Digital vendors — Parasites of the 21st Century?

Written by Hanyu Li

Edited by Elisabeth Lean

Design by Manya Singh

Introduction

Buying online is a vastly different experience from purchasing in person, yet 19% of all retail transactions worldwide are online; a figure expected to grow. Today, it is more important than ever to familiarise yourself with techniques used by e-commerce websites to steer you, the well-intentioned buyer, towards outrageously priced items while thinking ‘what a good deal!’.

With limited and missing information on product’s market price, it’s easy to be bedazzled by ‘deals’ and purchase impulsively. Given that steering tactics will be present on every e-commerce site, we, as consumers, need to be aware of them and ensure that we  don’t fall into these algorithm’s traps. This article will site Lazada and Amazon as  main points of reference, as they have one of the biggest presence in the Singaporean e-commerce markets. 

Following arguments will be made primarily on observations concerning consumer tendencies- a result of human nature. Many exhibit signs of FOMO (fear of missing out), aim to pay as little as possible, and attention is easily attracted by short and bright sentences  (in the process skipping the fine print). Finally, consumers are also influenced by social norms and expectations. These pitfalls in human judgement are seldom of our own fault, but are nonetheless easily taken advantage of, as seen in the methods presented below. 

Method 1: Intentional Website Design

Looking  at Lazada’s home page, the first thing that grabs our attention is the enormous signs advertising deals and graphics. These rotating banners contain big promises in short sentences, offering “up to 50% off”, “free* delivery”, and “5% cashback”. Even though - once some investigation is conducted - it is clear that most of the products won’t be anywhere in that region (of50% off), having the huge figure on the page is immediately able to grab the consumer’s attention and impress upon them the initial impression of some sort of victory. Having the chance of seeing one of the products they want to be 50% off is oftentimes an enticing nudge to consumers to have a look at the offers. All of these claims, despite being fulfilled, exploit fundamental loopholes in human judgement to make consumers feel like they’re spending less even though that may not be the case. This will be further explored in the following paragraphs. 

Free delivery is now also becoming increasingly common, almost to be expected. Ultimately, this comes down to buyers not wanting to pay for delivery. People would rather pay $20 for a product than $10 for a product and $10 for delivery, since even though both prices are the same, the former spends that money on the product rather than on the logistics service. Buyers would much rather feel like they’re paying for the quality of the product rather than wasting money on transport, even if the amount of money spent is the same. However, delivery isn’t a free, costless process; websites say it is, while adding the cost directly onto the product price. This does not increase the amount of money the platform earns, but it does make the buyer more likely to decide to make a purchase, increasing the total number of products sold. In addition, most of the time, buyers also have no idea what the actual intrinsic value of the good is, and due to asymmetric information, may interpret the inflated price as the actual price. In other cases, like Lazada’s, free delivery may be offered after a certain amount of money has been spent, in this case $60, where the platform internalises the delivery fee and pays for it themselves. This incentivises consumers just under the necessary $60 to add another item or two to cart, making buyers feel like they’re getting a deal, even though they ended up spending more money. 

Like free delivery, cashbacks also give the sense of having had a great deal, operating by giving the consumer vouchers after purchasing on the platform. While the buyer does get a portion of their money spent returned in the form of vouchers, those vouchers must be spent on that specific platform, forcing buyers to return to the same site to access the cashback value. Even though this lowers the platform’s revenue, it makes the buyer more likely to return to spend the vouchers, placing more orders, raising more total profits. 

The techniques listed above still only consider one effect from one of the rotating banners; there are 14 more of similar styles, each offering their own set of deals to try to nudge the consumer to look into some of their deals. The short amount of time each banner stays on before switching to the next captures the short attention span that consumers of the 21st century have developed, subconsciously making the consumer curious, and thereby keeping their eyes on the site. 

Last but not least, looking below the initial banner, we see a flash sale with a timer counting down. Watching the seconds counter tick down creates a sense of urgency, even if there are multiple days left in the sale. This urgency may make buyers impulsively want to make faster purchases before the sale ends, increasing the chances of buying something impulsively without thinking it through. In addition, the high discounts placed directly next to the price further incentivises quick action to avoid missing out on the sale. 

