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I'm afraid of being downvoted, but the algorithm for an Amazon return looks something like: Your LTV = Forecasting total revenue from your trans

• ncfausti 5y ago
  Thanks for this, very informative. So LTV is forecasted "lifetime value". So, if I'm 30, they'll estimate ~50 years of revenue going forward from me and use this as LTV?
  • an_opabinia 5y ago
    > So, if I'm 30, they'll estimate ~50 years of revenue going forward from me and use this as LTV? No. If you're 30, they might (or might not) group you with other 30 year olds, if that's important, and run this model against you all as a group. But you don't punch in "he has 50 years left to live" in the model. The model doesn't know any of that, it just knows your transaction history, and it works better when the population of histories are more similar than dissimilar. Though it's also very effective when run against a large population too.
    • tlogan 5y ago
      Don’t forget there is also this: https://www.theretailequation.com/ https://www.theretailequation.com/ Basically, these models can pretty much predict whether you are pathological or good one. I know that models also include things like if you are a pet owner, number of pets, siblings, number of disputes in cc, etc.
      • pnutjam 5y ago
        No, people believe the model is effective. There is no scientific method, it's what middle managers are comfortable with and could easily be garbage.
• B1FF_PSUVM 5y ago
  > at least two decades of conditioning I'd say three centuries, but who's counting ... (or whenever printing got cheap enough to use for advertising)
• timwaagh 5y ago
  Thanks for explaining how refunds work on Amazon. Ive been using them a lot lately
• sundvor 5y ago
  Interesting. I've bought most of my tech stuff from the same company for 20 years now. Their system actually lets me see all completed orders, and it tallied to about 50k AUD last time I checked (as an individual). They're not always the cheapest, but the overall experience is great - and I just love that I can see all my orders for such a long time span. Now, I've always had good customer support experiences with the company, and your model helps explain why I suppose; loyalty has a value of its own.
• ineedasername 5y ago
  Because my LTV was really high. Yep, I think this is exactly how things work. My household buys pretty much anything it can from Amazon unless it's more expensive than we can get elsewhere because our Amazon credit cards automatically give a 5% discount (cash back). Since we pay our balance every month this is basically like having 5% more income proportional to the amount spent on Amazon** We never have a problem dealing with customer service. A simple chat solves pretty much everything immediately, and when it's Amazon's fault they'll apply a courtesy credit towards our account. (Actually that hasn't happened a lot lately-- maybe something they don't do as much any more, or maybe they've calculated that we're solid enough customers that we're not quiting Amazon just because Amazon didn't give us free money) *The first time we used Amazon Fresh was a complete epiphany for us. I was sick so couldn't go food shopping. Instead I gave Fresh a shot, and found out that on average their prices were 10% to 15% lower than I paid at the supermarket, and* we still got the same 5% cash back from using our Amazon credit card. Even after a good tip for the driver, we were still saving money. In terms of selection, they probably lack about 10% of the things we normally buy or they're much more expensive (meats especially) so I still do the occasional trip to the local grocery store to stock up.
  • MrRadar 5y ago
    If you're looking for an alternative, Target's store card also gives you 5% off and it is applied instantly at the time of purchase (you don't have to "redeem" the refund later or anything).
    • ineedasername 5y ago
      We actually do use them for some things, especially some low cost items Amazon doesn't sell directly and resellers mark up significantly because that's the only way they can make money on a $3 bottle of shampoo or whatever it is. Also for dry goods, Target often has things Amazon doesn't have. The only downside is they don't have free shipping unless you hit $35, so we try yo save up items until we have enough to hit that mark.
