Amazon (Price) Warriors

Amazon. com, pioneer and leader in online sales, has some innovative tactics in bundling and tie-in sales. Firstly, Amazon offers free “super-saver” shipping for purchases over $25. Most items the company sells are books, DVDs, and CDs, which are typically priced between $10 and $20, and with standard shipping costs at approximately $5, there is a strong incentive for the consumer to “save” the $5 in shipping costs by spending an extra $5 to $15 on extra merchandise. On a website with such an extensive collection of products, the average consumer has little trouble finding another item she “needs,” and the shipping discount works as an effective personalized bundling discount – a bundle selected by the consumer.

Amazon also uses a second pricing strategy which is slightly less welfare optimizing. When viewing the product information of an item on the website, Amazon lists an option to “buy this item along with …” and lists another, similar or complementary item and the total price for buying both items. This is classic, textbook bundling. The catch here is that the bundled price is usually the same as the price of the sum of the individual items – there’s no discount for buying the bundle. The unwary or harried shopper may be essentially tricked into buying additional items because he thinks himself bundle-savvy. On the other hand, this feature may be effective, even with wary customers, as an advertising tool.