Recently we saw multiple articles calling the Amazon’s Buy Box algorithm unfair. Here is a quote from one of them titled “Amazon Says It Puts Customers First. But Its Pricing Algorithm Doesn’t”:
We looked at 250 frequently purchased products over several weeks to see which ones were selected for the most prominent placement on Amazon’s virtual shelves — the so-called “buy box” that pops up first as a suggested purchase. About three-quarters of the time, Amazon placed its own products and those of companies that pay for its services in that position even when there were substantially cheaper offers available from others.
We do not agree with this view.
Amazon marketplace is built on delivering the best customer experience. Customer experience includes things beyond price - things like shipping price, likelihood of a seller being reliable, customer support quality etc. Of course Amazon will try to offer the best possible price, but in the 5-10% price variance window it also considers other metrics. For example, is a customer willing to spend $3 more, but be sure that the item will arrive next day, as opposed to having it ship in 7-14 days?
Many Prime customers are used to two-day shipping. When products are coming from Amazon warehouses, Amazon can be fairly confident that shipping time will meet those expectations. Thus Prime customers are very likely to be shown not the cheapest price, but instead the price which offers Prime shipping. For marketplace sellers this means that unless you are using Fulfillment by Amazon (FBA) for inventory, many customers won’t see your offer.
An important metric for deciding if a seller should be picked for the buy box is feedback they have received. That’s why new sellers struggle to get sales first - Amazon is not likely to trust them even if they have lowest price. New sellers with hard-to-believe low prices are often scammers, so while some customers are willing to risk it for a chance to save some money, most people would rather buy from trusted sellers.
Sellers with the hard-to-believe pricing are often obtaining product from questionable sources or shipping straight from China manufacturing plants. By looking at reviews of those sellers we spotted many customers upset how long it took to receive a product. Amazon did try to protect them from picking those sellers, but by trying to save customers ignored shipping time and seller reliability.
Even for products warehoused in the US, Amazon considers how far away they would have to ship it. For customers based in New York, shipping a product all the way from Seattle is always going to take longer than from a warehouse just outside the city. Amazon fulfillment is optimized for avoiding this, but it does play part in deciding which seller should get the sale.
Jet.com marketplace has taken this even further by hiding the complexity of picking the right seller. While on Amazon.com anyone can expand the sellers list and see if any seller has a better price, on Jet.com the algorithm picks the best seller based on various metrics. It makes the same decision Amazon buy box does - it picks the seller who will offer the best customer experience.
Amazon is trying to avoid creating a race to the bottom, where having the lowest price is a guarantee way to get sales. While in theory that sounds like an ideal marketplace model, in practice making sellers care more than beating others by $0.01 is much more important.
So while looking from afar it might seem that the buy box model is unfair and favors Amazon itself among other marketplace sellers, in reality it is optimized for customers. For most, it delivers a reliable and affordable experience, because fighting for insignificant pricing differences is not worth it. By analyzing customer satisfaction Amazon was able to build a model which is fair for both sellers and customers.
Few marketplaces are as successful as Amazon, and we believe that one of the reasons is the buy box algorithm. After years in existed customers have grown to trust the Buy now button to deliver the best experience, even though there are many thousands of sellers behind it. Ebay for example does not have a unifying buy box equivalent making it the customer experience much worse as there is no algorithm helping them to pick who to buy from.