‘Personalized pricing’ means the price isn’t the same for everyone

An online shopper may get a different price, depending on who they are - ConsumerAffairs

Your cost may be more or less, depending on the data that’s been collected about you

When Uber introduced “surge pricing,” charging more during peak times, it was met with opposition and some uneasiness on the part of consumers. But Uber pointed out that airlines do the same thing, and have for years.

But now marketers have taken the concept to another level. The price may vary, not because of when you are buying, but based on who you are. If the data about you suggests you are able to pay more, it’s likely you’ll be charged more.

The concept is called “personalized pricing” and corporate America is beginning to adopt it. It’s the same as when a handyman gives you a quote for doing a household job. He might look at your car, your house, your haircut and the way you’re dressed to determine what you might be willing and able to pay.

With personalized pricing, the handyman has access to a lot more data about you he has scraped from the internet. Cache Merrill, the founder and CTO of Zibtek, a software development company, says artificial intelligence (AI) makes personalized pricing even more effective. He think consumers are going to see more of it.

‘Maximizing profit margins’

“As technology evolves, so too does the capacity for businesses to segment their markets more finely than ever before,” Merrill told ConsumerAffairs. “This granularity not only allows for pricing models that can vary from one consumer to another, based on predictive analytics, but also makes it a tempting strategy for maximizing profit margins.”

Daniel Lynch, CEO of Empathy First Media, a marketing company, says websites that sell products were quick to evolve to serve up more personalized landing pages to visitors, based on collected data of the visitor’s engagement, behavior, and enriched data.

“Shopify and various e-commerce platforms already provide headless CMS integration that enables retailers to swap out images, content, and pricing specific to each website visitor,” he said.

Lynch says don’t be surprised if streaming services, such as Netflix, start using data to personalize recommendations and pricing to each user. However, consumers and marketers may not see the concept the same way.

A consumer revolt?

Consumers may believe the price is the price, no matter who you are. PA Consulting’s consumer pricing expert Michael Thompson says price discrimination was previously used mostly in big-ticket transactions, such as buying a car. He notes that colleges offer different aid packages to different students, based on what they can pay. Thompson says expanding price discrimination to hundreds of small transactions risks a consumer revolt.

“That’s the lesson from Wendy’s recent interest in, and retreat from dynamic pricing,” Thompson told us. “Consumers value transparency and consistency in pricing. For those reasons, in most categories, personalized pricing is picking up pennies in front of a freight train – not worth the risk."

Matt Voda, CEO of Optimine Software, says many sophisticated brands already measure and predict the value of each customer and then tailor services, product access, customer service levels, pricing and promotional offers based on this predicted value. But he agrees that some may hesitate to widely adopt personalized pricing.

“The negative public relations backlash from offering customers different list prices is a significant risk and many brands won't want to end up on the wrong side of this kind of viral backlash,” Voda said. 

“Even with great technology to conduct dynamic customer-specific pricing, there's also frictionless social media where consumers can post this type of pricing, and the market reaction is expected to be very negative for the brand. Also, in heavily regulated industries there are rules to prevent profiling and pricing based on certain high-sensitivity criteria so the risks are even higher for those businesses.”

In spite of the potential consumer backlash, Dr. Shawn Daly, a marketing professor at Niagara University, thinks we’ll see more personalized pricing as time goes on. 

“E-commerce, hospitality, and entertainment industries are among the most likely to adopt personalized pricing strategies,” Daily said. “Online retailers and service providers such as Amazon and Booking.com already use dynamic pricing models that adjust prices based on consumer data and behavior.”

‘Disturbing concept’

From a technology standpoint, Dominic Chorafakis, principal at cybersecurity firm Akouto, finds personalized pricing a “disturbing concept.” For consumers who want to prevent marketers from learning too much about them, he says there may be a few things they can do to cloak themselves. But he notes that it’s not easy.

“Consumers can certainly try to limit the amount of information that they make available, but a complete avoidance would be the digital equivalent of going off-grid,” he told us. “Every time you post something on social media, every time you ‘like’ a video, every app you install is another piece of data businesses collect. Completely opting out would mean no longer participating in the online world which isn’t really a viable solution.”

His advice? Be selective about what apps you install, and even more selective about what permissions you grant them. 

What to do

If an app requests permissions than seem unreasonable, like a restaurant app requesting access to your contacts, you should probably delete it, he says. 

When creating online accounts, think about the information you are sharing, ask yourself does this retailer really need to know when my actual birthday is or where I live? 

Take advantage of the privacy settings in your browser, like enabling strict tracking prevention, periodically clearing browsing data and avoid installing browser plugins unless they are absolutely necessary. 

“In general be very careful about the information you share online whether through social media, surveys, or signup forms,” Chorafakis said.

In the meantime, the answer to the question posed in the old song “How much is that doggie in the window” may be, it depends on how much data about you the pet store has.

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