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Barbara Farfan

Amazon Prime Class Action Lawsuit Latest Customer Disservice - All Retail Consumers Pay Higher Prices After Frivolous Legal Actions (AMZN)

By March 14, 2014

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The Amazon Prime customer class action lawsuit that was launched in February started getting a lot of buzz this week when debate about the lawsuit made its way into the mainstream media. The alleged "breach of contract" that Amazon (AMZN) has committed with millions of its Amazon Prime customers seems to be just another frivolous legal action in a long line of frivolous consumer legal actions that are filed daily in the U.S. legal system.

Like all other frivolous lawsuits launched against the largest U.S. retail chains, it seems the Amazon Prime class action will do a disservice to all Amazon consumers who will end up paying a higher price for products and services in the future because of consumers and lawyers chasing quick and dirty out-of-court settlements in the present.

Some other recent examples of the flimsy and frivolous feuds in the court of customer causeless claims involve some of the largest U.S. restaurant chains. One customer is suing Jimmy John's for sproutless sandwiches, and another customer claims to have suffered life-altering trauma in an alleged argument over an extra napkin at McDonald's. And then there is the perennial customer- favorite burnt-by-hot-drink litigation that is being played out this time with hot apple cider and Dunkin' Donuts.

CONSUMER ALERT: Hot drinks are hot. Transporting them in a moving vehicle increases the likelihood that they will spill. If the risk is too great or the responsibility too overwhelming, please opt for water - no ice.

The Amazon Prime lawsuit seems like just one more lawsuit where consumers are suing a company because they're mad at themselves for being stupid. In fact, that's the common theme with the seemingly endless stream of frivolous consumer lawsuits flooding the U.S. legal system. "Who can I try to blame so that I don't have to take responsibility for my own cluelessness?"

The apparent consumer cluelessness in the Amazon Prime case seems to be directly related to a fundamental lack of understanding about the definition of retailing. The litigants in the case feel they have been wronged because allegedly the costs of the Amazon Prime marketing program are being recouped by Amazon and its vendors through higher product prices and fees. Seriously. Senseless. Suit.

So, apparently there is a need for some clarification about how retailing works. A product is produced at a cost. Retailers distribute products from the products' producer to the end consumer at a cost. Retailers add all the production and distribution costs together, and then add a little something on the top for themselves, which is commonly referred to as a profit margin.

Cost + Profit Margin = Retail Price

It's an oversimplified explanation and formula, of course, but apparently there are some consumers and lawyers who need a refresher in retailing basics.

So, of course any product or service that is presented as "free" in retailing is being paid for by someone. And, of course, that someone is the consumer. Now or later, in some way at some time, consumers always pay every bit of the costs for producing and distributing a product along with a retail profit margin. Now or later, consumers pay.

That is the nature of the consumer-retail relationship. If retail customers don't like that, they can either manufacture their own material goods, or knock on the doors of Chinese and Bangladesh factories to negotiate a one-off factory-direct price every time they want to purchase a large-screen TV, a smartphone accessory, or a fast fashion t-shirt. The third option, of course, is to stop consuming altogether. That would probably also mean growing your own food because you know the world's largest supermarket chains are retailers too. That means that the cost of grocery store coupons, promos, and "freebies" are recouped with product pricing strategies as well. It's just how the retail game works.

But let's talk specifically about the Amazon Prime system and the seemingly misguided customers who believe they have been cheated by the "free" shipping offer. Both the consumers and the legal team in the Amazon Prime class action suit seem to be confused about what Amazon Prime does and doesn't offer.

Unless I am misreading the Amazon Prime Terms & Conditions, there is no promise of "free shipping" of every product to every Amazon Prime member with every purchase. There is a promise of an upgrade to two-day shipping at no additional charge for "eligible products." Those eligible products may or may not be shipped for free. In other words, what Amazon Prime members get in exchange for their membership fee is speedier shipping, not a blanket offer of "free shipping."

The claim by the Amazon Class Action lawsuit is that the price of at least some of the the "eligible products" are being raised to make up for the revenue lost in the Amazon Prime free two-day shipping upgrade. Yes, of course they are. That's how retailing works. The only thing that makes this lawsuit actionable is if Prime Members are being charged a higher price while non-prime members are being charged a lower price. That would be a scenario that would be problematic for Amazon to defend.

Maybe I am the clueless one, but charging Prime members a different price that non-Prime members would be difficult or impossible for Amazon since it's not a requirement to sign in to Amazon or even have an Amazon account in order to shop, check prices, and put merchandise into the Amazon shopping cart.

I suppose in the name of "customization," Amazon could use cookies or some other cyber spy technology to identify me as a Prime or non-Prime customer even before I login. But my own unscientific research didn't yield any evidence that dual pricing is occurring with Amazon Prime and non-Amazon Prime members, however.

I just happened to have purchased and received a product from Amazon.com this week which was offered with "free shipping." I am not an Amazon Prime member and wasn't signed into my Amazon.com account while shopping, so I can only assume that the "free shipping" was being offered to anyone who landed on that product sales page that day.

I just did a search for the same product on the computer of an Amazon prime member. In this particular case the pricing in my non-Prime product and the pricing of the product for the Prime member was exactly the same. This is not to imply that I tested all 77 skillion products sold on Amazon.com for pricing discrepancies. That'll be the frivolous job of the crack legal team who filed this meritorious legal action. We'll all be interested to see if their millions of Prime vs. non-Prime product comparisons yield any results.

