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Privacy Incursions to Support Price Discrimination
An anonymous reader writes "BusinessWeek has an interesting interview with academic Andrew Odlyzko about how increased corporate spying will inevitably lead to targeted pricing and how this system can be abused." The paper (pdf) makes interesting reading. Very good insights into the reasons why businesses want to get to know you.
Couldn't this be turned around by making false online identies? Tailoring it to garner the best prices?
Now don't you go getting any ideas...
Actually, my last job was as a pricing analyst, and it was all about this topic. How to price differentiate while staying within the bounds of the law. Arguably this increases overall economic efficiency.
Felt kind of weird, however, trying to figure out how to wring every possible penny out of the small buyers but coming back, while at the same time keeping the national accounts in check with huge price reductions (50% or more). The 3rd factor is making sure that the little guys never knew about the big boy pricing, or at least never knew more than the fact that buying more could be a positive thing for their own price structure.
Keeping small guy prices high is easy.
Keeping big guy prices low is easy.
Keeping the both happy customers is not.
I see some major potential for abuse with this. What if a compant decides it does not want to sell to people of certain ethnic backgrounds (French and Arabs, for instance), and raises its prices for those people to a million dollars?
"Do I dare disturb the universe?"
This is very similar to the targeted prices of DVDs (region-coding). It's definitly a good thing for corporations (making people with more money pay more while still having access to lower-income markets), but there are obvious implications...
Of course, barring poor legislation, there are always ways around this sort of thing. If $product is available somewhere for less, I will be able to find it somehow (thank you Internet!) regardless of a corporation's efforts to trick me into paying more.
Right now, I have a region-free DVD player (flashed APEX), a region-free PS1 (stealth chipped), etc...
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Ever been asked to provide some "promotional code" from an ad before getting a price? Different ads have different pricing. Giving loyal customers better prices is common. Airline pricing seems fair to me. A business that makes me travel on short notice pays through the nose. Joe blow who plans his vacation well in advance gets a better price. Buyers beware same as always. Well informed consumers get better deals. That won't change. The people who don't like this want everyone to pay the same shitty prices. They want to remove all responsibly for getting the best price from the actual consumer.
Targetted pricing allows people who could normally not afford it access to products they couldn't normally buy. And it despite what it seems, it doesn't raise the price for others - they would be having to pay this price anyway but now others also have access. It may even increase the value of the product they buy because if more other people are using it, in some cases, compatibility issues stop hindering its usefulness.
You are exactly right. The consumer still has control of the decision to purchase- but the transaction is now more personal.
I can remember shopping in the Philippines- each clerk had a calculator in hand to show you the price of an item- so that other customers would not over hear. Each transaction stood on its own and you might do better or worse than the person standing next to you.
It's hard to believe that's how Micronians are made. Why don't we see it right now by having you both kiss one another?
Until an unplanned meeting with some black ice and a nearby tree, I used to own a Jaguar XJR. Now, big luxury cars depreciate fast and this Jaguar was seven years' old at the time of its demise. In other words, most people's year-old hatchbacks cost more than this car's second-hand value.
Despite that, the majority of people I dealt with who saw the car decided that I was obviously stinking rich, available to be fleeced and took the opportunity to try and rip me off. This would include car mechanics to a small extent (it was main-dealer serviced most of the time, you get ripped off there anyway) but also to workman calling at the house. Prices quoted for the same job varied enormously depending on whether I left the Jaguar parked outside the front or whether we left the MX-5 (Eunos Roadster/Miata by another name) parked outside.
Price discrimination? Yep, know all about that.
Cheers,
Ian
It pisses me off every time I'm in a store, but I only get really angry when the checker says something like 'Sir, you would have saved $15 on this purchase if you had used your discount card. Would you like me to give you one now that I'll use for this purchase.' If I have to pay outrageous fines to maintain my privacy, I'd rather not know how outrageous they are.
Recently (probably as complaints have risen from my demographic), most of upscale markets in our area have started granting the discount anyway if you tell them that you value your privacy, and they swipe a register card instead. Presumably they now are collecting data on privacy freaks, but at least it is as a group rather than as individuals.
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I do see the problem that might occur here, and you do bring up a very valid point, but this relative payment size is not a bad thing. In a world where the rich are filthy rich and the poor are dirt poor (and I truly believe the gap between the rich and poor is increasing), it doesn't neccessarily seem like a bad thing for targeted pricing to workout, so long as it's not an egregious attack on the value of their services.
