Amazon Accused of ‘Surge Pricing,’ Misleading Consumers During Prime Day

According to a recent report, a vendor who sells direct through Amazon has stepped forward to accuse the e-commerce giant of misleading business practices. Specifically, the vendor said that Amazon jacked up the suggested retail price of its product on Prime Day 2017 to make it seem like the discount consumers were getting was far better than it actually was.

According to a recent report, a vendor who sells direct through Amazon has stepped forward to accuse the e-commerce giant of misleading business practices. Specifically, the vendor said that Amazon jacked up the suggested retail price of its product on Prime Day 2017 to make it seem like the discount consumers were getting was far better than it actually was.

In the report, Jason Jacobs, founder of Remodeez — a company that makes nontoxic foot deodorizers and other odor-defense products — said he’s been doing business with Amazon since 2015 and has an agreement with the company that lists his product with a suggested retail price of $9.99. However, he found that on Prime Day, that price was nearly doubled.

“They showed the product at $15.42 and then exed it out to put ‘$9.99 for Amazon Prime Day,’” Jacobs told FOX Business. “And on the final day, the price was like $18.44. So, we put a support ticket in right away and I rallied some friends through social media to go to their complaint board and complain.”

Credit: FOX Business by Remodeez

Jacobs said the suggested price came back down to $9.99 the following day, but a little more digging showed that this wasn’t the first time Amazon did this to this product. Over the past year, Jacobs found that the suggested price of the product had been bumped up on two different occasions to more than $15. Important to note, Amazon’s agreement with Remodeez does enable it (Amazon) to set its own pricing as it sees fit.

Jacobs noticed that each time the price was increased over the past year, it correlated with media attention directed at its product. That coverage, in BuzzFeed on numerous occasions and in Forbes, led to an increase in demand for the product and, as it turns out, an increase in the suggested retail price. And those increases, according to Jacobs, caused sales to tank.

“It’s not like they’re bumping it by a buck and making a little bit more money,” he said. “They are really tanking sales and it kind of has a ripple effect to us, being a small company trying to do demand planning.”

Dynamic Surge Pricing

This kind of business practice from retailers isn’t uncommon. In fact, dynamic surge pricing — where retailers quickly change the price of products based on data-driven algorithms that look at things like demand, inventory and competitors’ prices — is a hot trend in the industry.

Think of it like surge pricing on an app like Uber. Though it did get out of hand and cause quite a controversy at one point (because of a screwy algorithm), Uber’s surge pricing is designed to enable the cost of a ride to reflect the current level of demand at any particular point in time.

It’s a practice that could make sense if executed correctly at retail. But without proper explanation to the customer, it more or less reads as a shady business practice. And the Federal Trade Commission keeps an eye out for that type of misleading sales information. Its recommendation is to make an item available at “list price on a regular basis for a reasonably substantial period of time” before setting a sale price. If a retailer appears to be veering away from that recommendation, the FTC can go after it.

Customer-Centric?

And that’s the case right now with Amazon. As part of its review of the company’s agreement to buy Whole Foods, the FTC is reportedly looking into whether the discounts that Amazon offers are actually as good as they seem to be. The FTC’s interest, more specifically, stems from a Consumer Watchdog complaint. In a report published in early July, the organization claimed that Amazon “routinely uses inflated and fictitious previous prices” to offer misleading discounts.

Not the kind of thing you expect from a company that claims right there in its mission statement that it puts the customer first…

Amazon refuted the Consumer Watchdog report, calling the study “deeply flawed” and based on incomplete data and improper assumptions. “The conclusions the Consumer Watchdog group reached are flat-out wrong,” the company said in a statement. “We validate the reference prices provided by manufacturers, vendors and sellers against actual prices recently found across Amazon and other retailers.”

And in response to the vendor accusations reported by FOX Business, Amazon said “Our customers expect to come to Amazon and find the lowest prices and we work hard to meet or beat them for all customers, across our entire retail selection. The world’s prices fluctuate all the time and we seek to match the lowest price.”

