Hi there! Recently, I came across some intriguing information about Amazon’s pricing strategy. It turns out that they adjust prices for their products based on individual users’ willingness to pay. At first, I was puzzled by the idea that my friend and I could buy the same item but pay different prices—it seemed unfair. However, I delved deeper into the topic to gain a better understanding of how Amazon’s pricing model actually works.

Firstly, I wanted to find out the type of data Amazon uses and how they collect it. An article by Invisibly explained that Amazon has access to data related to people’s app preferences. They can see URLs you click and identify when you hover over a product, when you scroll, and when you click. Amazon uses a software called Collaborative Filtering Engine (CFE), which utilizes behavioral analytics to provide personalized recommendations to users. It analyzes users’ purchasing patterns including recent buys, wishlist items, and shopping cart saves. 

By tracking this data, the software is able to determine how much a person is willing to spend on a product. For example, if I am willing to spend at most $20 on a pencil case and my friend is willing to spend $30, we would be given different prices for the same pencil case. Additionally, the CFE model updates prices every 10 minutes and has increased Amazon’s profits by 25%.

While this model seems unfair and invasive, it is an ingenious way to use big data to maximize profits effectively. Additionally, the more time someone spends on Amazon, the better the model gets. This cycle of improvement is significant because it allows businesses to operate more efficiently and encourages them to prioritize the online shopping experience over physical stores.