Amazon.com – Managing Reference Price

It is not news when I say that Amazon.com offers free shipping on orders of $25 or more. But there are two very interesting things I see in how they implement that offer:

  1. The free shipping option is a less convenient option. The offer states that it will take 5-7 business days compared to 3 business days for the next lowest priced standard shipping option. The shipping charges are not different but  Amazon manages customer perceptions of the service by signaling that it is the slowest of all options. Whether or not it would take 5-7 days is immaterial.
  2. When a customer checks out the check out page very clearly shows the shipping charges  and subtracts the same from the total price. This is about managing customer reference price for shipping. Amazon wants to say that shipping is not really free and signals the customers that they would have paid , for example $5.47, if not for the the promotion.

This is about managing customer perception and reference price. They do not want the customers to think that price for shipping is $0. Maintaining a non-zero reference price  enables amazon to start charging for this lowest option when they need to without causing customer backlash (like the one airlines faced with drink fee).

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