Misleading Discount Strategies: Why Amazon is Warned for its Pricing

Deals, offers, and strike-through prices are one of the most important sales drivers on Amazon. Without Prime Day, Black Friday, Cyber Monday, and Co, the platform would probably be significantly less attractive to its customers. Customers are often lured here with large discounts, but are these discounts really as high as advertised? Is Amazon even allowed to advertise with them? A current lawsuit by the Baden-Württemberg Consumer Center shows how critically the design of price information on Amazon is evaluated.

The Problem of Misleading Discounts

For many customers, discounts are the central incentive to shop on Amazon at all. But how realistic are the alleged savings? Caution is advised here. Amazon often advertises with supposed discounts that are based on so-called strike-through prices. These crossed-out prices, often declared as non-binding manufacturer's recommended retail price (MRP), suggest significant savings. However, these MRPs are often far above the actual prevailing market prices of recent days and weeks, which leads to a distorted perception among customers.

For this, I have selected two random examples from current offers that clearly illustrate the problem (these are not even special examples from an important deal day on Amazon. You can find hundreds of such examples on Amazon's deal pages at any time: https://www.amazon.de/deals).

In the first example, we look at a headphone that currently has an offer price of 29.99 euros (Limited Time Offer highlighted in a red box). This suggests savings of a whopping 20 euros on the item if you were to buy the product now. It's advertised with 40% savings compared to the MRP (shown here as crossed out) which is stated as 49.99 euros (Amazon actually advertises with this, because strike-through prices are also displayed in numerous advertising campaigns on Amazon).

Limited time offer of a soundcore headphone on Amazon.de (retrieved on October 22, 2024)

If we look at the price history of this item on camelcamelcamel.com (a popular price tracking website that also captures historical prices of many products on Amazon.de), you can see here that the historical price of the headphone over the last five months was consistently 39.99 euros. It was last offered for 49.99 euros in May 2024.

Historical price change of the same headphone on camelcamelcamel.com (retrieved on October 22, 2024)

So the discount you receive here is actually 25%, not 40%, because you want to compare this with the last valid market price and not with historical values that no longer have any relevance for you today. So you're not saving 20 euros, but only 10 euros on the purchase. That's a huge difference.

In my second example, we look at a blanket that is offered on sale for 20.59 euros instead of 39.99 euros. 49% savings at 19.40 euros. Is this really the case?

Limited time offer of a BEDSURE blanket on Amazon.de (retrieved on October 22, 2024)

If we also look at the price history here, it's noticeable that this product is regularly on sale, already seven times this year. Always for 20.59 euros, without an offer it cost 25.99 euros. But it never costs 39.99 euros this year.

Historical price change of the blanket on camelcamelcamel.com (retrieved on October 22, 2024)

If someone buys this product for 25.99 euros, they simply have bad timing and missed the discount moment. This comes back regularly. But the discount is never greater than 5.40 euros (instead of the suggested 19.40 euros) and amounts to 20.77% instead of 49% (so less than half). I claim that everyone would feel deceived here if this were immediately visible. This deal doesn't seem to be a real bargain.

The Legal Basis: Price Information Ordinance and 30-Day Rule

As early as 2022, the so-called Price Information Ordinance was reformed to create more transparency in retail. A central innovation is the so-called 30-day rule. This states that retailers must indicate the lowest price that applied to the product in the last 30 days before the discount display when advertising price reductions. This rule is intended to prevent retailers from temporarily raising prices to then advertise with seemingly high discounts. You know this from the supermarket too.

The so-called 3rd price tag shows how the discount had turned out last time. A way to create transparency so that every consumer can directly check whether the suggested discount is really a special discount based on the time history (not all supermarket chains have participated here so far, as a won lawsuit by the Baden-Württemberg Consumer Center against Aldi Süd recently showed: Read here)

The challenge: Many retailers, including Amazon, rely on the legality of their strike-through prices and argue that these are not discounts but price comparisons. This position is partially supported by the Federal Ministry of Economics, which considers MRP comparisons as permissible since they fall under a different EU directive.

The Role of the European Court of Justice

However, the legal situation is not quite as simple as retailers present it. The European Court of Justice (ECJ) has ruled in favor of the Baden-Württemberg Consumer Center that price advertising with crossed-out prices is only permissible if the crossed-out price corresponds to the lowest price of the last 30 days. This decision strengthens price transparency and is intended to prevent the practice of temporarily raising prices to create apparent discounts. The judgment followed a lawsuit against Aldi Süd for misleading price information. This means that retailers cannot simply refer to inflated MRPs when displaying discounts, but must show actual price reductions.

The Reaction of Retailers: Uncertainty and Restraint

The retail sector, particularly brick-and-mortar retail, reacts cautiously to the ECJ ruling. Industry representatives, such as the German Retail Association (HDE), view the decision critically. As the Spiegel writes, they argue that the restrictions unnecessarily limit retailers' advertising opportunities and could lead to fewer special offers. This position shows that many retailers are still uncertain about how to implement the requirements in practice.

So far, there has been no concrete recommendation from the retail association for adjusting the pricing strategy of its members. This could (also) be a reason why many retailers, including Amazon, continue to rely on MRP comparisons and only hesitantly implement the new legal requirements.

Amazon Keeps Options Open

Amazon also knows the actual "average price" of the offered products. Amazon itself writes in a pricing guideline that there is a "Instead Price" that also takes into account the historical price of the products, but this is not yet displayed in my examples.

"A Instead Price ("Instead") may be displayed in various places for price comparison purposes, such as on product detail pages and in search results for your products. This allows customers to recognize the savings. The Instead Price is calculated based on the historical prices that customers have paid for the product on Amazon. Offer prices are not taken into account here." - Amazon Guidelines on Reference Prices

Amazon further writes: "For your discount campaigns, you must observe the legal minimum and maximum duration. For some of our European stores, there is a maximum duration of 30 calendar days. For an optimal shopping experience, you should leave a certain time window between different discount campaigns."

The last sentence could also be meant as a tip to sellers to interrupt discounts like with the blanket above again and again, so that Amazon can also display the high price advantage.

Consumer Protection: How Customers are Protected

Although the legislation clearly provides stricter rules, implementation in practice often remains incomplete. Local authorities responsible for monitoring price information usually only become active when there are concrete complaints from consumers. In many cases, especially with large marketplaces like Amazon, only a few formal complaints are received. This leads to misleading price information often remaining unpunished.

Conclusion: Transparency is the Key

The Amazon case clearly shows how important transparency is in online retail. For both retailers and consumers, it is crucial that price information is communicated clearly and understandably. The 30-day rule of the Price Information Ordinance is an important step towards fair competition and consumer protection.

It should therefore become exciting in the future whether Amazon will use a different procedure here. Because discounts and deal days are the linchpin for Amazon. If the discounts in the future turn out to be significantly lower as in the examples I showed earlier, the platform is likely to lose attractiveness. Amazon could therefore continue to play for time and wait until they have to defend against direct lawsuits and drag out the issue as long as possible.

Resisting Social Deal Pressure

Customers want to remain in the belief that they have made a special bargain. Because it is scientifically proven that time-limited offers and discounts tempt us to buy a product. Even when we know that the discount is not as high as stated. This way we can also escape the social pressure of having found the best bargain of the deal day to then proudly tell friends and colleagues about it. Look, I found the highest discount on all of Amazon.

Black Friday is by the way on November 29th. Probably very few customers will compare prices the way I did. Therefore, you should use the opportunity to set strike-through prices for your products now, as long as this is still possible on Amazon.