What the Hell Is Happening to Retail?

Retail is having a moment right now. Since the calendar flipped to 2017, we’ve seen more bankruptcies than all of last year. What’s going on?

Retail is having a moment right now.

Since the calendar flipped to 2017, we’ve seen more bankruptcies than all of last year, including some consumer electronics chains like RadioShack (again), hhgregg and Sears. Just recently, hhgregg announced it was going a step further, closing all of its remaining stores and liquidating all products.

The doom-and-gloom news has, of course, extended well beyond the CE industry. Some major stores — JCPenney, Macy’s, Payless, Lululemon, Urban Outfitters and more — have all announced either store closures or seen their stocks tumble to new lows. Ralph Lauren even announced that it was closing its flagship Polo store on Fifth Avenue in New York.

Mind you, all of this is happening at a time when the economy is very much out of the recession phase, consumer spending and confidence are up and the economic outlook has been nothing short of rosy.

So What Gives?

So what the hell is going on? Is this the end of retail? Is the apocalypse upon us?

The answer to any of those questions, as you’d expect, isn’t so straightforward.

Yes, this is a very dark time for retail. A lot of things are up in the air. Brick-and-mortar stores are facing some incredibly difficult times. But that doesn’t mean the entire industry is about to go kaput.

The Atlantic recently published a deep dive into the current state of the retail industry, and its explanation couldn’t have been more accurate — it’s probably the closest thing to a complete answer we’ll be able to find. The analysis points to three main causes for the “Retail Meltdown of 2017”:

  • The rise of online shopping,
  • the existence of faaaaar too many malls,
  • and a major shift in how consumers are spending money.

All of those make perfect sense. No industry understands the impact of online shopping better than the consumer electronics space, which has seen billions of dollars in business go to Amazon. Since 2010, the e-commerce giant’s sales in North America have quadrupled from around $16 billion to more than $80 billion last year. And in 2016, Amazon’s growth alone accounted for more than half of all online sales growth.

There’s also the mobile wallet affect. Since 2010, The Atlantic pointed out, mobile shopping has grown from less than 2 percent of digital spending to 20 percent last year.

As for the declining footprint of malls, there are roughly 1,100 in existence today. That’s down from the peak of about 1,500 (all of which were built between 1956 and 2005). So nearly a third have closed in the last decade. Further, while all of those malls have closed, not a single new one has been built.

Whereas malls used to serve as the cornerstone of local communities, the era of expansion resulted in an oversaturation of malls. When you take into account the number of malls and outdoor shopping centers throughout the U.S. — which brings the total up to more than 7,500 — and break it down by “gross leasable area,” as one research firm did, the U.S. far outpaces the rest of the world.

shopping center study

Lastly, The Atlantic hit on consumer spending trends. Here, it notes that Americans have shifted from a materialistic mindset to one where we’d rather spend money on going out with friends for food and drinks. A fair point.

A Shifting Retail Paradigm

The message in all of this is really geared toward the larger national retail chains. The downturn in physical retail square footage goes to show that, in the era of omnichannel retail, there’s no need to expand your brick-and-mortar footprint in order to boost sales. Rather than needing more locations, companies need a stronger e-commerce strategy. Easier typed out by a blogger than implemented by a retailer.

But what about the smaller stores?

If anything, all of the mall closures are positive for the specialty guys out there. With less competition in those local markets, consumers who still prefer to shop in-person are more likely to turn to you.

But that doesn’t mean you can continue to operate as you always have. Just like we wrote about in our analysis of Staples’ new strategy to drive foot traffic, local shops need to continue to drive home in consumers’ minds why their stores matter. You have to find that personal touch, something that separates you from the national chain, and can entice consumers to come walk through your showroom. It doesn’t have to be a co-working space. Maybe it’s free delivery if they live within so many miles, or same-day installation for orders over a certain price threshold. Heck, maybe it’s even just outstanding personal service from your salesfloor team.

