Six Pixels of Separation - The Blog
November 23, 2012 2:34 PM

The Future Of Personalized Pricing

Should every customer pay the same price for something?

Before answering that question, ask yourself this: should every person see the same search results? Truth: we live in a world of radical personalization. Google is doing everything it can to optimize the search results you see. They're not just doing it to ensure that you have a better search experience, they're doing this to drill down and find a more effective way to deliver more targeted and relevant ads to you.

Don't get mad at personalization.

It's somewhat ironic that when you ask consumers what type of advertising they would be most responsive to, they will always say advertising that is relevant and personal. When, marketers finally deliver on this dream, we're told that the personalization comes off as some kind of slimy vibe that bears a whiff of privacy sketchiness. Not good. Personalization can work like a charm, only when the marketer provides such a high level of value for the experience, that this value overrides any icky feelings of privacy awkwardness. Don't believe me? Just ask those playing in the loyalty marketing space. So, if the world is all about personalization, shouldn't the pricing be subject the same kind of practice?

Mess with prices... and you mess with the future of your business.

Is price everything? Is it fair that one person pays more for a product than someone else? What about the consumer who buys a product only to find out that it has been heavily discounted a few months later? Too bad? That's the price of admission? Change the scenario: what if technology, our consumer data and our social data could be combined to create a kind of super profile of a consumer. A profile to end all profiles. The brands now know everything about you: when you buy, what you typically spend and more. Should everyone still pay the same price?

Enter personalized pricing.

What does Amazon know about you? In short, everything. Once you are logged in, they probably know more about you (from personal data and buying habits) than any other retailer. What if pricing was created for you based on your online performance (not just what you spend, but how much your interact with third-party media and beyond)? How would you even know if the price of a book was the same or similar to someone who is buying the exact same book in another state?

It doesn't sound all that ethical (or fair) does it?

BBC News published the news item, How technology opens the door for personalised pricing, to look at these specific issues. From the article: "The Office of Fair Trading (OFT) wants to know more about personalised pricing. This occurs if a retailer offers different prices depending on information they have collected about that customer. This is done primarily in two ways. Firstly, retailers can collect details of a customer's previous purchases made on the website. Secondly, they can buy information about the customer's purchases or internet searches from a third party. New rules are in place to give consumers more control over their personal data. The OFT wants to know if consumers are aware that all this data is being collected about their shopping and searching preferences, as well as if this puts consumers off buying on the internet. The regulator says that there is no evidence, but a lot of concern, that this information allows retailers to charge a higher price to certain customers."

In a digital shopping world, expect personalized pricing to become a major issue.

As technology advances and the speed of algorithms continues to increase, an online retailer's ability to leverage data and analytics to change from moment to moment is a reality. Don't think for a second that the majority of online retailers don't currently engage in price testing experiences already. You may recall that back in August, travel site Orbitz discovered that consumers who use a Mac spend nearly thirty percent more per night on hotels, so the online enterprise begun showing Apple users different prices (for more on that: On Orbitz, Mac Users Steered to Pricier Hotels). As online sales continue to increase, and mobile commerce moves out of its current nascent state into a more ubiquitous role in the hands of the consumer, it seems like an inevitability that personalized pricing will be both pervasive and a major issue for consumers and consumer advocates.

Next steps?

Both marketers and retailers are going to have to take the lead here. Instead of trying to brush it under the carpet, they are going to have to be more transparent about how their price structure works, and how that varies from physical store to digital entity, and from location to location, and person to person. If they don't (and something tells me that they will not), it's going to force government intervention.

And, we all know how well that winds up working out for the consumer. So, what do you think: should everyone pay the same price?

By Mitch Joel


Comments Comments Feed
  • Posted by Clay Hebert
    Mitch Joel

    Great post, Mitch.

    Like you said, personalized pricing isn't just coming, it's already here. It's just going one level deeper than we're currently used to.

