With millions of online shoppers scouring the Web for the best bargains, it's not surprising if someone finds a better price than you.

But if it happens at the same store on the same item on the same day, what seemed like coincidence starts to sound like a scam.

This new brand of online sticker shock recently struck customers of Amazon.com. A group of consumers caught the online superstore tampering with price tags on DVDs, selling them to different people for different prices.

Amazon officials immediately went on the defensive, describing the changes as a marketing test and issuing refunds to people who paid more than others. Many customers reacted angrily, wondering whether to believe the company's claim that the prices weren't adjusted based on the personal preferences they revealed while shopping the site.

The flap marked an inauspicious debut for dynamic pricing, a practice that is bound to become a defining characteristic of online shopping. But retailers who try to cash in on this concept must hold onto the one thing Amazon may have lost: their customers' trust.

Different strokes

With dynamic pricing, a seller offers different customers different prices on the same item in hopes of extracting the maximum possible profit from each of them. Car dealers do it, as do contractors and street vendors who raise prices for the well-dressed and drop them for those who haggle the hardest.

Success depends on targeting consumers effectively, which can be difficult in real life. For example, a chain store might charge more for items in a swanky suburban mall than it does in an inner-city outlet. But cash-strapped mall shoppers might be put off by the high prices, and you can't stop wealthy suburbanites from driving into the city for some cheap shoes.

Amazon, though, knows exactly how much each individual customer has been willing to pay on every visit to its site. It knows what sort of books and movies we prefer and can tell if we're impulse shoppers or the sort to wait for sales and coupons.

It only makes sense for the company to use that information to its advantage. In fact, I'd be a little disappointed if company officials are telling the truth about their latest pricing experiment.

"We've never tested and we never will test prices based on customer demographics," company founder Jeff Bezos told the Associated Press. Instead, he said, the company was merely trying to find out how much it could charge all customers for certain DVDs while maintaining a respectable volume.

That's valuable data, but e-commerce sites can do better. Asking Amazon to ignore its customers' preferences while setting prices is like making Lance Armstrong ride the Tour de France with training wheels.

Above board

As a consumer, I see nothing wrong with offering different, customized discounts to different people while pitching a higher level of service to those willing to pay full price.

If I'm a science fiction fan who buys books one at a time, Amazon might offer me discounts on a second or third purchase in that genre. If I'm buying up child development books, the site might send me a custom coupon for toys or children's DVDs. And if I seem to prefer a particular author, Amazon could sell me on an early, autographed copy of her newest release at a higher price than most people would want to pay.

The key to making this work, though, is disclosure. Sites that want to take advantage of dynamic pricing must let customers in on every step of the process.

They should tell customers how the system works, create a secure way for people to see their own data profiles and give shoppers a way to opt out. Better yet, sites should make their system so attractive that customers will insist on opting in.

By manipulating prices in secret, Amazon ensured that its customers would feel angry and violated once they figured out the ruse. There's nothing wrong with trying out dynamic pricing or other new models in a market that's far from fully formed.

Amazon's mistake was choosing to experiment on customers, not with them.

To contact syndicated columnist Joe Salkowski, you can e-mail him at joes@azstarnet.com or write to him c/o Tribune Media Services Inc., 435 N. Michigan Ave., Suite 1400, Chicago, IL, 60611.

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