Are you actually getting a discount on an item that's on sale? According to a new study, if you're shopping on Amazon, the answer is "no, quite the opposite".
All of us have, at one point or another, shopped online. And today's digital retailers make this experience as streamlined and effortless on our part as possible -- type in some credit card details and the item will be at your front door in a few business days. Many of them also throw in tasty discounts to sweeten the deal even more and entice customers to make their purchases online.
But are we actually getting a deal? New research from the University of Florida says that we're not. In fact, the paper reports on a practice among vacuum retailers on Amazon where customers can actually end up paying more for a 'discounted' item than they would before the discount was applied due to list price manipulation.
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"When you see this list-price comparison, you naturally assume you are getting a discount. It’s not just that you didn’t get a discount. You actually paid a higher price than before the seller displayed the discount claim," says Jinhong Xie, a professor in the Warrington College of Business at the University of Florida and corresponding author of the paper.
What the team has found is a pricing practice that they describe as being truthful but still misleading. It involves retailers applying and advertising a price discount on an item, while also raising its base price. In effect, this brings the list price (the one that an item is being sold for) on par with its previous price but also gives off the impression that it's being sold for a discount. The authors call this practice "price-increase and list-price synchronization", or PILPS.
By pairing price increases with the introduction of changes to the previous list prices for products, retailers get the benefit of Amazon listing their goods as discounted while customers end up paying more in 23% of cases -- compared to the price a few days earlier. A few days after the price hike, the price drops, and both the list price and misleading discount claim disappear. The timing of the price comparison is what misleads shoppers into believing they're receiving a discount.
For the study, the team looked at the prices of household products on Amazon from 2016 to 2017. They focused on vacuums, tracking over 1,700 different devices for a total of almost 500,000 individual price observations. While most changes to the list price of items were associated with an effective price drop or no change in price, 22% were associated with a net price increase, the paper reports.
Despite focusing on vacuums, the authors note that retailers of digital cameras, blenders, drones, and even books employ PILPS practices with lower frequencies. The perception of getting an item at discount helps boost sales despite the higher costs, which helps improve the item in Amazon's internal sales ranking, boosting sales even more. Book retailers used PILPS-type practices around 3% of the time, which varied among different types of products up to 13% of the time for blenders, digital cameras, and drones.
There are regulations in place prohibiting deceptive pricing, which require sellers to use truthful price comparisons. And retailers have been called into court for breaking such stipulations.
PILPS stands apart because it works around such regulations. The price being advertised can be truthful but misleading if retailers advertise a price discount while also raising the price of goods -- this gives the impression of a deal but, ultimately, presents no actual drop in price.
"Current regulations are all about the value of the list price, and they don’t say anything about misleading consumers by manipulating the timing of the list price’s introduction," Xie says. "We found that by increasing the price by 23% on average, the seller achieves an 11% advantage in their sales rank among all products in the home and kitchen category, This allows firms to achieve the impossible: increasing margins and increasing sales simultaneously."
Shoppers should not assume that a professed discount necessarily means that an item is being sold for a lower price than usual. Instead, we should 'comparison-shop' across several websites to get a reliable idea of an item's cost. Online tools that provide price history for different items can also be used to determine if a discount is genuine or not.
"We think consumers need to be aware so they can protect themselves," Xie says. "And we think that consumer organizations and regulators should evaluate this new marketing practice to determine whether and how to manage it."
The paper "Frontiers: Framing Price Increase as Discount: A New Manipulation of Reference Price" has been published in the journal Marketing Science.