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