• franga2000 5y ago
  > Like how else could it work? They investigate everything, spending more money than the cost of the refund? Is anyone actually arguing for fewer "easy refunds" and more investigation? I though the point was that given the fact that most of their refunds are handled algorithmically, they have plenty of time to handle the rest of the refunds quickly and with care. If I don't get my order, I want my money back. If the algorith decides I can get that with no investigation required, sure, I'll take it. But if the algorithm thinks they shouldn't take the "shortcut", I still deserve my money back and a human should be dispatched to deal with it ASAP. Algorithmically adjudicating in favor of the customer is fine - it's their money they're risking. But algorithmically adjudicating against the customer should never be allowed without a human looking things over.
  • bradleyjg 5y ago
    At the end of the day your remedy is to sue someone. Everything else is a courtesy shortcut.
    • franga2000 5y ago
      I don't know about you, but where I'm from, consumer protection laws exist specifically so consumers don't have to sue in these cases. Providing a fair refund process is their legal duty, not a courtesy.
      • asimpletune 5y ago
        To me about how these infractions can be enforced without suing though?
        • chongli 5y ago
          The point is that it shouldn’t be the aggrieved consumer filing the lawsuit, it should be the powerful regulator with potential fines tied to a percentage of company revenue.
          • 5y ago
• Spooky23 5y ago
  I think you’re right that is the core of the model. Good customers always get treated better than Joe Rando. But Amazon has more information and uses that too. They know loss rates by zip code or by block by carrier. Usually items I order for them that are higher shrink risk don’t go through their Amazon distribution network and come UPS or USPS. Anecdotally, I’ve noticed those returns are easier — they probably dump cost on the 3rd party shipper.
  • an_opabinia 5y ago
    The model isn’t aware of that stuff. They feed groups into the model, it might be grouped by zip code. But there isn’t a variable for zip code in the model. The model just forecasts LTV and nothing else, from transaction histories.
    • cortesoft 5y ago
      Do you know this because you work on the model?
      • m0dest 5y ago
        That sounds like an unanswerable question.
        • cortesoft 5y ago
          Should be a yes or no answer? Either you worked on the algorithm or you didn't. I asked the question because they spoke with the assurance of an insider... so I wondered if they worked on it.
• tlogan 5y ago
  This is 100% correct. Even our small business have rules like this: good customers will get refunds, discounts, etc. Bad ones (pathological ones) - we just try to get rid of them ASAP and no refunds. Because we do not want them to use our service anyway. At the very beginning we were thinking that good vs bad should also include our support costs - not just LTV. But that is amazingly correlated: high LTV means that user has very low support cost (or at least a very nice people to work with). It is very simple.
  • TacticalCoder 5y ago
    > Bad ones (pathological ones) - we just try to get rid of them ASAP and no refunds. A customer "not buying much" is not "bad". If you accept his money for cheap stuff, he is your customer. There's a difference between an honest customer who usually doesn't buy much and then buys something expensive and is getting sadly scammed and a customer trying to rob you. If you accept the customer for cheap stuff but refuse to help him when he gets scammed on an expensive item, you are the bad, pathological, person/business.
    • eeegnu 5y ago
      > If you accept the customer for cheap stuff but refuse to help him when he gets scammed on an expensive item, you are the bad, pathological, person/business. For every refund system you will unfortunately get people who attempt to game that system. They'll buy many negligible cost items without issue, then a single high cost item that they'll claim never arrived hoping they've outsmarted the store or algorithm. These bad actors are why honest consumers have a hard time. I don't know what a business can do to actually differentiate the two.
      • adventured 5y ago
        A particularly difficult con to detect and account for. On eBay fraudsters buy large quantities of eg $1 seed packs, to build up artificial account ratings. Then they try to steal expensive things (didn't arrive, wasn't in the box, arrived broken, etc), and eBay shields the accounts heavily because they favor buyers to an extreme. All the thief has to do is be disciplined about it, buy $40-$50 of cheap items for positive feedback, then go after a $300-$500 item. Sellers can't even leave negative feedback on eBay, which further cuts off a mechanism for at least warning other sellers of a running con (sellers sometimes leave the negative language in the neutral/positive feeback segment instead, which rather points out the absurdity of eBay's broken system).
