Amazon's Common Offline Test Blows Up Online

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When Amazon pledged to halt what it had called "random pricing tests" on DVDs last month, it showcased yet another problem direct marketers face when integrating offline tactics on the Internet.


Amazon officials quickly ditched the test, calling it a mistake. Consumers feared their demographic information was used to conduct the pricing test, but Amazon CEO Jeff Bezos said the company never has and never will test prices based on customer demographics.


Veteran direct marketers aren't so sure.


"I wonder about [Bezos'] definition of demographics. Maybe he's just doing an A-B split. He may be using psychographic data that he's collected. I don't know what he's using, but he's definitely segmenting," said Roy Schwedelson, CEO of list firm Worldata Inc., Boca Raton, FL.


Schwedelson, a 30-year direct marketing veteran, did not think Amazon was deceitful, but he questioned the company's strategy.


Lorry Griffin, senior vice president and executive director of e-marketing at Grey Direct, agreed.


"This flies in the face of good marketing. You can't be covert in a public place like this," Griffin said.


Any dot-com's relationship with customers needs to be permission-based, which is different from offline, she said. "Permission-based programs are the only types that can work on the Net. This [pricing test] did not appear to be permission based," she said.


Jon Roska, CEO and chief creative officer at direct marketing agency Roska Direct, Philadelphia, thought Amazon was running an A-B price test. Roska said he didn't think the Amazon pricing flap was a setback for online marketing, however.


"It's a bump in the road," he said. "Good direct marketers might be readjusting their tools."


That Amazon is running these tests shows they are smart direct marketers, Roska said, but their tactics will have to change. "They'll learn from this," he said.


Indeed, the lesson will cost Amazon an average of $3 each for 6,896 customers in order to refund the difference in price. The real sting comes from increased scrutiny of its marketing tactics, which probably would not have become an issue if this had been done offline.


Company spokesman Bill Curry said Amazon would not do such testing again. "We found that two people buying the same item from the same place at the same time at a different price is unacceptable," he said.


However, Curry did not say whether Amazon would abandon price testing forever.


"If we ever do this again, we will go back and refund the difference between the highest and lowest price, but right now there are no plans to do this," he said.


This was not the first time traditional and accepted offline marketing methods have come under fire when used on the Internet.


Yahoo.com and eBay.com auction sites in August removed a posting of 200,000 house file names of active U.S. investors by financial direct mail marketing firm Market Logistics Group Inc. Such list sales happen all the time offline. Privacy concerns and violations were cited as the reason for removing the post. At least eight of 10 segments of this database have been successfully auctioned on AskAD.com.


Also, Schwedelson likened Amazon's pricing controversy to defunct Toysmart.com's attempted database auction in July and used the parallel as an example of how traditional direct marketing tools are coming under fire on the Net.


Toysmart.com attempted to auction its customer database after stating in its privacy policy that this would not be done. Thirty-nine states asked the U.S. District Court in Massachusetts to prevent the defunct online retailer from selling personal information about its former customers.


Schwedelson believes dot-coms are discovering that what they have promised not to do -- share consumer information -- is what direct marketers have been doing for 30 years with consumer approval. "They find themselves constantly and consistently eating their words," he said.
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