Debunking The Amazon Prime Pricing Myth

Amazon Prime is something we have strongly considered purchasing for quite some time.  We originally got a free one-year subscription by joining the Amazon Mom program, but when that ran out, we reverted back to the Free Super Shipping option.  Giving away the one year for free is a great gimmick, because you really don’t know how much you appreciate it until you don’t have it anymore.

It’ just nice to be able to log in, order something, not really worry about whether your order totals $25, and have the item in two days (of course, you still have to be careful that the items are shipped by Amazon, as many third party resellers are not included in Prime).

mb-201201primeAs we’ve considered Prime, I’ve done some checking, and there seems to be more than a few people that believe that Amazon Prime membership is a joke, and that they simply charge Prime members a higher price by directing them to a higher cost version of their product.

I don’t have any specific examples to cite (simply because I don’t have the benefit of a Prime membership to search with), but I’ve seen similar numbers used as an example:

Person A without Prime searches on an item and the main result comes back at $19.99 from a third party seller.

Person B with Prime searches on an item and the main result comes back at $21.99, sold directly by Amazon.

At first glance, this appears that Amazon is charging Prime members more.

Oh, the outrage, right?

Wrong.

See, Amazon returns the results based on the lowest total cost to you.  And, what’s the difference between your two customers?

Shipping costs.

Amazon assumes that Person A, who doesn’t have Prime, will buy the item alone.  Since they don’t have Prime and wouldn’t qualify for any shipping cost exclusions, Amazon assumes that they will pay shipping regardless.  Assume, for the sake of argument, that the shipping cost by both Amazon direct and the third-party seller is $4.99.  The $21.99 version is sold by Amazon, but since Amazon believes that this customer will buy the item alone, they factor in the expected shipping cost.  Thus, the lowest cost item to the customer is the $19.99 third-party version, which added with the $4.99 shipping cost, totals $24.98, lower than the Amazon directly sold version, which would total $26.98.

But, why does the Prime member get the $21.99 version?  Simple.  Because for them, the version sold directly by Amazon will include free shipping, whereas the third party version for $19.99 would include shipping charges anyway.  Thus their ‘total cost’ on the Amazon directly sold version is $21.99, whereas it’s still going to be $24.98 for the third party sold version.

In other words: Amazon has provided both customers with the version that is cheapest to them based on the item pricing, expected shipping costs, and their membership status.

I know these examples don’t include ‘real’ numbers, but I’m 99% certain that this is the model that Amazon follows.  And, if so, there is no reason to think that Amazon is trying to charge a higher price for a Prime vs. non-Prime customer (or vice versa).  On the contrary, it seems that they’re doing their best to ensure that you get the lowest price possible given the circumstance.

Do you use Amazon Prime?  If so, do you think it saves you money in the long run?  Have you ever run into the different pricing structure as noted above?

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50 thoughts on “Debunking The Amazon Prime Pricing Myth

  1. I do not use Prime, but I am firmly convinced also that Amazon gives you the lowest possible price in your searches. With their volume, they can afford to have the lowest prices. In short, I love Amazon.

    • I’m a huge fan as well. I’ve had a complaint or two with them along the way, but that’s pretty much going to happen when you do as much shopping as we have.

    • Amazon has enough brand-name cachet that they don’t have to offer the lowest possible price on everything. Plenty of people will start their search at Amazon and not consider other merchants. Other people will search across merchants, but when they see a known name like Amazon is only a little more than some unknown merchant, they’ll get it at Amazon because they already have an account there.

      • Very true that reputation means a lot. I admit that I have, at times, chosen to pay a little more from Amazon versus a potentially lower price at a retailer I’ve never heard of before.

  2. I’ve never considered using Prime. I don’t think I order enough where it would be beneficial to me. I can usually wait the 5-8 days so I pick the free shipping option anyway. Like Money For College, I believe that Amazon gives the lowest price possible regardless and can do so because of volume.

    • We never really did either but once we got the free Prime, it became easier to order stuff from there that we never would have considered previously. After they get you in the habit, then it becomes harder to re-adjust back once the Prime ends.

  3. I think I had told you that we had Prime – it’s a solid deal for us. I’ve got my HTPC to the point it can stream from Prime’s show selection (the TV does on its own as well) and my wife just got a Kindle Fire, with which Prime integrates nicely. Solid thumbs up from me!

    • If I were to get a Prime membership, I would plan on taking advantage of the streaming video aspect. I would want to get a Roku or similar device, so I would budget the full $79 membership plus the cost of the device prior to joining.

