By Morgan Quinn GOBankingRates.com
WWR Article Summary (tl;dr) Online retail giant Amazon has pioneered a data-driven strategy for cross-selling and upselling. In fact, Amazon attributes 35 percent of its revenue to cross-selling, and that money is coming out of your pocket.
Selling everything from clothing to pocket-sized cannons for your desk, Amazon is an online retailer like no other.
The company has earned a reputation for offering competitive prices and fast shipping, but all that convenience comes with a high price tag for the sales giant.
Although profits rose once again in the first quarter of 2017, a Business Insider article revealed that revenue came in at $43.7 billion instead of the $44.68 billion analysts anticipated. In order to continue offering speedy shipping and other perks customers have come to expect, the company finds many ways to boost its income.
That doesn't mean you can't be savvy when you shop the website. Find out how to save money on Amazon products by avoiding the tricks the retailer uses to make you overspend.
DATA-DRIVEN UPSELLS Amazon uses a highly sophisticated algorithm to recommend the right products to the right customers, at just the right times. The company has access to data that allows it to analyze behavior from customers and use the information to recommend products to other shoppers with similar profiles.
According to Vadim Bichutskiy, director of data science at Innovizo, Amazon has pioneered a data-driven strategy for cross-selling and upselling.
"As an avid reader, I buy lots of books on Amazon, and on many occasions I have taken advantage of its 'frequently bought together' and 'customers who bought this item also bought' features," said Bichutskiy. "Not only did I enjoy the books, but I never would have known about them without these recommendations."
In fact, Amazon attributes 35 percent of its revenue to cross-selling, and that money is coming out of your pocket.
FREE SHIPPING OFFERS Amazon offers customers a few different ways to score lightning-fast shipping. You can pay $99 a year for an Amazon Prime membership, which gets you free, two-day shipping on most items and free, two-hour delivery in certain areas.
If you don't want to pay for an Amazon Prime membership, you can spend at least $25 on books, or $35 on other qualified items, for free shipping.
However, free shipping isn't free for Amazon, and the company has to make up its losses somehow. The goal of the free shipping offers is to incentivize customers to pay extra for Prime Memberships or get them to increase the number of items in their carts to hit the minimum. And the strategy works. Revenue from these incentives offsets Amazon's annual shipping costs. Still, GeekWire estimates that Amazon lost $7.2 billion on shipping costs in 2016 alone.
AMAZON PRIME MEMBERSHIPS Amazon Prime is a customer loyalty program that was originally designed to get shoppers to spend more. According to a report by the market research firm Consumer Intelligence Research Partners, as of April, 80 million people in the U.S. had Amazon Prime memberships.
As a result, they can take advantage of incentives like free expedited shipping, same-day delivery in certain areas, unlimited video and music streaming, early access to lightning deals, access to the Kindle Owners' Lending Library, and discounts on diapers, video games and more.
Once you pay for an Amazon Prime membership, you will likely stop shopping at other stores in order to take advantage of all the benefits.
According to the latest Consumer Intelligence report, Amazon Prime members spend a jaw-dropping $1,300 a year with the retail giant, compared to non-Prime shoppers, who spend just $700 a year.
Still, this program isn't a direct money-maker for the online retailer. Amazon Prime has become a tool for acquiring new customers and building loyalty, so the company can make money off members in other ways, like video streaming and cross-selling, according to Fortune.
PRIME INSTANT VIDEO Amazon Prime members have access to Prime Video, which lets them stream a number of popular TV shows and movies. However, Prime Video doesn't actually make the company money.
Amazon has discovered that Prime members who use the free video streaming service are 10 times as likely to rent or buy movies from Prime Video as non-Prime members. Once customers get into the habit of streaming free videos, Amazon has a chance to sell them on renting or buying videos that aren't available for free. If you're looking to save money on Amazon, try to stick to those titles the service offers for free, including shows like "The Americans" and "Catastrophe" and movies such as "Manchester by the Sea" and "Creed."
ONE-CLICK ORDERING Amazon actually owns the patent for what it calls 1-Click ordering, which has generated billions in revenue for the retail giant. Once customers store their credit card and shipping information on the servers, they can simply click once to place orders without going through the checkout process.
This frictionless ordering system is another way in which Amazon disconnects customers from how much they are actually spending and encourages impulse buying.