How Amazon’s Algorithm Gets You to Spend Money

Updated : Nov 09, 2019 in Articles

How Amazon’s Algorithm Gets You to Spend Money


If you’ve ever been online and if you haven’t
I don’t know what you’re doing watching this video. You know that many websites are
tracking and studying your behavior and in a way they help you by presenting products
and information that they think that they believe based upon your browsing history and
other characteristics are going to be of great interest to you. But there’s also a darker
side to that activity. While that may add great convenience to you the truth is that
that also permits them to look at questions like what do they estimate you’re willing
to pay for that product? Now a lot of people think mistakenly that you’re supposed to
charge the same price for a product to everybody. That’s not the case. You can’t discriminate
based on certain criteria – race, religion, sexual preference. But it’s perfectly fine
for me to charge this guy more than that guy because I think he’ll pay more and just
look at airplane tickets as a perfect example of that sort of thing. Now here’s the problem.
We’re taking those kinds of decisions in these websites. Amazon itself is a fantastic
example of this and we’re incorporating very sophisticated machine run algorithms
that are designed to manage the overall behavior of the group of people who are visiting that
website. In order to optimize profitability for the
companies that are running those websites. And they will cut you the least slice of pie,
small slice of pie that they can to get you to send you to do what they want you to do
in order to maximize the profits of the corporation. Now you may have been on Amazon and you may
put things in – I use what’s called a save for later or something in your cart.
And you come back the next day and good news, you know, this book is three cents less or
that’s two cents more or this is a dollar more. But there aren’t people doing that.
This is a machine learning algorithm. And what it’s doing is analyzing time of day
and the characteristics of what you bought in the past and how you’ve respond to different
kinds of incentives. And where you came from and what kind of browser you’re using as
a major factor. Anything it can in order to adjust the price to just the point where you’re
going to buy at the highest possible price. You as an individual have freedom of choice.
It’s a free country. Buy it. You cannot buy it. That’s great. But we as a group
as a set of customers purchasing from Amazon or some other site we adhere to certain statistical
properties. So as a group we don’t have that freedom because it can be managed by
the entity on the other side. Whenever there’s an information asymmetry like that they know
what you’re likely to buy by what your characteristics are and they can optimize the yield on site
based upon that. They’re at an advantage over you. Amazon is a wonderful company but
it is basically one giant machine learning algorithm. It is designed to do what’s called
arbitrage. It knows what it can buy things for. It knows what it can sell things for.
And it can adjust the profitability in that zone in order to maximize sales, in order
to maximize profits. And it can do so in a way that is far more
efficient than has ever been possible in retailing before. So when I think of Amazon the fact
that they’re selling goods is incidental. I think of it like a stock trading programs.
Buy low, sell high. Buy here, sell there. There’s a spread. These really are arbitrage
systems and you are the mechanism by which these companies maximize their profits.

95 Comments

  • Amazon is actually the top company worldwide, when it comes to marketing and sales skills. Every other company is trying to catch up with them, mimicking their moves as best as they could.

  • This guy doesn't know what he's talking about. I sell books on Amazon, & I set the price, not some robot.

  • So Amazon is making a couple pennies off me potentially? Granted on millions of orders that's a lot of money but they still have to compete. It's not like nobody else is selling what Amazon is selling.

  • I really hate price discrimination. Especially discounts for "veterans". So I have to pay more cause I did not join or support killing millions and committing genocide for oil? Gee, thanks.

  • They've recently been doing this "add-on item" thing that requires you to spend at least $25 on an entire order to obtain it. I saw that on an item I wanted and just took my business elsewhere and found that item cheaper on a different site.

  • Interesting that he mentioned stock trading algorithms because this type of activity is exactly what high frequency trading is all about, skimming a few cents off of every transaction which adds up to billions.

  • First degree price discrimination won't work so well on the prepared. I come to amazon knowing precisely what I'm there to buy and how much I'll be spending on it. If anything, I'll just wishlist it. Amazon will give me what I want in due time, and even if it is algorithmically priced at what I'm looking for, I still leave satisfied.

  • "If you’ve ever been online and if you haven’t I don’t know what you’re doing watching this video." ….how????! TV? VHS? Movie theater?

  • I always first lookup and compare products in private mode, and all the suggestions on Amazon are always crap. But then again I'm definitely not a typical customer.

  • How is it 'dark' to adjust prices based on the individual? If Amazon can detect what I'm able and willing to pay, and adjust prices accordingly, I think that's a great and even necessary idea.

  • can i store a whole shit load of sports stuff in my cart for a week then go buy crap i actually want at a 20% discount based on a flaw in a website algorithm?

  • Kind of overstating the case. Amazon seems to have a pretty standard recommendation feature which is useless and I imagine its abilities to change the price of products based on my buying history, browser and ISP is limited. A lot of their products have fixed prices or are sold from other sellers via the marketplace.

