition Bureau (a body analogous to the U.S. Federal Trade Commission) says created the impression that the prices were lower than prevailing market prices, but were not verified as accurate. The savings claims were advertised on Amazon’s Canadian website, its mobile applications, in other online advertisements and in emails to customers, the bureau said.
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Amazon has already changed its price listing policy for its Canadian website (and elsewhere). Those changes, plus the penalty, are part of a consent agreement that is registered with the Competition Tribunal and has the force of a court order, according to the bureau. Requests by Retail Dive for comment from Amazon were not immediately answered.
Dive Insight:
From its 1994 inception on, Amazon has typically underlined its low prices by contrasting them against manufacturers’ suggested retail prices (MSRPs, also known by a slew of other names, including “list prices” and “reference prices”). Listing MSRPs — prices that in practice are rarely ever really charged — is traditionally a powerful sales tactic that has proven useful in retail enterprises from brick-and-mortar stores to television infomercials.
But Amazon last year began to quietly eschew MSRPs — even beyond its Canadian website — and that has some onlookers questioning its dedication to its signature price competitiveness.
“The experience, where you show a few prices, is called ‘is/was pricing.’ It is this price, it was that price,” Jason Goldberg, who leads commerce and content strategy at interactive digital agency Razorfish, told Retail Dive last year. "That’s a powerful psychological feature, because it automatically makes you feel like you got a good deal. Showing a second-tier price helps all retailers, and Amazon historically has been no exception. Now they’re eliminating the list price on a bunch of their listings — and none of us knows why that is.”
John Pecman, Canada’s Commissioner of Competition, alluded to the power of the practice in his statement on Wednesday, and noted that it can too easily be abused. "Consumers are naturally attracted to claims that they will save money,” he said. “We’re pleased that Amazon has put procedures in place to validate list prices received from its suppliers. This ensures that consumers are provided with accurate information and not misled by savings claims. This agreement was reached through collaborative efforts and reflects an innovative approach we call shared compliance."
MSRP listings have many other critics outside of the Canadian government. “It’s debatable whether it’s ‘deceptive’ or not, but I think the word I’d prefer to use is ‘manipulative,’” Robert M. Schindler, professor of marketing at Rutgers University business school and author of “Pricing Strategies: A Marketing Approach,” told Retail Dive last year.
Moreover, as seen in Canada, regulators and courts don’t like it when retailers take the practice too far, because they do consider it deceptive in a legal sense. Some of the experts interviewed by Retail Dive believe that Amazon's removal of some list prices instead may be a result of wariness over the spike in consumer lawsuits, and that the company is cleaning up its original price listings as a result. But all agree Amazon is most deeply interested in fostering a superior shopping experience for the millions of people who visit its site.
Noting MSRPs may also be less useful to Amazon as its marketplace has grown; the e-commerce giant in November said that half the merchandise sold on its site comes from third-party sellers.
“Amazon already has a bunch of other prices on its site,” Goldberg said. “Actually, you generally see items being offered by 10 or 20 vendors, so Amazon already has this price competition clearly visible on the page. Those Marketplace sellers are essentially bidding for the lowest price, or the ‘fast follower’ price. [Amazon founder and CEO] Jeff Bezos’s flywheel strategy is to offer a low price, and get more consumers, more sellers and more competition in a virtuous circle.”