  4. I’ve noticed what you’re describing, too, and I think what you’re saying is right. I don’t have Prime anymore (I’m a recovering addict), so it does get a little confusing sometimes when I’m planning to go for the Free Super-Saver shipping, but Amazon doesn’t always default to their own listing.

    Nowadays I’m just careful to check and see which option is cheaper for me, but Amazon’s default choice usually works out best.

    • Agree. I think the confusion comes in when someone opens the same product in two different browsers, one signed in with a Prime account and one not, and they get two different pages for the same product. At first glance it looks fishy but in the end, I think there’s a logic behind it that ends up (mostly) working in the customers favor. Still, you ALWAYS have to check

  5. I have a free 30 day trial of amazon prime. The free shipping is definitely nice and they have a “library” where you can borrow a book for free. My only complaint is that you can only borrow one book each month. Being the nerd I am, I’d like to borrow more books than just the one. I can go to an actual library and check out 5 books then get 5 more the next week if I want.

    • I’m a huge user of our local library. I have a Nook so this probably wouldn’t be a benefit for me anyways

  6. I was lured into Amazon Prime use when I was able to get it for free as a student. When my free year was up, Amazon offered it to me again at a discounted price (I think $39), and I purchased it. I enjoy the free 2 day shipping (which came in super handy for some late Christmas purchases, all of which arrive on time).

    I do also appreciate the free movies and tv shows that I’m able to get through Amazon Prime, although I don’t take advantage of them as much as I should. Also, since I got a Kindle for Christmas, I read that I am eligible for free downloads of certain current bestselling books. I haven’t done that yet, but your article reminded me to look into it again. Depending on how much you appreciate free books as a Kindle owner, access to Prime may be a good deal.

    I think I qualify for the discounted rate for at least one more year. I don’t know if I will continue when I have to pay full price.

    • I had hoped, after the free year from Amazon Mom expired, that they would offer it at a discount but surprisingly they didn’t. I guess maybe they had enough statistics to show that either enough people were converting at regular price or nobody was re-upping so why bother, that they didn’t make a special offer. Bummer because even at $59 I probably would have without thinking twice.

  7. We use Prime (as we get the 50% off student discount because of my wife’s email address) and I’ve looked into this as well. Prime is definitely worth it to us for a number of reasons.

    As long as you’re buying from a seller that uses Amazon fulfillment, you’ll get Prime, so there can be a little price competition. Also, and I just did some spot-checking, everything that qualifies for super saver shipping qualifies for Prime as well (I think the determinant is Amazon Fulfillment). Here is an example where an individual seller is cheaper than Amazon, and they appear at the top of the list: http://www.amazon.com/gp/offer-listing/159555078X/sr=/qid=/ref=olp_tab_new?ie=UTF8&coliid=&me=&qid=&sr=&seller=&colid=&condition=new

    Notice that it is fulfilled by Amazon, thus it gets free super saver shipping (and Prime, I can vouch for that).

    In addition to the free 2 day shipping, we also use the free streaming video service that comes along with our membership. We might even be able to get rid of Netflix because of it. That means we’ll be able to drop about $108 worth of Netflix each year in favor of Amazon Prime Instant Streaming, and enjoy the 2 day shipping as well.

    I think you are dead on with your numbers though, Amazon provides the best price to you, and I believe I’ve proved that with the link above. The best to you and your website :).

    Thanks,
    Timothy

  8. I was just looking at the “new” list again for the link in my last comment, and realized that there are a TON of sellers that come before Amazon’s ACTUAL own listing.

    I also logged in so I will see the Prime price, and there is still a huge list of 3rd party sellers that come up cheaper than Amazon. The top of the list still has the 3rd party seller that uses Amazon fulfillment.

    I’m pretty sure this answers the question of whether Amazon is shilling their stuff to the top or not. Just thought you might like to know :). It looks like Amazon Prime is definitely worth it (especially at my $40 price point)!

    Thanks,
    Timothy

    • Thanks for the detailed analysis. As I mentioned before, I wish I qualified for a price that was a tad bit cheaper. I do have an old alumni account but they’re pretty clear that they don’t want to give you the student rate unless you’re an actual student, and I’m not ethically sure I would feel comfortable trying to game the system. If I were an actual student, I’d be all over this price though :)

  9. We’ve used prime for some years, and it seems to work for us. Every year we’ve used Amazon for some bulky purchases, and the shipping savings alone on these pays for the rest of the year.

    • The pet peeve I have regarding online shopping is the shipping costs that many retailers add. To know that you have a pretty good shot of getting past all that with Amazon is the biggest thing that’s kept me a loyal customer for over ten years. Nothing infuriates me more than searching for something, thinking ‘Oh, cool, it’s $27.99, that’s a good price’ only to have a $9 shipping cost sprung on you afterward.

