In year 2000, Amazon became heavily criticized in the media for offering different prices to consumers for the same products. Amazon used “cookies”, a collection of information, in order to track each individual customer’s interest and usage of the website. They then used this information to make use of price discrimination. Amazon charged first time users a discounted rate, while their long term customers where charged a higher price. According to BBC, the difference in charges could amount to as much as $15 on a single product.
Amazon was completely aware that they were putting their customer relationships in jeopardy as they sought to increase profits. Their customers expect Amazon to handle the customer information in a secure and ethical manner. The fact that Amazon’s scheme was published by BBC is likely to have significantly affected Amazon’s customer relationships in a negative manner. The company wishes to build strong customer relationships that in turn will generate cash flows for the company.
In the early 2000s, e-commerce was a completely new concept. Consumers weren’t used to purchasing products online. Amazon’s main competitors were the normal bookstores, so Amazon were in a position where they had to differentiate themselves from the other players. Many consumers were in all likelihood skeptical about using their credit cards to pay for products purchased online. By using the information given by the “cookies”, Amazon exploited their most loyal customers. As a result, the customer-perceived value of Amazon dropped and the firm ended up in a challenging position. Amazon was now forced to put down large resources in order to attempt to regain its customer loyalty.