(By the way, the non-prime price of my product was less than the manufacturer's website, which also charged shipping. So, in my case, Amazon won the price game and got the sale fair and square.)

In the absence of any evidence that Prime prices are different than non-Prime prices, Amazon's defense to this class action suit can be summed up in one word. "Retailing." Fulfillment By Amazon (FBA) vendors raise their retail price to offset Amazon fees? Amazon offsets their Prime Member shipping charges by collecting more commissions and fees from FBA vendors? It would be shocking if they didn't. Amazon and its sellers aren't running a Prime charity service.

Consumers always have and always will pay the costs for any marketing promotion because marketing is a cost of doing business. The words that best describe retail companies that aren't able to recoup their marketing costs are Circuit City, Borders, and Sears.

So, in the absence of any more evidence to the contrary, it seems that the instigators of this Amazon Prime legal action, like so many consumer legal actions, don't really want justice or their day in court. Rather they seemingly just want their out-of-court settlement deposited into their bank account.

To bring this discussion full circle, I think it would be good to point out that one of the biggest costs associated with retailing that is factored into the price of retail products these days is... wait for it... we all know the answer... Legal fees! The costs associated with defending or settling consumer lawsuits eventually hits the balance sheet and gets passed right back to consumers in the price of the products and services they purchase.

No matter what the outcome of this Amazon Prime class action suit - along with the outcome of the Jimmy John's Sprout Scandal, the McDonald's Napkin Nightmare, and the Dunkin' Donuts Cider Spill - future customers will pay for it. Whether you participate in it or not, whether you agree with it or not, whether you profit from it or not, in the future you will be paying more at Amazon, Jimmy John's, McDonald's and Dunkin' Donuts because of the consumers who are intent on launching their own something-for-nothing self-promotion projects in civil court.

If you want to focus on what's unfair about U.S. retailing, get mad at that.

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March 15, 2014 at 2:43 am
(1) RicRac says:

Thank you!! Stupidity is rampant! I thought you weren’t allowed to file frivolous law suits. The Judges that allow these suits to go forward are as much to blame as the greedy lawyers. The only ones that win in many class action suits are the few named Parties and the Lawyers. Everyone else gets a 10 % discount on their next purchase (Pro Flowers from yrs ago) or $1.25 or $2.50 or if you’re lucky, maybe $10-20.00. They’re a joke! Meanwhile the lawyers get paid millions. As far as the Prime membership is concerned, if Amazon’s price is in line with other online prices, and if you shop a lot online and buy a lot from Amazon, as I do, the membership does pay for itself plus I get Amazon Prime video and great customer service! Anyone who knows about Amazon – the company – also knows they’re losing money and have always lost money. Raising their Prime membership fee for the first time in the 9 years it’s been in existence is to offset some of that loss. It’s incumbent on the consumer to shop prices.
Also, on Amazon webpages, they have a place for you to advise them of a lower price being advertised on the internet. Perhaps you haven’t noticed prices change all the time. If they discover everyone else is less, they’ll often meet it or if a special sale is over, they’ll raise it. Put a couple things in a shopping cart leave them for a while.Prices can go up or go down. Even if youve moved something out of your cart to “save for later” price changes will be announced. Amazon will advise you above your cart. That’s fair to al & you still have the right of choice whether to purchase or not.

Perhaps the rest of us should file a class action suit against the Named
Parties, the lawyers and the Judges in these frivolous suits because we’re the ones being damaged footing the bill for them.

March 16, 2014 at 3:49 am
(2) retailindustry says:

Good idea! If you do launch that class action suit against the Named Parties, let us all know so that we can join you!

March 16, 2014 at 11:23 pm
(3) chris says:

The McDonald’s lawsuit you mention, regarding the customer who was awarded damages for severe burns to her lap and genitals, was anything other than frivolous. I encourage you to research these oft-cited cases for yourself, before making an ass if yourself in public. As to the Amazon cases – those are simple contract law issues. Amazon failed to hold to the contract they entered into with their customer base. What is frivolous about requiring companies to obey the law?

March 18, 2014 at 3:41 pm
(4) William Morgenstein says:

These frivolous lawsuits only benefit the trial lawyers who have an ultra powerful lobby in congress. It will be hard to stop but every time I receive a request for funds from my party I am now refusing until they finally put a stop to this disgraceful nonsense!.

March 18, 2014 at 5:42 pm
(5) Naomi says:

I agree with your entire article and am not familiar with the details of the lawsuit, but I can tell you that amazon.ca in Canada offered Prime Membership (which I wanted for the streaming video component) and gladly took the sale, without at any point mentioning that video streaming, and a number of other benefits, are simply not available in Canada. Now this was on a Canadian website, programmed to only sell to Canadians – you would think at some point during the sale, in the fine print even, they would mention this. But no in fact when a Canadian buys the Prime Membership, the website lists as benefits multiple benefits not available to Canadians. I expect this happens internationally. It took a while with customer service but I got all my money back having never used a single service – but it was a major pain and I believe Amazon does this on purpose hoping people will be too lazy/ignorant to demand their money back. It is wrong. So the law of retailing isn’t always an excuse to be flippant about taking money from customers.

May 5, 2014 at 8:10 am
(6) Margaret Greischar says:

I joined Amazon Prime thinking I was paying upfront for free 2-day shipping up front (which is how it was portrayed) for $79 a year. Instead I find I’m paying that $79 AND am paying more for products which are cheaper on Amazon non-prime. THAT is a rip off plain and simple. I will NOT be renewing my prime membership.

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