Price Trap: Beware the Amazon ‘Buy Box’

The Washington Post: “Researchers at Northeastern University tracked pricing of 1,640 of the best-selling products on Amazon’s site over four months. In particular, they were examining what prices were featured in what’s known as the ‘buy box,’ the area on the right side of an Amazon product page that invites you to add an item to your cart … It has been estimated that about 82 percent of sales on Amazon are made through that box.”

“Amazon relies on an algorithm to determine which seller ends up in the buy box for any given product … the process is significantly more likely to give that spot to sellers who use real-time pricing, in which software is used to automatically optimize prices on the fly based on what competitors are charging.”

“Here’s why that matters: Most sellers using that kind of pricing model don’t have the lowest prices on the site. In fact, the researchers found that 60 percent of those that use real-time pricing have higher prices than other sellers of the same item on Amazon. Most of the time, the price difference is about $1, but … researchers found ‘many’ cases where the price difference was in the $20 to $60 range.”

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Treasure Hunt: The Joy is in the Journey

The Wall Street Journal: “The internet isn’t just a way to speed up the shopping experience; it is a tool to draw it out. Consumers enjoy the anticipation of a big-ticket item, in contrast to the quick fix that comes from an impulse purchase at an inexpensive, of-the-moment fashion chain … The result of all this due diligence: Shoppers are feeling much more satisfied with their purchases.”

“Stylitics, a fashion technology and analytics company, partnered with market research firm NPD Group to look at this behavior. Handbags are a natural fit for this thoughtful approach, as women seek to combine fashion with function. The study found roughly four in 10 women ages 18 to 34 said they started thinking about their most recent handbag purchase more than a month in advance. Six in 10 said browsing online stores was a major influencer in their handbag shopping.”

“Once shoppers go through the drawn-out process and make up their minds, they are happier. Handbag return rates at luxury online retailer Net-a-Porter are among the lowest across the site.”

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Upgrade Downgrade: Bad News for Apple’s iPhone

The Wall Street Journal: “The death of the two-year cellphone contract has broken many Americans from a habit of routinely upgrading their smartphones … Citigroup estimates the phone-replacement cycle will stretch to 29 months for the first half of 2016, up from 28 months in the fourth quarter of 2015 and the typical range of 24 to 26 months seen during the two prior years.”

“Since the early days of Apple Inc.’s iPhone, most customers have avoided paying for the full price for the latest model. But the success of AT&T Inc. and Verizon Communications Inc. since 2013 in shifting customers into plans that force them to pay the full price for devices—and separate that cost from monthly service fees—has consumers holding on to their devices longer.”

“Analysts see the longer device life as positive for the carriers because it could lead to fewer service cancellations or defections in the competitive industry … The longer upgrade cycle lowers equipment revenue for the telecom companies, but Verizon’s Chief Financial Officer Fran Shammo argued last month that the top-line shift is painless … The shift isn’t as benign for Apple. BTIG analyst Walter Piecyk recently cut 10 million units out of his fiscal 2016 and 2017 iPhone estimates because of shifting upgrade rates in the U.S.”

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Smoke & Mirrors: Online ‘Bargains’ Can Be Illusory

The New York Times: “Boomerang Commerce, a retail analytics firm, compared the list prices of dozens of pet items on Amazon and the specialist pet site Chewy.com. In only a handful of cases did the retailers even agree on what the list price was. So a 22-pound bag of Blue Buffalo Basics Limited Ingredient Grain-Free Duck and Potato dog food had a list price of $131 on Amazon and $84 on Chewy. Yet the retail price at both sites was the same: $49.49.”

“Some e-commerce experts said nothing needed to be done about illusory discounts, because the merchants needed them so much. The process ‘can seem dishonest to consumers, but let’s consider the retailer’s side,’ said Daniel Green of CamelCamelCamel.com … ‘If they weren’t using the list price as the benchmark, what would they use?’ … A few retailers defended themselves in off-the-record conversations by saying there are no victims here. That view got support from a Massachusetts judge in February, who dismissed a case alleging the use of fictitious prices by Kohl’s.”

The judge said: “’The fact that plaintiff may have been manipulated into purchasing the items because she believed she was getting a bargain does not necessarily mean she suffered economic harm.’ For others, however, e-commerce is not living up to its promise of being transparent and pro-consumer.”

