surveyed were more likely to purchase from a site that allowed personalization. In fact, 87
percent of respondents were annoyed when a site asked for the same information more than once,
and 82 percent were willing to provide such personal information as gender, age, and ethnicity if
the site would remember their preferences and personal information. The group found that 47
percent (40 million) of U.S. adults online personalized a Web site, double the percentage from
two years prior (23 percent in January 1999). Consumers who personalized were more valuable
customers; 28 percent spent more than $2,000 online in 2000 compared to only 17 percent of
non-personalizers.
Personalizing Price
Personalization enabled retailers to use dynamic pricing, whereby prices were changed based on
demand (i.e., the value placed on the product or service by a target customer) or supply (e.g.,
product availability) conditions. While dynamic pricing existed well before the Web, Web
technology and customer databases greatly increased its potential. For brick and mortar retailers,
testing demand elasticity was an expensive and time-consuming proposition, and the ability to
offer personalized pricing was limited or non-existent. By contrast, Web-based sellers could
perform real-time price tests, measure immediate customer responses, and act on them. For
example, if a Web retailer wanted to know the sales impact of a 5 percent price increase, it could
conduct a test by randomly charging visitors this increased price. By studying the response,
retailers could gain important insights into the role price played in customers’ buying decisions
by customer segment.
Amazon tested dynamic pricing over the 2000 Labor Day weekend. Users in a chat room on the
DVDtalk.com Web site noticed that some Amazon customers paid more than others for the same
DVDs. One person reported that he ordered the DVD of Julie Taymor’s “Titus” for $24.49, and
the following week he saw that the price increased to $26.24; when he deleted Amazon’s
“cookies” from his computer, the price fell to $22.74. A number of DVDtalk.com participants
believed that Amazon’s prices were higher for its regular customers, and one chat room visitor
said “They [Amazon] must figure that with repeat customers they have ‘won’ them over and they
can charge them slightly higher prices since they are loyal and don’t mind and/or won’t notice
that they are being charged three to five percent more for some items.” The discovery was
quickly publicized over the Internet, resulting in highly visible customer complaints. Amazon
spokesman Bill Curry denied that the company engaged in dynamic pricing: “It was done to
determine consumer responses to different discount levels…this was a pure and simple price test.
This was not dynamic pricing. We don’t do that and have no plans to ever do that.” Amazon
issued a prompt apology and refunds for six thousand customers. Curry later observed,
“Dynamic pricing is stupid, because people will find out. Fortunately, it only took us two
instances to see this.”25
Personalizing Service
An important feature of Amazon’s business model was the company’s ability to personalize its
service. Amazon aimed to use personalization to “build the right store for every customer,”
namely to recognize, remember, and learn from every interaction with the customer; to allow
surveyed were more likely to purchase from a site that allowed personalization. In fact, 87
percent of respondents were annoyed when a site asked for the same information more than once,
and 82 percent were willing to provide such personal information as gender, age, and ethnicity if
the site would remember their preferences and personal information. The group found that 47
percent (40 million) of U.S. adults online personalized a Web site, double the percentage from
two years prior (23 percent in January 1999). Consumers who personalized were more valuable
customers; 28 percent spent more than $2,000 online in 2000 compared to only 17 percent of
non-personalizers.
Personalizing Price
Personalization enabled retailers to use dynamic pricing, whereby prices were changed based on
demand (i.e., the value placed on the product or service by a target customer) or supply (e.g.,
product availability) conditions. While dynamic pricing existed well before the Web, Web
technology and customer databases greatly increased its potential. For brick and mortar retailers,
testing demand elasticity was an expensive and time-consuming proposition, and the ability to
offer personalized pricing was limited or non-existent. By contrast, Web-based sellers could
perform real-time price tests, measure immediate customer responses, and act on them. For
example, if a Web retailer wanted to know the sales impact of a 5 percent price increase, it could
conduct a test by randomly charging visitors this increased price. By studying the response,
retailers could gain important insights into the role price played in customers’ buying decisions
by customer segment.
Amazon tested dynamic pricing over the 2000 Labor Day weekend. Users in a chat room on the
DVDtalk.com Web site noticed that some Amazon customers paid more than others for the same
DVDs. One person reported that he ordered the DVD of Julie Taymor’s “Titus” for $24.49, and
the following week he saw that the price increased to $26.24; when he deleted Amazon’s
“cookies” from his computer, the price fell to $22.74. A number of DVDtalk.com participants
believed that Amazon’s prices were higher for its regular customers, and one chat room visitor
said “They [Amazon] must figure that with repeat customers they have ‘won’ them over and they
can charge them slightly higher prices since they are loyal and don’t mind and/or won’t notice
that they are being charged three to five percent more for some items.” The discovery was
quickly publicized over the Internet, resulting in highly visible customer complaints. Amazon
spokesman Bill Curry denied that the company engaged in dynamic pricing: “It was done to
determine consumer responses to different discount levels…this was a pure and simple price test.
This was not dynamic pricing. We don’t do that and have no plans to ever do that.” Amazon
issued a prompt apology and refunds for six thousand customers. Curry later observed,
“Dynamic pricing is stupid, because people will find out. Fortunately, it only took us two
instances to see this.”25
Personalizing Service
An important feature of Amazon’s business model was the company’s ability to personalize its
service. Amazon aimed to use personalization to “build the right store for every customer,”
namely to recognize, remember, and learn from every interaction with the customer; to allow
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