1994, Jeff who was managing hedge funds on wall street at that time? Jeff Bezos founded Amazon in Seattle. The company officially opened in July 1995, and its shares were publicly issued and listed in May 1997. Since the summer of 1996, Amazon has successfully implemented the marketing strategy of joining the Internet. With the support of hundreds of thousands of joining websites, Amazon quickly became the first brand of online sales [by June of 1999, the market value of Amazon had reached 28 billion US dollars, surpassing Sears roebuck &; Co.) and Kmart, the sum of the market value of the two retail giants. Amazon's success can be illustrated by the following figures:
According to the statistics of Media Metrix, Amazon ranked 8th among the most visited websites in February 2000, and * * * attracted14.5 million unique visitors. Amazon is the only pure e-commerce website in the top ranking 10.
According to the data of PC Data Online, in March 2000, Amazon was the most popular online retail destination, with14.8 million independent visitors and1200,000 independent consumers. Amazon's monthly sales are equivalent to the sum of the sales of the second-ranked CDNow and the third-ranked Ticketmaster. In 2000, Amazon became the largest retailer of books, records and movies on the Internet. Other commodity categories operated by Amazon include toys, electrical appliances, household goods, software and games, with 6,543,800 varieties. In addition, Amazon also provides online auction service and free e-card service.
However, the operation of Amazon has also exposed many problems. Although Amazon's business is expanding rapidly, its losses are also increasing. In the first quarter of 2000, Amazon's sales reached $574 million, an increase of 95% over the same period of last year, and in the second quarter, it reached 578 million, an increase of 84% over the same period of last year. However, Amazon's total loss in the first quarter reached $65.438+$200 million, equivalent to a loss of $0.35 per share, while the total loss in the same period last year was only $36 million, equivalent to a loss of $0.65438+$0.20 per share. Amazon's main business loss in the second quarter of 2000 still reached $89 million.
Amazon's business crisis is also reflected in the market performance of its stock. Amazon's share price has been falling since it hit an all-time high of $65,438+006.6875 at 65,438+099+65,438+00 in February. By August 65,438+00, 2000, Amazon's share price had fallen to $30.438. In terms of business expansion, Amazon has also begun to encounter strong competition from some established portals, such as AOL and Yahoo. In this context, Amazon urgently needs to make a profit, and the most reliable profit items are books, music records and DVDs. In fact, in the second quarter of 2000, Amazon had already made an operating profit of100000 USD from these three commodities.
Second, Amazon's differential pricing experiment.
As an emerging online retailer lacking industry background, Amazon has no Barnes &; Noble) company's excellent logistics ability, and it does not have the same access traffic as Yahoo and other portals. Amazon's most valuable asset is its 23 million registered users, and Amazon must strive to achieve as much profit as possible from these registered users. Because online sales can't increase the total market demand of products, in order to improve the profit of main products, Amazon began the famous differential pricing experiment in mid-September 2000. Amazon selected 68 kinds of DVD discs for dynamic pricing experiment. In the experiment, Amazon determined the quotation level of these 68 kinds of DVD discs according to the demographic data of potential customers, shopping history in Amazon, online behavior and online software system. For example, the price of a CD named Titus is $22.74 for new customers and $26.24 for old customers who are interested in the CD. Through this pricing strategy, some customers paid higher prices than others, so Amazon increased the gross profit margin of sales, but the good times did not last long. Less than a month after the implementation of this differential pricing strategy, careful consumers discovered the secret, and hundreds of DVD consumers learned the secret through communication in the music lovers' community named www.dvdtalk.com. Of course, those customers who paid high prices complained, and they criticized Amazon's practices with fierce words online. Some even publicly stated that they would never buy anything from Amazon again. Unfortunately, since Amazon recently announced to track and record consumers' shopping habits and behaviors on its website, consumers and the media began to doubt whether Amazon used the consumer data it collected as the basis for its price adjustment. This speculation links Amazon's price events with sensitive online privacy issues.
