Key Takeaways
- A hidden price can create commercial risk when customers do not understand how or why they are being charged.
- Customers judge pricing based on more than the amount they pay; the reason behind a price can influence whether it feels fair.
- Pricing mechanisms that rely on customers not noticing them can become harder to defend once they are exposed.
- Price transparency does not require businesses to reveal every detail of their pricing strategy, but pricing decisions should be explainable when customers question them.
- Businesses should regularly review their pricing architecture for fees, adjustments, discounts and other mechanisms that may be difficult to justify openly.
- A useful test is whether you would make the same pricing decision if you knew you had to explain exactly how it worked to the customer tomorrow.
A hidden price is a cost, charge, adjustment or pricing mechanism that is not immediately visible or clear to the customer. Businesses do not need to reveal every detail of their pricing strategy, but customers should be able to understand what they are paying for and why when they reasonably ask.
Chances are your business is pricing something under the radar right now. A new FTC case against Amazon shows what can happen the moment somebody notices.
The FTC and 22 states allege Amazon secretly inflated prices in its search advertising auctions for seven years, which the FTC alleges cost advertisers $20 billion or more.
The mechanism, per the complaint: starting in 2019, Amazon began inserting what it internally called a “soft reserve price,” an invented auction participant used as a proxy second bidder to push the final price higher, without telling advertisers the rules had changed.
The FTC alleges advertisers increasingly ended up paying their own bid, reaching roughly 80 per cent of auctions by 2024, and that one executive hoped, in writing, that advertisers simply “don’t notice and decrease bids.” Amazon denies wrongdoing.
When a Hidden Price Goes Unnoticed
Amazon’s defence, as reported: cost-per-click stayed flat, conversions rose, advertisers saved money overall. Possibly true, and it doesn’t matter.
The question was never whether advertisers ended up worse off on average. It’s whether they were told what they were bidding into.
There’s a real difference between testing what a customer will pay and testing how much they’ll fail to notice.
The first is pricing strategy.
The second is pricing under the radar, and it only works for as long as the customer doesn’t find out, which means it was never really a pricing decision, it was a bet on how long the story could outrun the mechanism.
The complaint alleges Amazon had the legitimate version available the whole time, a publicly raised reserve, justified by demand or placement, but instead used a mechanism advertisers weren’t told about.
The Risk of a Hidden Price
And that’s the attraction of pricing under the radar. A number nobody sees never has to survive an argument about whether it’s fair. It only has to survive not being found, and every day it isn’t, the exposure sitting underneath it gets bigger, not smaller.
Hidden Prices and Price Fairness
Here’s the part that should actually worry you, whether or not you’re anywhere near an FTC complaint. Kahneman, Knetsch and Thaler’s classic research on price fairness found that customers don’t judge a price change purely by its size.
They judge the reason for it. A business protecting itself against a genuine cost increase can be perceived very differently from a business using its market position simply to extract more, even when the dollar impact is identical.
That’s what makes a hidden pricing mechanism commercially dangerous.
The eventual argument isn’t only about how much the customer paid.
It’s about why they paid it, what they believed was happening, and whether the business could defend the mechanism once it became visible.
How to Identify a Hidden Price
Which leads to a much more useful pricing test than any percentage threshold: would you still make the same pricing decision if you knew you had to explain it to the customer tomorrow?
A genuine cost increase passed through transparently can be defended.
The customer may not like it, but the reason is visible and there’s nothing hidden to find.
A margin gap closed instead through an unexplained fee, a rebate that quietly shrinks, a rounding convention that always rounds one way, dressed as routine because nobody has to look directly at it, is pricing under the radar in miniature, and it carries the same exposure, just at a scale that hasn’t been noticed yet.
If you can’t immediately say whether any of those are sitting in your pricing model right now, when was the last time anybody had to defend them?
The Commercial Cost of Hidden Pricing
The $20 billion is the number alleged in the complaint.
The eventual commercial cost, if any, is still unknown, the case is pending and Amazon is contesting it.
But the exposure is already broader than the disputed surcharge itself: federal litigation, 22 states, management attention, potential monetary remedies, and advertisers now examining a mechanism many previously assumed they understood.
Can Your Pricing Survive Scrutiny?
If your pricing model can survive a customer reading exactly how it works, that’s pricing.
If it can’t, it isn’t sophistication, and it was never really under control. It’s exposure, quietly compounding, with a delay on when the bill arrives.
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A Final Test for Your Pricing Strategy
So here’s the question I’d put to any CEO: is there anything buried in your pricing architecture today that would become considerably harder to defend if your customers understood exactly how it worked?
If you’re not certain, that’s worth finding out before somebody else does.
If you want to pressure test your pricing architecture, message me.
Are you a business in need of help aligning your pricing strategy, people, and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.