  10. I love Prime. I got the same deal as Bryan got, free for the first year and then $40 for the second year. We shop at Amazon for pretty much everything.

  11. I love Amazon prime, and never thought to check and see if there was a difference between non prime and prime. If you do any amount of shopping at Amazon it looks like the prime membership is the way to go to save money over the long term.

    • We’re still debating. Thanks for the perspective, reader recommendations will definitely play a part in our eventual decision.

  12. Remember $25 free shipping Super Saver takes 1-2 weeks for delivery. Amazon Prime gives free two business day delivery. Both are free shipping, but the time required for delivery is huge contrast.

    You also get many free Amazon Instant Video with a subscription. It might allow you to cancel your cable TV bill.

    • I’ve looked at the selection of videos and some of the stuff would add a variety of things to watch, but it wouldn’t replace a lot of the shows that my wife and I enjoy on cable. The Free Super Saver Shipping is one of those things that we were cool with for over eight years, but once we got the advantage of 2 day shipping, you definitely get used to it and the Super Saver becomes more frustrating. Still, it’s free!

  13. I am a homeschooling mom and don’t have the budget to be buying a ton of books for the kids. I have found so many free classics and other free books for our kindle, that I would otherwise have to pay for without the prime membership. The amount of books I have already gotten, including the ones I have paid for, well surpasses the $79 membership fee.

    I love being a savvy shopper and amazon helps me with that.

    Thanks for the article. It was the first one I have read about amazon and their pricing. Read on!!!!

    • I’m a big user of our library and get plenty of books from there, enough to where if I used Amazon, I’d likely be ‘paying’ for something I currently get for ‘free’.

  14. I have to say I totally disagree with this post mostly in part becasue I have an insider view point. My husband works with amazon so I understand a lot of the inner workings. Most of time 3rd party sellers are more expensive than amazon and then they tack on shipping. If for whatever reason they do end up being a couple dollars cheaper than amazon their shipping costs will more than make up for the descrepency in price and sometimes that’s how the reseller makes their money, by inflating shipping costs. Yes, it’s pretty neat getting a behind the scenes look at how some resellers make their money. If you want to do a price comparison then cross check between Walmart.com, target and amazon and almost always amazon will come out cheaper! Not to mention you can’t always trust a reseller…I’ve seen times where they wouldn’t take a defective item back, with amazon you always have that assurance. I love amazon!

  15. Amazon DOES charge a higher price, for the same product from the same supplier. I have been a prime member for several years, one day I accidentally logged in with my wife’s account and when ordering realized I was in the wrong account. After logging out and back in under my account, I searched for the same product… and was upset it was more expensive (everything even supplier was the same). Even with free shipping the total was a nickel more… not a big difference, but this is when I realized my Prime membership was not getting me free shipping. I was very angry and dissapointed. I called Amazon and they were able to place the item (which was hidden to me) in my basket at the lower non-prime price… and I paid the shipping. While this saved me only a nickel, it was the principle of the matter. Prime DOES NOT save you money on shipping at Amazon (at least this is what I found on several items). For the record, I still have Prime… mainly because of the streaming. But may soon cancel it.

    • That’s interesting. I know they can dynamically change pricing based on how many orders are placed or even how many views are taking place for an item but I didn’t know they still maintained separate pricing for different members. That’d be disappointing (and I thought, illegal)

      • Just wanted to chime in that they definitely do. I set Firefox to clear all cookies each time I shut down and searching for the exact same thing gives me a lower price until I log in, with my prime account. I still like Prime, but there is no question that they do change it on some items.

  16. As a seller on Amazon, price changes all the time. I will change my price based on how many items I have, how long those items have been sitting on the shelves, etc. There are numerous software that merchants can buy that can do automatic price change based on percentage, cost, competitor price, etc. Amazon itself also competes against the merchants selling on Amazon website. When it tries to really sell a particular item, it will lower the price really low for a few days, a few hours (or a few minutes) and then poof… the price goes back up.

    To do an apple-to-apple comparison, you have to do simultaneous search on two computers and see the price difference.

    • I’m sure it’s a big bank of computers that is running all that. It’d be interesting to see the buyback on all that technology.

  17. It’s true. Amazon Prime offers the same item as an account with free saver shipping but the unit price is more expensive on Prime. It’s similar to Zappos that has the free shipping and return shipping built into the purchase price.