In order to recover the increasingly prominent adverse effects, Amazon CEO Bezos had to personally do crisis public relations. He pointed out that Amazon's price adjustment is random and has nothing to do with who the consumers are. The purpose of price testing is only to test consumers' reaction to different discounts. Amazon "will not use consumer demographic data for dynamic pricing in the past, present or future." [iii] Bezos publicly apologized for the trouble caused to consumers by this incident. Not only that, Amazon also tried to save people's hearts with practical actions. Amazon promises to give the biggest discount to all consumers who buy these 68 DVDs during the price test. According to incomplete statistics, at least 6,896 customers who did not buy DVDs at the lowest discount price have already received the difference refunded by Amazon.
At this point, Amazon's price experiment ended in complete failure. Amazon not only suffered economic losses, but also its reputation was seriously damaged.
Third, the reasons for the failure of Amazon differential pricing experiment
We know that Amazon's management started this problematic differential pricing experiment under the pressure of investors demanding quick profit, and the result soon ended in complete failure. So, what is the reason for the failure of Amazon's differentiated pricing strategy? We say that Amazon's differential pricing experiment has serious problems from strategy formulation to specific implementation, which are described as follows:
Strategic formulation
First of all, Amazon's differentiated pricing strategy is contrary to its consistent value proposition. On Amazon's website, Amazon clearly stated its mission: to become the most customer-centric company in the world. Before the differential pricing experiment, Amazon had a good reputation among customers. Many customers take it for granted that Amazon not only provides the most choice of goods, but also provides the best price and service. Amazon's pricing experiment completely damaged its image. Even if Amazon conducts crisis public relations in time to save its influence, in the eyes of consumers, Amazon will never be as trustworthy as before. At the very least, people will think that Amazon is fickle and will give up its principles for profit.
Secondly, Amazon's differential pricing strategy infringes on customer privacy and violates the basic network marketing ethics. In the process of differential pricing, Amazon uses information such as customers' shopping history and demographic data, but when collecting these information, it obtains customers' consent under the guise of providing better personalized service for customers. Obviously, using these materials for the purpose of customers' disapproval is an act of violating customers' privacy. Even though there were no strict laws and regulations to protect information privacy in the United States at that time, Amazon's behavior clearly violated basic business ethics.
In addition, Amazon's behavior is inconsistent with its market position. According to Dr. Liu Xianghui's analysis of the influence of unethical behavior of online marketing [4], after Amazon's violation of business ethics is exposed, not only its own reputation will be affected, but also the entire online retail industry will be implicated. However, because Amazon itself is the market leader of online retail and occupies the largest market share, it will undoubtedly suffer the biggest blow from the industry trust crisis. This shows that Amazon's strategy is extremely unwise.
To sum up, Amazon's differentiated pricing strategy, from the perspective of strategic management, has many inherent shortcomings, which doomed its "experiment" to fail from the beginning.
(ii) Specific implementation.
We see that there are serious problems in the strategy of Amazon's differential pricing experiment, which determines the ultimate failure of this experiment, but the major mistakes in implementation are the direct cause of its rapid failure.
First of all, from the perspective of microeconomic theory, differential pricing may not necessarily damage the overall welfare level of society, and may even lead to better Pareto results. Therefore, the law can be said to be quite loose in regulating differential pricing, stipulating that it is illegal only when the object of differential pricing is competing users, but at the same time, basic economic theory holds that a company's differential pricing strategy is feasible only if it meets the following three conditions [v]:
(1) Enterprises are price makers, not market price recipients.
(2) Enterprises can segment the market and prevent arbitrage.
(3) Different market segments have different elasticity of demand for commodities.
The DVD market is highly dispersed, and Amazon is just one of many distributors, so strictly speaking, Amazon is not the price maker of DVD. However, if Amazon is a well-known online retail brand, and the price of Amazon's DVD is lower than its main competitor, Amazon has some room for manoeuvre in setting the price. Of course, there are huge differences in the elasticity of consumers' demand for DVD products, so Amazon can segment consumers according to certain standards, but the key point is that Amazon's segmentation scheme has serious defects in preventing arbitrage. Amazon's pricing scheme tries to attract new customers by offering them more favorable prices, but it ignores one point: based on the customer information that Amazon already has, although it is difficult for new customers to impersonate old customers, old customers can easily achieve arbitrage by logging in again to impersonate new customers. As for the method of pricing according to the type of browser used by customers, it can't prevent arbitrage, because Netscape browser and Microsoft IE browser are basically free, and consumers who use Netscape browser can get lower quotations by using IE browser at almost no extra cost. Because arbitrage can't be stopped, Amazon's differentiated pricing strategy can't effectively improve profitability in the long run.
