Buyer beware: How online retailers manipulate prices, and what consumers can do to protect themselves from overpaying

Shoppers should not assume a discount claim means the price is lower than usual. Image: Shutterstock

Who doesn’t like a bargain? During the last weeks of the year, consumers around the world are looking for good deals for end-of-year holiday shopping. And because this is a period when we are buying more things for more people and increasingly buying them online, the perception of finding a good deal or what appears to be a steep discount can make all the difference in buying something or not.

In a study carried out by myself and my colleagues from the University of Florida and the University of South Carolina, we found a practice of online price changes that can be very misleading. In this practice, the seller simultaneously increases price and displays a discount claim (e.g., “30% off list price”). It is designed to make customers feel like they’re getting a bargain, but the truth is quite the contrary because they actually pay a higher price.

In our research paper, recently published in Marketing Science, we looked at prices the of thousands of products sold on Amazon during 2016 and 2017. For example, of the 728 vacuum cleaners we tracked, 28% used this tactic at least once during the 13-month study period. While most list price displays were associated with an effective price drop or no change in price, 22% were associated with a net price increase. These were price increases labeled as discounts.

In just one of many examples on Amazon, by pairing a price increase with the introduction of a “list price” for a vacuum cleaner, it appeared that shoppers could receive a discount when they are actually paying significantly more.

Framing a Price Increase as a Discount

We identified this not-uncommon practice that we call “price-increase and list-price synchronization,” or PILPS, where retailers raise an item’s price and then advertise a price discount by displaying a list price. Amazon then lists the item as “discounted,” which makes it appear to be a bargain. But it’s not. In fact, given the example of vacuum cleaners, customers end up paying 23% more if they buy during the display of the discount than if they buy before it.

The pricing behavior we documented is conceptually different from deceptive pricing as previously recognized. Three significant findings of our research are that:

• PILPS is a prevalent phenomenon in online markets causing consumers to pay a higher price in the presence of a discount claim than in its absence.
• PILPS has such a strong effect on sales that it can turn a normally negative impact of a price increase into a positive one. As a result, PILPS allows sellers to simultaneously achieve higher profit margins and larger sales volume at consumers’ expense.
• Sellers of products with advantages in consumer reviews (e.g., high ratings or large volume) are more likely to deploy PILPS and are more likely to benefit from PILPS than are sellers of products without these advantages.

Also read:  Why companies raise their prices: Because they can

How Does Price-Increase and List-Price Synchronization Work?

Let’s put it this way: Say you went to the website yesterday and you saw the price was $100 and nothing else. So you know it costs $100. But today, when you go to the same page, it promotes a deal. It now displays a list price of $200 and a price of $150, with a discount claim (i.e., 25% off). You think you’ve got a bargain, but the price is actually higher than you’d usually pay without any discounted price displayed. It’s higher than yesterday’s non-discounted price.

In our paper, “Frontiers: Framing Price Increase as Discount: A New Manipulation of Reference Price,” we found that sellers of many other product categories, including digital cameras, blenders, drones, and even books, also employ PILPS practices.

The perception of getting an item at discount helps boost sales despite the higher prices, which helps improve the item’s sales rank on Amazon. For example, under PILPS, a price increase of 23% results in a 15% sales rank on Amazon in the category of vacuum cleaners.

What Can Shoppers Do?

Customers certainly can protect themselves. Knowing that this practice of price-increase and list-price synchronization is commonplace will help. Our research team concluded that consumers need to be aware so they can protect themselves. Consumer advocates and regulators may need to pay attention as well.

While existing federal and state regulations on deceptive pricing prohibit use of inflated or untruthful list prices,  PILPS can mislead consumers regardless of list price veracity. It misleads by manipulating the timing of the list price’s introduction.

Shoppers should not assume a discount claim means the price is lower than usual. Instead, shoppers should comparison-shop across multiple websites. They can also use online tools that provide price histories to learn if the advertised price they are seeing is really a deal or not.

Online marketing and the speed of Internet sales make it easier for sellers to use PILPS-type practices. But the web also gives us a world of information at our fingertips to help consumers avoid being tricked.

Also read: In-store shopping: Has the pandemic really changed consumer habits?

Consumer Apps Can Help

Consumers can empower themselves by tracking the prices and searching for more price information in order to understand the true value of what sellers are calling deals.

One place to start is with consumer apps. Apps can help you search quickly, help you look at the same items across the Internet, and alert you to discounts and coupon codes. Here are several apps to start with:

Camelcamelcamel - An Amazon price tracker that provides price drop alerts and price history charts for products sold by Amazon. https://camelcamelcamel.com/

Honey - A free browser extension that compares seller prices for you on Amazon. It's also a price tracking and price history tool all-in-one. https://www.joinhoney.com/

RetailMeNot – A marketplace for online coupons and deals that operates a portfolio of coupon and deal websites. https://www.retailmenot.com/

Keepa - Offers access to the history of every Amazon item’s price and sales rank. That way, you can know if the item was cheaper a few months ago, for example, or if it’s at an all-time high at the moment you’re looking. Keepa’s browser extension allows you to look for similar Amazon items that might be cheaper.  https://keepa.com/

Take a Breath, Take a Moment Before Buying

Our findings directly benefit consumers by raising their awareness of this pricing practice so they are better able to protect themselves from being misled. As a result, we hope that our work  stimulates discussions about these pricing practices and how to handle them.

In addition to using web tools to arm yourself against being tricked into a price hike that sounds like a discount, consumers need to learn to take a beat. As we shop, we need to recognize that speed may be our enemy.  

In offline stores, it took a lot of time and effort to change a price, show a list price or manufacturer’s suggested retail price. Online platforms or any digital presentation make it feasible to change a product’s display or adjust prices frequently, even multiple times a day, with extremely low cost. The low cost and high feasibility enable the online sellers to employ PILPS and other pricing practices that may be potentially misleading.

Resisting the Lure of Digital Speed

As consumers, of course, we are attracted to the speed provided by the Internet. You could even conclude that some of the reason consumers hit the button quickly to move a product into their cart is that we have become reliant on two-day shipping, one-day shipping, or even same-day shipping.

But getting a new vacuum cleaner within two days and paying more for it than you may have paid yesterday is definitely neither  a deal nor a bargain.

Consumers who recognize that the power of the web may mean that sometimes things are stacked against them, can take some of the control back by just reminding themselves that if it seems too good to be true, perhaps it is.

[This article has been reproduced with permission from Knowledge Network, the online thought leadership platform for Thunderbird School of Global Management https://thunderbird.asu.edu/knowledge-network/]