Retail isn’t going anywhere. There’s always going to be a need for a physical place where people can come in and experience a product. The only difference today is that consumers need a little more enticing to get out from behind their computers. The onus is on the retailer to prove its worth in its communities. If you can do that, the “Retail Meltdown of 2017” will mean absolutely nothing to you.

What We Know About the FBI’s Alleged Use of Best Buy Employees as Informants

The relationship between the FBI and Best Buy’s Geek Squad was placed under the microscope in court last week.

[Editor’s note from Target Marketing: The second a brand harms its reputation, it’s putting the core of its marketing at risk. Here, we take a look at privacy and retailing — specifically, the impact invading privacy has on brand reputation.]

The relationship between the FBI and Best Buy’s Geek Squad was placed under the microscope in court last week.

Here’s a little background information on the case before we dive into this thing:

It all boils down to evidence being used in a child-pornography-possession case in Orange County, Calif. Mark A. Rettenmaier, a prominent local physician and surgeon, was having trouble with his HP Pavilion desktop computer and sought the assistance of his local Best Buy Geek Squad team. The computer ended up making its way to a Brooks, Ky., Geek Squad field location, where employees  uncovered the material in question and handed it over to the FBI — something that, according to Best Buy policy, they’re required to do. However, what the public has learned in the months since the case was brought to trial is that these Best Buy employees have routinely searched computers that have come across their stations for files that could earn them “$500 windfalls as FBI informants.”

Further complicating matters in the case, the child pornography files were found in an area of the computer where unallocated “trash” was stored, meaning “it could only be retrieved by ‘carving’ with costly, highly sophisticated forensics tools. In other words, it’s arguable a computer’s owner wouldn’t know of its existence.”

There are other issues surrounding the case: including shoddy investigative tactics, missing warrants and more. But we’ll look past all of that for the purposes of this story.

What’s most troubling in all of this is that Best Buy is (or at least several employees at this particular office are) working as an extension of the government. And, if these employees are getting paid for the information they come across, the searches could prove to be direct violations of a person’s Fourth Amendment rights against unreasonable searches and seizures.

In a statement, Best Buy denied the accusations, saying it has no relationship with the FBI.

“From time to time, our repair agents discover material that may be child pornography, and we have a legal and moral obligation to turn that material over to law enforcement. We are proud of our policy and share it with our customers before we begin any repair,” the company said. “Any circumstances in which an employee received payment from the FBI is the result of extremely poor individual judgment, is not something we tolerate and is certainly not a part of our normal business behavior. … Our policies prohibit agents from doing anything other than what is necessary to solve the customer’s problem so that we can maintain their privacy and keep up with the volume of repairs.”

To be clear, I don’t find anything wrong with the details around this case. If a Best Buy employee were to “accidentally” come across illegal materials on a user’s computer, I’d hope and pray that they do the right thing and hand it over to authorities. That’s not what I’m arguing here.

What I am arguing is that these employees shouldn’t be actively seeking this material knowing that they have the opportunity to make a few extra bucks off of the federal government. That essentially turns them into a branch of the FBI or CIA or NSA or whomever they happen to be informing.

Privacy is the one topic that will continue to rear its ugly head as tech companies ask consumers to connect to more and more devices. Though we’re allowing companies greater access to our information and habits, there still needs to be a certain reasonable expectation of privacy. Customer support centers like Geek Squad should understand that and operate in such a way that consumers don’t have to fear that their privacy is being violated. When I send something away for repair, I’d like to think that the person whose hands the device ends up in won’t go rummaging through every folder or area of the device just because they can, no matter what some waiver I sign has to say. That’s not why I’m paying them.