Method 2: Algorithmic Pricing 

In addition to designing websites to nudge you towards purchases, sufficient data have been collected from studies to show that websites use cookies to track users and price. A study titled “Measuring Price Discrimination and Steering on E-commerce Web Sites” by North Eastern University has found sufficient evidence for price steering based on the user’s OS/browser, account information, and history. Most of this data is collected through both 1st party (website directly tracks user) and 3rd party (websites allows other site to track user) cookies. Hence, by agreeing to cookies, users essentially agree to give away their information online. 

Amazon’s privacy policy states that they collect IP addresses, computer location, page interaction information (scrolling, clicks, etc.), as well as information from our Amazon search history, items added or removed from cart, conversations with Alexa, and many more. It is also states that “Third-party advertising partners may collect information about you when you interact with their content, advertising, and services [on amazon],” and defaults users to opt in to this feature (which can be turned off manually under “Your Ads Privacy Choices”). It is reasonable to assume that most other e-commerce websites collect and use data similarly, leading to the findings located in the study above. This information allows companies to charge different prices based on personal information, and lets 3rd party sellers target users with personalised ads. 

Additionally, it has often become increasingly difficult to find privacy information with websites assuming that cookies policies are being agreed to, with Amazon’s, Shopee’s, and Lazada’s privacy policy being hidden in the website’s footer. In other cases, the green “accept all cookies” contrasted by the red “only accept necessary cookies” nudges users towards mindlessly clicking the green button to make it go away. Both methods increase the total number of people ‘opting in’ to cookies, allowing companies to collect even more data. 

Are all of these Methods Legal and Ethical?

Legally, there’s nothing stopping companies from doing any of the methods listed above. Antitrust laws, which are designed to encourage competition and limit monopoly power, do not stop price steering, and smart website designs that understand human nature is by all means legal and ethical. In addition, better website design makes online shopping much more appealing, as the alternative would be the small texts from the early 2000s. However, on the contrary, these techniques are used to make more money for the platform, potentially at the expense of consumers making purchases that don’t benefit them as much. As a result, using tactics that manipulate innate flaws in the human’s ability for rational thinking may feel morally questionable. 

Price steering is not unique to online shopping either; retail stores do similar things where students get discounts, while small businesses operating without price tags may charge different people differently. Because different buyers have different maximum prices, sellers have different maximum prices that they can charge to increase their own profit, negotiating often through bargaining. Price steering is an online equivalent of this technique that gauges the consumer’s internal price limits through their cookies information. Targeted ads, similarly, use information about consumers to push goods or services that are more relevant to their needs. 

The key difference, however, is that price steering is done mostly without the user’s knowledge nor consent. This makes sense from the website’s perspective, as it’s difficult to justify an algorithm designed specifically for the task of making them more money. When bargaining, it feels like you’re arguing for a lower price, thereby getting a discount. When given a set price by a website, you can’t bargain with that price, and must choose either to take it or to leave it. Targeted ads, while seemingly more practical, may also price items higher, leading to the same issues as price steering. In addition, as consumers and individuals, the thought that pieces of our identity are being sold online is highly disturbing. Hence, while these methods are legal and aren’t unethical, they do leave a sour taste in people’s mouths. 

Conclusion

E-commerce is an emerging method of retail, growing in popularity with its feature of allowing consumers to shop anywhere as long as they have internet access. With this in mind, it’s difficult to resist the allure of the convenience of e-commerce, and partaking in this new way of business is becoming more mainstream. Nonetheless, like every other industry, e-commerce has its own traps which are to be aware of in order to ensure that the choices we make are the best for us. 

Bibliography

Hannak, Aniko. Measuring Price Discrimination and Steering on E-Commerce Web Sites, 2014, mislove.org/publications/Ecommerce-IMC.pdf. 

eMarketer (@eMarketer). (August 11, 2023). E-commerce as percentage of total retail sales worldwide from 2015 to 2027 [Graph]. In Statista. Retrieved January 17, 2024, from https://www.statista.com/statistics/534123/e-commerce-share-of-retail-sales-worldwide/