Delta Air Lines’ recent decision to adopt personalized pricing has reignited discussions about the balance between profitability and customer privacy. This practice involves setting prices based on individual customer data, raising questions about how far businesses can go in charging differing prices for the same goods or services.
Differentiated pricing is not a novel concept; discounts for students and seniors are well-known examples where prices vary based on general characteristics. However, personalized pricing takes this a step further by analyzing an individual’s unique information. According to John M. Yun, an associate professor of law at the George Mason University Antonin Scalia Law School, “It’s a form of price discrimination… prices are tailored to a group or even an individual based off of their characteristics.” These characteristics can include location, age, or even spending habits.
What distinguishes personalized pricing from traditional price discrimination is that the disclosure of personal information is often inferred rather than voluntarily provided. Customers may not explicitly share their status; instead, merchants deduce details from online behavior, device usage, and purchase history. Yun emphasizes that this method contrasts with dynamic pricing, which alters prices based on market conditions, such as supply and demand.
In 2019, Target faced backlash when it was revealed that customers browsing online in-store were offered different prices for the same television than those looking from a remote location. This incident highlighted concerns over privacy, as customers were unsettled by the retailer’s ability to factor in location when determining prices.
Yun notes that effective personalized pricing strategies aim to understand customers’ willingness to pay. “That’s really at the heart of this,” he explained. For example, students often receive discounts due to their generally lower financial means. Tailoring prices based on individual financial circumstances can incentivize participation in the market.
However, the underlying issue may be the perceived invasion of privacy. Yun stated, “It’s a privacy violation, and I don’t want to worry that I’m paying a high or even a lower price one day compared to my neighbor.” This sentiment echoes a broader concern regarding how consumer data is utilized.
Consumer Acceptance and Market Dynamics
The acceptance of personalized pricing may ultimately depend on consumer sentiment. Following Delta’s announcement, American Airlines CEO Robert Isom publicly criticized the practice, labeling it as deceptive. From an economic standpoint, personalized pricing can enhance a company’s profitability, but Yun identifies several challenges that could hinder its widespread adoption.
First, consumer acceptance plays a crucial role. If one retailer implements personalized pricing while competitors do not, those rivals could attract customers who are uncomfortable with the practice. Secondly, competitive pressures could limit the implementation of personalized pricing. Companies may hesitate to adopt strategies that might alienate consumers.
Additionally, Yun points out a societal stigma against personalized pricing that could lead to backlash against companies employing such tactics. For instance, Uber faced allegations of charging different fares based on the battery levels of riders’ smartphones, which raised ethical questions about pricing strategies.
Yun notes that the implications of personalized pricing can vary throughout a consumer’s life. For instance, a young person might benefit from lower prices, while an older individual may find themselves at a disadvantage. Moreover, even without personalized pricing, companies often use dynamic pricing, targeted discounts, and product steering to influence consumer behavior.
Current regulations can address unfair pricing practices if personalized pricing becomes a widespread issue. Authorities are particularly vigilant regarding antitrust concerns, especially when companies use algorithms to manipulate pricing based on competitors’ data. This was exemplified by the case involving RealPage, which is facing legal scrutiny for alleged antitrust violations related to its pricing technology.
Ultimately, the debate surrounding personalized pricing raises essential questions about consumer awareness and choice. Yun provocatively suggested rebranding the term to “bespoke pricing,” but acknowledged that this would not resolve the core issues. Transparency in how consumer data is collected and used is vital for informed decision-making in the marketplace.
“Do consumers have enough information to make a disciplined and informed choice about companies and brands that engage in a certain pricing practice?” Yun asked, emphasizing that while consumers should be concerned about personalized pricing, the concern does not equate to a blanket condemnation of the practice.