• jrochkind1 5y ago
  It's a lot better for those with the highest LTV's (ie, the richest), that's for sure!
• mancerayder 5y ago
  I believe all of this, but isn't there some aspect where persistence has a different outcome than passivity? In your example where essentially you're saying the profit Amazon made off a customer is less than the refund cost and fallout of indifference. There are escalation paths that cost the company money, like stealing support time via repeatedly escalating, and eventually filing a dispute with the credit card issuer. These, too, cost Amazon money.
  • an_opabinia 5y ago
    You're right, I just wanted to emphasize the innovative part of this system is forecasting LTV accurately. Specifically by forecasting LTV as a function of your personal and population wide transaction history alone, without any other secular considerations. Whereas it's pretty straightforward to enumerate your costs.
• mannykannot 5y ago
  You have a point, but if the company has a stated refund policy and its actual policy differs from that, then it can not in any way be regarded as just, IHMO. (I have never bought anything expensive from Amazon, and so I have no idea what its stated policy is.)
• cletus 5y ago
  Of course this is the case. Business give better customers better treatment. Where people haven’t seemed to have learned their lesson with this is with airlines and to a lesser extent hotels. People will just buy the cheapest ticket, which is completely fine if that’s what you want or need to do, but they then complain that the airlines don’t bend over backwards when things go awry. Example: you have to check in to international flights 60 minutes or more before the flight leaves (from the US). This is a reasonably strict rule. I once arrived 45 minutes prior and they checked me in anyway. I give that airline a lot of business and they know it. So I order a lot of packages from Amazon and have had zero problems with returns and cancellations but almost all my purchases are low end. For, say, new electronics, I’ll just go straight to B&H or Adorama. Or even Best Buy.
  • gentleman11 5y ago
    In this context, people are basically saying it’s okay steal $7000 from a customer they don’t like, and upvoting each other for the sentiment. The only reason it’s not criminal is because it’s a powerful party doing it to a weak party. Imagine if a homeless man took $7k of amazons money - the police would be involved instantly and there would be jail time
• chakhs 5y ago
  Not sure I follow, if this happens to some customer (who are in the right) they shouldn't get a refund? And this is considered just because it saves investigation spending? If Amazon chooses to refund without question to save disputes money, that's their choice. But it's not the customer's problem. If you pay for something and you don't receive it, you must get refunded.
• cm2187 5y ago
  I don’t think that’s the case. I spent tens of thousands of dollars on amazon over the years and had a similar bad experience than the author. I doubt they treat customers differently depending on how much they spend on the site.
  • musingsole 5y ago
    While they may not do so exactly in the manner described by the GP, it's naive to think Amazon doesn't give differential treatment to select customers for reasons directly related to income from those customers. Behaving otherwise would just be shooting yourself in the foot for weird ideas of fairness.
• mlyle 5y ago
  "LTV model of 'justice' here is, in my opinion, a lot lot better" Sure, it is, when you're rich. If you're some poor bastard who's scrimped up a whole lot of money to buy an expensive item, and Amazon figures you won't spend much money in the future, you get ripped off. There's a couple of externalities you've left out, too, because your LTV doesn't predict them: * Reputational costs * Risk of adverse legal outcomes, where you decline to provide deserved refunds after failing to deliver merchandise.
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  • jquery 5y ago
    If a rich person went onto Amazon and bought something 50 times more expensive than anything else they’d ever purchased and claimed it didn’t arrive, Amazon would drop them like a hot potato. You’re talking like there’s no legal recourse (or even financial, like a chargeback). There simple aren’t enough resources to track down the source of every sob story, the hard truth is this “inhuman” efficiency is a huge boon for the vast majority of us.