Secondly, Amazon's differential pricing scheme that discriminates against old customers deviates from the theory of relationship marketing. Amazon's sales mainly come from repeated purchases by old customers. The proportion of repeated purchases in total orders was 66% in the first quarter of 1999, and it rose to 76% one year later. Amazon's strategy is actually to punish the old customers who have contributed the most to its profits, but there is no effective way to lock in the old customers. The result will inevitably be the loss of old customers and the reduction of sales and profits.
Finally, Amazon also ignores the huge role of virtual communities in promoting consumer information exchange, and consumers have significantly enhanced their market power through information enjoyment. Indeed, most consumers may not pay special attention to the price gap of Amazon products, but scholars engaged in online marketing research, writers hosting economic columns and market intelligence personnel of rival companies will be keenly aware of Amazon's pricing strategy, and they may widely spread their findings through virtual communities and other channels. In this way, Amazon's self-righteous strategy will soon be exposed in the virtual community and quickly attract media attention.
Comparatively speaking, in Amazon's differential pricing experiment, strategic mistakes are the fundamental reason for the failure of the experiment, while many problems in implementation are the direct reasons for its fiasco and rapid failure.
Fourth, conclusion: the enlightenment of Amazon's differential pricing experiment.
Amazon's differential pricing experiment is a classic case in the history of e-commerce, not only because Amazon itself is a banner of the online retail industry, but also because it is the first large-scale differential pricing experiment in the history of e-commerce, and it ended in a fiasco in a short time. What can we learn from it?
First of all, there are huge risks in differential pricing strategy. Once it fails, it will not only directly affect the sales of products, but also have an all-round negative impact on the company's operation. What the company may lose is not only the trust of the final consumers, but also the trust of the channel partners, which can be described as "one careless move will lose the whole game". Therefore, the implementation of differential pricing must be cautious, especially when the company's management faces short-term target pressure. Specific analysis, from the company's overall development strategy, the degree of conformity with the mainstream marketing ethics of the industry and the company's market position and other aspects of comprehensive analysis.
Secondly, once it is decided to implement differential pricing, it is very important to choose the appropriate differential pricing method. This means not only meeting the three basic conditions put forward by microeconomics, but also using various methods to differentiate products and trying to avoid naked differential pricing. Common practices are as follows:
(1) Differentiate products by adding additional services. Commodities in the marketing sense usually contain certain services. These additional services can make the core products more personalized, and the increase of service content can effectively prevent arbitrage.
(2) Combining with the product strategy of mass customization. Customization weakens the comparability between products and can strengthen the position of enterprise pricing.
(3) Bundle pricing is an extremely effective two-level differential pricing method. Bundling also has the function of creating new products, which can weaken the comparability between products and play a positive role in in-depth sales.
(4) Divide the product into different versions. This method is more effective for information products with high fixed production cost and low marginal production cost, which are just the main varieties of online retail.
Of course, in order to effectively control risks, real experiments are sometimes needed before implementing the differential pricing strategy on a large scale. In practice, it is necessary not only to limit the types of products to be tested like Amazon, but more importantly, to limit the number of customers participating in the experiment. It is not difficult to do this by means of personalized network communication.
In fact, as Bezos assured the public, Amazon has never done similar differential pricing experiments since then. As a result, relying on the cost-leading parity strategy, Amazon finally achieved a quarterly net profit in the fourth quarter of 200 1, and achieved a full-year profit from its main business in 2002.
To sum up, there are great risks in using differential pricing strategy in online marketing, so we must be cautious when choosing to use it, otherwise it is likely to be counterproductive and bring a lot of trouble to the company's operation. When implementing differential pricing strategy, it is a key to avoid failure by product differentiation and avoiding naked differential pricing.