  18. I can vouch for all of this. I (only currently) no longer have a Prime membership, but only due to a lack of funds since I’m on leave from work right now, but as soon as I’m back, it’ll be the first thing I buy. To compare, I took every item I bought on Amazon within the past 6 months, and added up all the shipping costs. My end results for shipping costs, within those 6 months, JUST the shipping alone, mind you….the total came to $174.35. That’s over TWO YEARS worth of the Amazon annual cost in just a 6 month time-frame. I do most of my Amazon shopping around Christmas time, like most people. So, to me, Amazon Prime is worth it’s weight in gold. I’m also the type that, even though I have AP, I still compare NON-prime prices in a different browser, because if I can find a price+shipping at a lower cost than I could with a Prime item, then I’ll pay the shipping instead. But, I’ve NEVER had that happen. Ever. If you don’t believe me, you can sign up for an Amazon Prime free 30 day trial. I was skeptical, because I gave all my credit card info, but as soon as I signed up, I IMMEDIATELY canceled the “auto renew” at the end of the 30 days, so I figured I’d lose my trial. But, NOPE!! You STILL get the free trial, even if you use more than $79 worth of shipping within those 30 days (like I did), and even if you immediately “cancel”! The ONLY free-trial I’ve ever experienced that has provided such large benefits. It’s genius, too, because when you go from having it, to not having it, you realize just how easier life is WITH Amazon Prime, so you’re more likely to purchase it than not. Plus, I factor in the fact that if I had to drive to the store to buy all the stuff I’ve need that I’ve bought on Amazon, I’d be spending JUST as much money when you factor in distance driven, cost of the item, and the cost per mile in gas it takes to get there. Results? WAY cheaper with Amazon. DO IT!

    • I definitely love Amazon but they aren’t my 100% of the time go to store anymore. For awhile, they got most of my online business. Now it’s probably 50%. Probably not noticeable to them but if it happened to many people, it would have to affect their bottom line, right?

  19. I’ve just discovered this Prime pricing discrepancy myself today and ruined my otherwise blissful shopping experiences with Prime.

    It actually happened by accident while I was trying to solve a separate issue with my order. While I was digging though I realized that the product I bought through my prime account for $20 was offered for about $16 from the exact same seller!

    Now I understand the price differences between the same product being offered my multiple vendors and that the 3rd party vendors may have lower pricing than the vendors offering the Prime shipping.

    I pay $79 dollars a year and one of the things I’m promised is FREE two day shipping. For vendors that are Prime vendors they should not be allowed to charge more for Prime shoppers than non-prime shoppers. I realize I would have to pay a shipping charge for the lower cost, but in essence I paid an additional $4 for my “free two day shipping”.

    I was able to find articles about this dating back to 2008, so its been 4 years and Amazon obviously hasn’t addressed the problem. I went up the chain at customer service several layers today, and at as high I could go the answer I got was “This is something we discourage our vendors from doing, but is allowed”.

    I work in a small business that is an Amazon seller, and they have a plethora of restrictive rules so it would be well withing their means to implement a set of rules to keep this from happening.

    I’m currently debating on asking for a refund of my prime membership fee, or just being much more cautious in my purchases from now on.

    • That’s too bad that the third party sellers can have access to this loophole. I think bringing it to Amazon’s attention when it’s found is the only possible solution, as I would think that if they receive enough complaints, they could threaten to remove them from the program.

  20. This just happened to us. My wife searched for a new chair. She found one for $171.

    So I logged into my prime account, followed the link she gave me via e-mail and the same exact chair was $216

    That is a steep price difference. She came into my office with her laptop and we could see the exact same product and on her computer $171 on my computer $216

    • Same seller? Was the savings in shipping still such that it made the $216 the cheaper cost.

      As I said to a previous commenter, I would recommend notifying Amazon of this.

      • So I contacted Amazon about this, and I was told that when you are not logged into an Amazon Prime account they show you offers from 3rd party vendors which are not offered to Prime Members because they do not have the shipping agreement with Amazon and those prices may differ.

        Because of this confusion Amazon refunded me the difference, and they were very helpful.

        I have to say that Amazons customer service is superior to any company I have ever had to deal with.

  21. I have an example of an item that costs more when you are logged in with your prime account. This EXACT SAME SKU costs $67.59 to non-prime accounts, and costs 78.95 when you are logged in with your prime account.
    I copied the URL from a browser where I was logged in and pasted to a browser where I was not logged in and noticed the price difference.

    I have been a huge amazon prime customer, but this feels like a knife in the back. I have to completely reconsider where I do my shopping now. This is straight up wrong. Here’s the URL:
    http://www.amazon.com/Waring-IC70-Professional-Stainless-Large-Capacity/dp/B0009XAHG0/ref=sr_1_1?ie=UTF8&qid=1352070542&sr=8-1&keywords=ice+crusher

  22. Yep. Prices change for sure. I notice the cost of item increase if Prime is selected.

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