    • mlyle 5y ago
      A bare minimum level of diligence is required before denying a claim. Else you -should- run into bad faith, punitive damages, action from regulators, etc. It's not some super magical extensive investigation to realize that you shipped a box that weighs much less than the item and that there's likely a big problem. There may be very valid reason to shortcut claims and to grant dubious claims of high value customers. But you really shouldn't just ship an empty box and say "sorry, you're not getting your money back unless you sue us". (And worse, break the customer's existing digital content if they do, because you can hold it hostage). I mean, I get that it's financially appealing to externalize the costs of in-warehouse and in-transit shrinkage to random low-value customers, but brah-- that's just not right.
      • vl 5y ago
        It worked as it should have been - situation got resolved and on top of that Amazon got reputational damage.
• birdyrooster 5y ago
  So what you are saying is instead of getting emotional, we should get even by reverse engineering the LTV algorithm and “lose” packages as often is still profitable for Amazon so we can buy things at near cost from them?
• zzleeper 5y ago
  I think overall Amazon is making a mistake. When I interviewed with them a few years ago, they were well aware of the risk of short-term best choices being bad in the long term (can't elaborate due to NDAs). For instance, in the short term it's better to take the loss instead of investigate. But that then makes your platform an easy pick for fraudsters, so you end up with way more fraud and way more costs overall. If you were a bit more thorough and spotted scammers better, you would have a higher cost _per incident_ but lower cost overall in the long term. This is particularly true if you are such a big player that you are the market in practice (so general equilibrium effects cannot be ignored anymore). And reminds me a bit of what eBay did in the past (sided with buyers almost every time without investigating, and made selling much more difficult).
• dingosity 5y ago
  Meh. I ordered over $6k from amazon in 2017 and in 2018 they stiffed me on a $69 part. I think this algorithm is probably "mostly true," but there are corner-cases where they just mess up and don't refund small lost purchases from people who buy a lot of stuff.
• mananaysiempre 5y ago
  While what you’re saying about how it works sounds extremely plausible, I am rather dubious about the idea that this is how it ought to work (and the inference that this is simple, therefore it’s how it ought to work). Taken to the extreme (and I don’t see anything in the argument that prevents it being taken to the extreme) and combined with acceptance of utility functions (_i.e._ that the value of anything is comparable to anything else, including human lives) this seems to also reduce any and all rule enforcement to wergild or something radical in that vein. Which—I’m not sure how it worked historically, but it also seems to be the current state of patent law (it doesn’t matter if the patent has merit, the side with the better and more expensive lawyers will starve out the other), and the results look utterly miserable. Vague generalities aside, the complaints (and hypothetical downvotes) seems to indicate that, however simple and transparent a rule this is from the inside, people don’t want to pay for what is not their fault (cf experiments where people rejected a $1/$99 split in favour of a $0/$0 one to punish the other guy). I’m reminded of people queueing up in droves to the first McDonald’s in Moscow nor for the food or the prices, but for the customer service, because that was literally the first time in their lives they could get that anywhere. Unless it’s marketed as a luxury good, people will actually pay for decent customer service that, among other things, satisfies their sense of fairness. That a model which does not reflect this can be simple is not a virtue of that model, it’s shoddy model-building. Not providing that service might still be the better economic decision (with caveats), if few enough people end up bitter over it (and complain on HN, etc.), but that’s a much more involved claim than “but it’s so simple!”. It also has very little to do with its moral merit, and if the better economic decision is too far from the moral one, it may well be time to go tune the incentives again and not to give up on your set of morals. I’m not convinced customer protection regulations are the answer here, but the results of no customer protection regulations also seem completely idiotic from the outside. The third option of piling upon the company online also seems revolting for entirely different reasons.
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• chmod775 5y ago
  At some point Amazon shipped me 5 CPUs in five boxes in a larger branded box instead of just one. I sent four back and didn't even get a "sorry for your trouble". I wonder if that factors in somehow. I also wonder - since the box containing five CPUs looked like a "single product" box - how often that must have happened.