Wednesday, 2 February 2011

Super Saver Delivery - classic price discrimination?

I've just ordered a book from Amazon. I selected the Super Saver Delivery option, and Amazon informed me that I should expect this book before February 9th. Now, I'm not exactly a stranger to ordering books from Amazon. I spent in the region of £500 last year, and I'm very nearly 100% confident that I will receive this book before the end of the week (that's February 5 for those who are keeping track). Why does Amazon do this? The two delivery options "Super Saver Delivery" and "Standard Delivery" are, as far as I can tell, completely indistinguishable in terms of service. The only difference being that one pays something in the region of £2 per order for the latter, and nothing at all for the former.

I can think of several reasons why they would exaggerate times: it's a pleasant surprise when your book arrives before it is supposed to (but then why not claim that all deliveries will take "up to 2 weeks"; it also covers them in case delivery takes longer than they might expect (but, again, why not give an even more exaggerated time). I can also think of reasons why they might want to introduce a "second-class" delivery service, in order to justify charging for their "first class" service (ie, the normal delivery rates that one would expect them to charge anyway). Similar to the way that second class customers on trains are deliberately inconvenienced in order to make first class more attractive. However I don't think this is what's going on here.

I think Amazon is indulging in some good old-fashioned price discrimination. As I said earlier, I'm a pretty regular customer; I order something on the order of £50 worth of books a month. As such, I know how long it takes for my books to be delivered, and I'm not even vaguely tempted to press the "standard delivery" option when it comes to the payment page. I'm exactly the sort of person who is most price-sensitive when it comes to deliveries, and I'm in a position to know that I can get the same service more cheaply.

Contrast Dear Aunt Doris, who orders a book off Amazon once a year for her nephew's Christmas present. She needs to get her delivery when she wants it, and she has no idea that "standard delivery" is the same as "super saver delivery". I mean, why would it be? That would just be crazy, surely? So Dear Aunt Doris pays the extra £2 for her one book a year, because she's not the sort of person who gets the chance to notice that she's paying for exactly the same service she could have gotten for free.

This is almost textbook price discrimination. You charge a lower price for the same service to those customers who are most likely to go look elsewhere, and most likely to be in a position to know exactly how much the service is worth. It's fun noticing phenomena you've read about in books in real life. I vaguely wonder if this theory of Amazon delivery pricing is testable (well, it obviously is if you work for Amazon...) but either way, I'm fairly confident it explains what's going on.

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