Amazon came under fire Monday after ProPublica reported that the e-commerce giant more prominently displays its own products and those of merchants that pay for its shipping services—even if other merchants sell the same products on the site for less. The article pointed out that Amazon's strategy hurt shoppers, many of whom end up paying extra at checkout, and ran counter to its professed philosophy of putting customers first.
The article raised questions about whether Amazon's is trying to unfairly profit by funneling customers to more expensive products. The company has said previously that it ranks items based on the data it receives from its millions of customers and how they buy on the site.
For example, Amazon said its ranking favors items that ship for free and that can get to customers faster. The technology also takes into account other factors such as price, and the rating of the seller.
Shipping is a big factor, Amazon says, because data shows that customers decide to buy products primarily based upon free shipping and shipping speed. Items sold or fulfilled by Amazon fall into the Prime subscription offering, which charges consumers $99 annually to get anything from toilet paper to diapers to books delivered to them in two days or less. Amazon also offers the ability for items to be included in Super Saver Shipping (which requires no Prime membership and ships orders above $49 for free).
In a statement to Fortune, an Amazon spokesperson said: "The vast majority of our items ordered – 9 out of 10 – can ship for free. The sorting algorithms the article refers to are designed for that 90% of items ordered, where shipping costs do not apply."
Of course, by prioritizing faster shipping (a.k.a. Prime-eligible items), Amazon is strongly encouraging more of its shoppers to sign up for Prime. That's a benefit for Amazon, as Prime members spend more than non-Prime members on the site. A recent Consumer Intelligence Research Partners study estimates that Prime shoppers spent about $1,200 on average last year, compared to about $500 for non-members.
However, ProPublica asserts that under Amazon's ranking systems, shoppers who are not Prime members can end up paying more for products if the fail to scroll more deeply into results. According the report, TheHardwareCity.com was selling superglue for $6.75 with free shipping. Fat Boy Tools was selling the same super glue for $7.27 with free shipping. But the algorithm ranked a the same glue sold by Amazon, which cost slightly more, $7.80, higher. But for non-Prime members or those who weren't interested in Super Saver Shipping, shipping costs for the Amazon glue amounted to $6.51, which increased the total price to $14.31.
Amazon founder and CEO Jeff Bezos has long said that key to Amazon's mission is putting the customer first. ProPublica says that its algorithms don't do that.
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Other data backs up Amazon's belief that free shipping dominates purchase decisions. According to a 2015 comScore study, 58% of online shoppers reported adding items to their shopping cart in order to qualify for free shipping.
It’s no secret that Amazon believes its competitive advantage is in getting products to its customers faster than other retailers. The company has been exploring using drones to deliver packages to shoppers in 30 minutes and is also deploying fleets of planes and trucks to make speedier deliveries. In turn, more customers are seeking faster shipping, especially around the holidays.
The allure for many outside merchants to use and pay for Amazon to handle its shipping is to sell to Amazon’s estimated 50 million Prime members. Merchants are eligible to be part of Prime delivery only if they are enrolled in the fulfillment program. Merchants must pay Amazon anywhere from $1.50 to $100 per order, depending on size and weight, for the service—plus a standard fee.
ProPublica says that some merchants can't afford to pay these fees, citing a number of examples. But merchants who don't pay for fulfillment, may also be at a disadvantage because of Amazon's rankings.
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Besides shipping, it's also worth mentioning that there are other benefits to using Amazon's fulfillment program for merchants. As part of the program, merchants ship their items to an Amazon warehouse, and Amazon takes care of the rest including packaging the items, processing customer payments, and customer service.
Amazon has also been experimenting with letting certain merchants sell to Prime members without using fulfillment services. Amazon is working with a set of larger merchants that already have warehouses across the U.S. and are able to deliver within the Prime two-day window. Because these merchants don’t need fulfillment services, they don’t pay the same fees to Amazon but get access to Amazon’s negotiated shipping prices with companies like UPS, which are much lower than standard rates.
Correction, Sept. 22, 3:20 pm: An earlier of version of this article incorrectly said that search results considered seller ratings in the order of results. In fact, it was product listings.
Clarification, Sept. 22 3:20 pm: The article's headline has been updated to remove non-Prime customers from the title.