Amazon pricing flap

September 28, 2000: 1:43 p.m. ET

Web retailer apologizes for price test, refunds money to customers

NEW YORK (CNNfn) - The Web retailing giant Amazon.com apologized to its customers for conducting random price tests during which customers were charged different prices for the same item.

Between Aug. 31 and Sept. 5, Amazon (AMZN: Research, Estimates) varied the prices on 68 DVDs to test how price changes would affect the unit volume of DVD sales and the total amount of revenue received. In technical terms, the retailer was trying to determine the elasticity of the demand curve for DVDs.

Amazon said that it varied the discount levels on a totally random basis, not with respect to customer demographic information. When customers detected that different prices were being charged for the same item, they became annoyed, causing Amazon to abandon the test and refund money to about 6,900 customers.

"In retrospect, this random testing was a mistake, and we regret it because it created uncertainty and complexity for our customers, and our job is to simplify shopping for customers. That is why, more than two weeks ago, in response to customer feedback, we changed our policy to protect customers," the company said in a statement.

"We've never tested and we never will test prices based on customer demographics," said Amazon founder and CEO Jeff Bezos in a statement. "What we did was a random price test, and even that was a mistake because it created uncertainty for customers rather than simplifying their lives."

To mollify its customers, Amazon refunded to them the difference between what they paid for a DVD and the lowest price that was charged for the same DVD under the test. The company refunded to almost 6,900 customers an average of $3.10 each.

While Amazon said it currently has no plans to conduct random price testing again, it didn't rule out such tests in the future.

"If we ever do such a test again, we'll automatically give customers who purchased a test item the lowest test price for that item at the conclusion of the test period -- thereby ensuring that all customers pay the lowest available price," the company said in a statement.