Data-Driven Pricing: Biting the Hand that Feeds

Data-driven-pricingWe hear the claim all the time: Online shopping gives you the best opportunity to find the best pricing on goods.

But here’s the rude reality: Developments in “data-driven pricing” is putting the lie to that assertion.

Although it’s a turn of phrase that hasn’t received very much play – at least until now – data-driven pricing is the latest method by which sellers are hankering to extract every last dollar they can from buyers.

Think of it as the digital version of global zone pricing in the petroleum industry, wherein gas companies charge filling stations in well-heeled areas more for the exact same gasoline product that they sell for less elsewhere.

But in the digital realm, online retailers like travel sites are keeping track of customer IP addresses and recording past shopping activities in order to serve up higher prices to the people who are interacting with their sites.

These retailers are taking customer loyalty … and standing it on its head.

Using browsing and shopping data collected about each customer – including every time a site is visited via Google search results – retailers can determine in real-time if they can get away with charging a higher price.

And that may well be why you paid $75 more for your air ticket than the person seated next to you on the plane who also purchased their ticket online on the exact same day.

Now, this scenario isn’t universally true. When there are many retailers to choose from on a particular item, along with ample supply of a good, the consumer can usually hold out for the lowest combination of price, shipping (hopefully little or none), and sales taxes (hopefully none).

But on items ranging from airline tickets to concert tickets, the online consumer is often up against a stacked deck.

Believing that online shopping is the slam-dunk way to extract the lowest price from the retail channel is a notion that’s out of date at best … and naïve at worst. Simply put, data-driven systems have gotten a whole lot “smarter.”

Some consumers might respond by hesitating before buying – no longer assuming that the price they’re being offered is the “lowest available” one.

So here’s a question: When consumers become more cautious about buying online, who’s hurt more?

The consumer? Or the suddenly smarter retailer?

One Response

  1. So, here‘s the deal … actually a couple of things:

    Truth in advertising would imply that advertised prices are what they are. Surely, there is small-print hidden behind small-print that everyone who purchases online “accepts” when hitting the [confirm] button. However, not all clauses signed by people are legal. The fact that [confirm] also agrees to arbitration in case of disputes and therefore makes it financially nearly impossible to contest pricing unless it ranges in the thousands, that arbitration clause gives the muscled seller definitely the upper hand. But does it make a right out of a wrong?

    But we don’t need to go online to detect the betrayal of a buyer’s trust. Just go as far as your local supermarket and look at volume pricing. When you look at a 10 lb bag of potatoes and a 5 lb bag and a 15 lb bag, the silently accepted logic would suggest that the per-pound price decreases as the quantity increases. But that is mostly not the case precisely because people expect it. Expand you research to jars of olives, noodle — really anything.

    Another fallacy is the assumption that prices in affluent areas are higher than in working class or lower income areas. In fact, it is often the opposite. The better educated and more money-conscious person is more keen about pricing and will not buy secondary goods for prime prices.

    I experienced a clear example of this when I lived in the S.F. Valley and shopped two supermarkets of the same chain on the same street, only 3-4 miles apart. You guessed it, the same general food staples cost more (up to 30%) in the lower-income area than in the store close to “the boulevard” and the sophisticated Hollywood Hills houses.

    Phone companies, as another example, have so-called “retention departments” for the purpose of making deals with customers in order to make them stay with the service provider instead of changing to one with better features or for less or both. But unless you know that and become a squeaky wheel and demand to talk to a supervisor and hold out, you will not get the five extra features and five thousand minutes credit.

    The bottom line: The consumer is considered fair game and will be taken advantage of unless she or he has the means to discern an unjustified disadvantage and make other choices.

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