    1. Nobody bats an eye when senior citizens get 20% off their coffee or breakfast.
    2. We know that frequent travelers with diamond-level status get price breaks or extra miles or perks.
    3. Hotels like The Palms in Las Vegas are giving deals and upgrades to those with certain Klout scores. Companies like ReviewPro are building Klout integrations into their platforms to help them do it.

    Where most consumers get hung up is the "fairness" issue. All of the above examples are groups (senior citizens, frequent travelers, those with a certain Klout score).

    But when brands apply similar consumer data at a personal level (consumers see a different price on mouthwash at Target), we get riled up about fairness, even though Amazon does the same thing.

    I think it's going to get more and more personalized and (personally) I'm all for it.

    Here is a great NYT article on Safeway grocery stores executes personalized pricing through personalized coupons, a smart way to achieve the same result without changing the tag on the product in the aisle.

    http://www.nytimes.com/2012/08/10/business/supermarkets-try-customizing-prices-for-shoppers.html?_r=2&


    Reply
  • Posted by Salma
    Mitch Joel

    In the services industry personalized pricing already exists. When dealing with customers businesses will typically (sometimes radically) alter their prices to reflect elements such as: high risk job, rush job, problem client, and other factors. So I definitely think price personalization is coming soon to physical products as well. The way pricing ultimately works (or at least how its supposed to work) is to assign a value - a figure - to a solution. So if I'm willing to pay $ for a commodity, but maybe you're willing to pay $$$ for the same thing - so why shouldn't the retailer price it differently based on the diffferent values we have assigned to the same commodity?

    Reply
  • Posted by AC
    AC

    I can see this working for rebates but it would have to be clearly identified - "you're getting X% off because of Y".

    Anything more opaque - or god forbid, upward price adjustment - would be essentially impossible to implement, since you could just ask other people what price they see.

    Reply
  • Posted by Yaseen Dadabhay
    Mitch Joel

    Great article Mitch ! Definitely agree that going forward online retailers need to be more open and transparent with customers.

    But i still wonder (and maybe i am missing the point) , but why the concept should be different from what is happening with brick and mortar retailers and offline business practices.

    As businesses we already collect information about customers in our databases and CRM's, and we make pricing decisions based on this data. We sell at different price points to different customers all the time in the offline world. We segment customers and give different pricing structures/volume discounts etc all the time - so apart from the transparency issue, how would this be different?

    Reply
  • Posted by Dave
    Dave

    Just to correct something that's slightly misleading - when you say "the online enterprise begun showing Apple users different prices", that's strictly correct but gives the wrong impression of what was happening. What Orbitz did was show people different products (i.e. ranked pricier products more highly), not different prices for the same product. Note that the WSJ article states "the company isn't showing the same room to different users at different prices".

    Reply
  • Posted by Tim_Britt
    Mitch Joel

    Government Intervention doesn’t always spell bad news for consumers and if the focus is on finding equilibrium between supply and demand then it can often work in favour of the purchaser.

    Using data to supply personalised adverts is something we’re all becoming used to and I think Dave makes a good point about the Orbitz example. Using the data that retailers capture to supply products that are more likely to be of interest to certain demographics seems to make good sense and we already pay a form of personalised pricing dependant on where we decide to shop.

    If a supermarket could change its shelving layout for every single customer based on what they know about them I don’t think we’d be too upset as we’d see it as a way of the retailer seeing us as individuals. As long as people are given the chance to opt out of supplying their information and being tracked for future purchases (re cookie law) then their has to be some acceptance in the variance of pricing as the alternative is to lose the free market.

    Reply
  • Posted by Kent
    Mitch Joel

    Personalized pricing is happening now. When I did book shopping online (for a website that I frequently shop), I always get better discount from my friends (who seldom shop on the same website).

    Reply
  • Posted by Steve Major
    Mitch Joel

    This is an interesting topic. As some of the comments have said personalised pricing is already here in other spheres than the web.

    It seems that we feel that the choice is taken away if the algorithms just control what pricing .

    I totally agree that retailers and marketers will have to take the lead but also agree that they may not. Then we will see messy regulation.

    All pricing is contextual. Value is always subjective. Marketers must never forget this

    Reply
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