    I don't doubt they do this kind of thing but it's working on a microlevel.

  • Yes ladies of instagram, you are the mechanism by which these companies profit. Without the consumer, they are just salesmen. Be socially economic by realizing the power of being a consumer and not falling to wasteful schemes to get you spending every season.

  • I really don't think I got the answer to the title of the video. One thing is to know they do it – another is to know how, and I don't feel I got the answer to the latter.

  • I never fall for it, probably because I don't have extra money to spend, I can only buy what I can afford regardless of how bad I may want something or sell tactics

  • Differential pricing is always the dream of retailers, but you cannot do it in a store, because everyone can see the price.  When they do it online, the best way to combat it is through information transparency.  The key is Amazon cannot charge you more if you care, but it will get more money from people who do not care.

  • Is all this stored in your cookies and cache? In such a case you could just delete your history and then get it for normal price. If it's through your IP, then eh.. proxy I guess.
    If you don't want to get tricked, just know what you're going to buy before you buy it.

  • most commercials that is being displayed thanks to Amazon etc are faulty. it shows so much of stuff i already bought, The commercials don't display my needs, rather old needs. it has never worked for me. when i actually find something i double check prices on other sources before…guess most are not smart enough to see through it… what does enoy me though is The price changes on Google play when i have bought similar produkts, they then increase The prices on other produkts untill i remove old cookies.. thats a real concern for People Who don't notice it!

  • amaozon is not a wonderful company.
    their employees are treated lik slaves.
    they have a prize dumping system in place, to insure no company sells at a lower prize then them.
    the contracts they give to small companies who are somewhat dependant on them suck the life out of them.

    amazon is fucking evil

  • we pay taxes…the little people…while criminal scum like Amazon dodge it…..that's a robbery from our health and education system….vile mindset….thieves the lot

  • Amazon experimented with this kind of pricing and got such a fierce negative reaction they had to apologize.    They may have asymmetrical information, but if they abuse it they will be destroyed.

    Differential pricing is easy to do today with technology, but consumers pricing vendors differentially is also easy.

  • what planet is this guy from? what's so sinister, or harmful, about amazon's profiling? he describes price changes that don't happen, a manipulative sophistication beyond what occurs.

    and his treatment of consumers as lab rats has merit, but the same people are shaped by political lies and exaggerations, by cultural promotions and trends, by religions and peer groups.

    to me, there's no revelation or scandal here, just a raver on a soapbox.

  • Explains why items in my wislist usually vary quite a bit in price. It's fun to watch and pull the trigger when the price is aggressively lowered.

  • I don't mind if Amazon (or any other company) maximizes its own profits by minimizing my savings.  I'll by my products from whatever supplier has the lowest price, which is consistently Amazon.

  • And Google has it wrong, because I only see ADS for stuff I already purchased… I click the ads to cost the companies more money and help the economy. hahah!

  • The funny thing is that the only non-generic ads I see on google from companies like Amazon are offering me exactly the same things I already bought with that very same company. Bought a book? Why not buy it again? Bought a platinum edition of a game, why not another cd key?

  • Stupid video. If you need anything from web store and you can get for good price, I more then happy to buy. If algorithm make less while researching stuff even better.

  • Systems that help the consumer buy at the lowest possible price by using the same technology to even the playing field between buyers and sellers is bound to happen, its a nitch opportunity. Its going to happen, the first person to build shuch a system; one that uses artificial inteligence (learning algorithms) to get the buyer the lowest possible price, as easy as using email, will find him/her-self in a blue ocean of opportunity.

  • I sale stuff on Amazon and after watching this video, I pulled up past 8 orders for one of my hot selling item and all customers were charged exactly the same price. Not sure what he's talking about different customers being charged different prices for the same item.

  • That is so freaking cool. A human mind crafted that. The system takes place behind the scenes and benefits all parties involved. Capitalism is interesting.

  • Why should I pay twice as much for a product through Amazon? Not only that, the shipping cost is as much as, or more than, the product itself. There is a lot of competition out there that is much cheaper.

  • who the hell is buying random suggestioned products online?! offline is okey, because you can't compare it without an online method. are these people sick?

  • So.. What should we do? How we should buy? Should we abandon online purchase or something like blocking cookies n hiding or browse history? Yes i knew the system existed.

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  • It's true, but they are mostly making money with FREE shipping. You buy something, under 50 dollars, you need to pay a shipping. Some sneakers from Nike may be priced at 49,90 dollars – so you need to buy something more for 0,10 dollars to get free shipping. And what you can get with 10 cents from Amazon? You may buy more expensive shoes, or some socks. In the end you put something you don't need or buy with more money than you wanted to spend in a first place to get that free shipping. I agree with everything else, even at normal food market these people are learning what you buy by giving an awesome little offer if you get their loyalty card… You think to save, but they learn from you how to sell more, for the same people trying to save pennies. Never had one. Because once you have, your information is their, provided for free.

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