And even if this were just a handful of employees at one offshoot Geek Squad facility, all of this begs the question: How many more Best Buy employees in locations around the country have been contacted by the FBI and offered similar incentives? There are some 20,000 Geek Squad employees alone. It’s a scary thought and one that could seriously hurt Best Buy’s credibility, depending on how this case plays out.

With October Behind Us, Amazon Wastes No Time Kicking Off the Holiday Shopping Season

On its Black Friday Deals Store, Amazon began rolling out thousands of holiday deals with new sales and promotions launching nearly “every five minutes.”

Some of your kids (or, heck, maybe even you) are still trying to scrub off that Halloween makeup from all of the trick or treating that went on, but if you haven’t already started sending out the latest info on your holiday deals and curated gift guides, you’re already losing ground to Amazon.

In a statement published promptly at 12 a.m. Seattle-time on Tuesday, the e-commerce giant announced the launch of its Black Friday Deals Store and more than a dozen different curated gift guides.

Through its Black Friday Deals Store, Amazon began rolling out some tens of thousands of holiday deals with new sales and promotions launching “as often as every five minutes” on everything from HDTVs to kitchen appliances and toys. The store will remain open through Dec. 22, and will include dozens of daily “compelling Deals of the Day” that will involve big-ticket items.

“Customers love discovering the best deals on the most sought-after products, and our Black Friday Deals Store and curated Holiday Gift Guides offer them a place to do just that – plus enjoy the most convenient shopping experience with tons of super-fast shipping options,” Doug Herrington, SVP of North American Retail at Amazon, said in the statement. “This holiday season, we’re offering more deals than ever before and – for the first time ever – giving Prime members an opportunity to use Alexa voice shopping for purchasing their holiday gifts hands-free. They can make purchases simply by asking Alexa-enabled devices, like the new Echo Dot, while relaxing at home with family and friends.”

The curated gift guides harken to those big and beautiful F.A.O. Schwarz books that used to come in the mail around this time of the year and get all of the neighborhood kids talking about their holiday wish lists. The obvious difference being that Amazon’s guides will be digital only. The most likely-to be scoured by kids and self-shoppers alike: the Electronics Gift Guide, the Home Gift Guide, and (an Etsy-esque competitor) the Handmade at Amazon Holiday Gift Guide.

screen-shot-2016-11-01-at-8-15-56-am

Of course, the one that resonates with us, and you, has to be the Electronics Gift Guide (pictured above). Looking through the list of products, retailers can get a sense of what products Amazon expects to deliver the best returns this year. What’s more, retailers can get a look at what they’re up against as far as pricing is concerned.

A quick tour through the Electronics Gift Guide shows that the emerging tech categories are expected to be front and center this year. In particular, Amazon places an emphasis on things like smart home tech, wearables, drones, and robotics. Mixed in, though, are some of the staples of the holidays—things like gaming, TVs, headphones, cameras, and more.

The standout category on that gift guide though? The little box in the top left corner of the screen: those electronics gift ideas that come in under $100. During the holiday shopping season, most consumers are looking for the “big deal.” They’re not looking to spend a fortune on themselves or whoever they’re gifting for, and that under-$100-price-point serves as a clickbaity headline. And listed in the Under $100 portion of the guide is everything from smartphones, cases, and bluetooth speakers, to toothbrushes, razors, and portable hard drives.

Calling out your major deals is great, but the strategy here by Amazon—that every retailer can learn from—is their ability to hit the nail on the head with the core online shopper. Categorize those lower price point items into an under $XX amount, and let your e-tail customers effectively impulse buy right from your website.

The biggest takeaway from all of this Amazon news for retailers? Now is the time to start running those holiday deals of yours. If you’re just planning for Black Friday now, you’re well behind the eight ball. It’s 2016, and if Amazon hasn’t made it clear enough for us all these past three years or so, let it be said here and now. The holidays no longer officially start on Black Friday. They start the second all of the pumpkins are down and candy has been handed out. So, finish that Kit-Kat you’re chowing down on, and get to popping. The holidays are here.