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Nickels & Dimes Keep Airfares Low

“Air travelers love to gripe about fees: $25 to check a bag; $34 for early boarding; $129 for a few more inches of legroom,” writes Rafi Mohammed in The Wall Street Journal. “The challenge for this kind of model is managing perceptions … Customers may feel nickeled and dimed, but the a la carte model gives them the option to save money. Theoretically airlines could bake the cost of amenities into the base fare and then offer ‘discounts’ for giving them up. But that isn’t intuitive: Take $9.95 off if you don’t use in-flight Wi-Fi?”

“American Airlines recently charged $22 for ‘preferred’ seating in the front of the cabin—but with no added legroom. Internet access on some flights costs $40. Is this gouging? No, travelers who pay for these extras are subsidizing low fares for the rest.”

“In 2014 airlines generated $38 billion in ancillary revenue, according to a study by IdeaWorks. That money keeps base fares low. And airline profits are far from outrageous. The average net margin for all scheduled U.S. carriers was 4.4% in 2014. Even in the first three quarters of 2015, after oil prices had plummeted, the average net margin was only 14%.”

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Airlines & Flyers View Prices Differently

The Wall Street Journal: “American, Delta and United have new pricing rules that could easily raise the cost of many trips. Think of it as making a six-pack of soda twice as expensive as buying six cans individually.” For example: “For a May 4 trip from Chicago to Des Moines, Iowa, with a May 5 return flight from Kansas City, Mo., back to Chicago, American offers a fare of $522. But if you buy those flights individually, you’d spend $107 to get to Des Moines, then $65 to fly from Kansas City to Chicago, or a total of $172.”

“Airlines look at pricing through a different lens from their customers. Instead of adding up the fare from each flight on a trip, airlines look at each starting point-to-destination trip as its own market. Airlines want the ability to set pricing for a Kansas City-Honolulu trip as a unique product, not simply the sum of flights from Kansas City to Los Angeles and Los Angeles to Honolulu.”

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Introducing the Meat-O-Mat!

The Wall Street Journal: “Attached to a laboratory-like plant in this upstate community is a neon-lit vending machine dubbed the Meat-O-Mat, where customers can buy locally raised meat whenever they like. If Joshua Applestone has his way, carnivores will flock to it the way that banking customers visit the ATM. His invention is stocked with pork chops, dry-aged burger patties, bratwurst meatballs and his beloved pork roll, a deli meat native to New Jersey. Customers swipe their credit cards, push a button, slide the door open and retrieve their hormone- and antibiotic-free selection.”

“Mr. Applestone and his partners at Applestone Meat Co., the attached plant, are attempting to develop a new, meat-centric business model. For the past two years, they have been exploring ways of making high-quality cuts available at lower prices by slashing labor costs and considering offbeat distribution methods like the Meat-O-Mat. ‘We’re going for a highway-roadside-attraction type of approach,’ said Samantha Gloffke, the company’s general manager and a part owner. ‘The goal is to make sustainability really exciting.'”

Mr. Applestone envisions them stationed at supermarkets, football stadiums and picnic sites, places where you might welcome the convenience of buying something to toss on the grill. ‘Think about it at any music festival,’ he said. ‘Anywhere someone brings a cooler, you no longer have to bring fresh meat. How much is peace of mind worth?'”

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How Walmart & Whole Foods Shoppers Are Alike

Perfect Price: “The distribution of spending at Whole Foods and Walmart —stores that are diametrically opposed in the cultural imagination —are actually quite similar in terms of the distribution of spend. Slightly more people spend less than $25 on a trip to Whole Foods, and slightly more spend between $25-$100 at Walmart, but overall, the distribution of how much people spend on trips to these stores are remarkably alike.”

“Far and away, consumers spend the most at Costco, the third largest retailer in the United States … At the very bottom of the list is 7-Eleven, the largest convenience store chain in the United States. The average spend per trip at 7-Eleven is less than 15% of that at Costco … The average spend for trips to Walmart, Whole Foods and Trader Joe’s all fall in the range of $50-$55 .. Trader Joe’s shoppers are heavily concentrated in the $10-$100 range with nearly 9 out of every ten falling in the category.”

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