It's sort of like a builtin tax system. Taxing is relative to the amount you make, and it seems to work pretty well. If you break down and need a tow truck service, they might come and give you coffee while they pick you up, and charge you a bit more. It's for a reason: you can afford to pay more.
But now, don't go crying, "well damn, the rich kids aren't going to be able to get things anymore!!" You're missing a fundamental point of capitalism if you do: COMPETITION. If, and only if, one company has monpolistic control over a market then they can control pricing. And if they do, they'll get in trouble. If they don't have monopolistic control, the safe guards of free economy will come in and ensure prices aren't inflated.
I'm just a diehard liberal, and I want the rich taxed off their thrones, and targeted pricing is something that doesn't seem infinitely evil to me. At the same time, I do realize that free economy will keep rich people from becoming less rich.
No, it is not totally legal in all cases. It is illegal to charge blacks higher rent because you think they'll trash the place, or charge the elderly more for auto insurance, even though they're a higher risk. In some cases voters place other values over economic efficiency.
Utilitarians would also argue along those lines for a massive reduction in trade barriers, and in large part they'd be right (IMHO). The decision on such matters, however, does extend beyond dollars and cents. There are other factors (social stability, national security, cultural tradition, etc.) that don't fit into the economic model yet play a role in setting policy.
/. has the sig along the lines of, "all models are wrong, some are useful." A very good thing to keep in mind...
I can't recall the user, but someone here at
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Advertising doesn't work on me. It usually just makes me not want to buy things.
:-)
So things like the bandwagon tactic (convincing you to do/think what everyone else is because everyone else is doing so) don't work on you, eh?
As you sit on Slashdot and join half the people on here in griping about privacy?
Advertising definitely works. If you see a brand frequently, people tend to consider said brand more reputable.
May we never see th
Did anyone stop to think about the good implications of targeted pricing?
Right now, the warez and mp3 and all of those things exist because college students and others do not have the funds to buy all of the media and copyrighted material they want access to. There is a glut of material on the market, all priced exactly the same.
Targeted pricing would allow media companies, pharmeceutical companies, and anyone else to sell to someone at the appropriate amount for their economic group, background, and other things factored into this.
theoretically, in an abuse free system, targeted pricing could be the answer to many of the current social problems in a market where everything is set at the same price.
Right now, development of drugs is funded by the pockets of rich nations. IP laws keep small and poor nations from producing these medications for their citizens. One shining example of this is aids medication. If a system were developed to encourage targeted pricing, then it could conceivably still fund R&D while providing people with what they need.
This also applies to getting what people want, with copyrighted media. Targeted pricing would allow for the college student and others to get legal access to media they want access to, and apply appropriate pricing to those with more economic power.
it really sounds ideal to me. however it has major problems.... privacy, and trusting those in charge. both of which are impossibilities.
conversely, we've already lost all of our privacy, and those in charge are corrupt anyway, so its not like we have anything to lose either way.
Yes... But now we can cost-target how much your lawyer will screw you out of!
While being a bachelor here in Toronto I learned an important lesson in buying meat and how it is priced. Go to a rich neighborhood to buy your hamburger and go to a poor neighborhood to buy your expensive meats (steak, filet). What was interesting was that the quality of the lower cost meats was generally better.
When I got married, my wife didn't believe this until I did some comparison shopping with her. I suspect this is true in other cities as well.
myke
Mimetics Inc. Twitter
Interesting precedent you cite.
Is it legal to charge blacks more for basketball tickets than one charges whites? (Or to charge whites more than blacks at NASCAR events?)
If you're about to say "no", what about "Ladies' night" at your local watering hole - males pay a $5 cover charge, and females get in free?
And if you still say "no", how about "We don't even have skin color, name, or address in our database of loyalty-card purchases. But we found can charge higher prices for watermelon, chicken, and collard greens to consumers who also happen to be regular purchasers of Jheri Curl hair care products. Likewise, our data shows that we can charge a premium on Pabst Blue Ribbon, Budweiser, and 'wifebeater' undershirts to consumers who are regular purchasers of NASCAR memorabilia. Race has nothing to do with it."
Even if we assume the real-world data actually supports the stereotypes I (ab)used in my example, the freaky part is that race really doesn't enter into the equation. The goal is to maximize margins from everyone - a black guy who drinks cheap beer and loves NASCAR events gets gouged the same way as his white-trash neighbor :)
Insofar as accusations of racism go, your grocery store shouldn't care if your skin is pink or brown, so long as your money's green.
Targetted pricing is a way for companies to supply goods at prices the market will bear.
This will allow them to charge the wealthy what they are willing to pay for a product (more) and charge everyone else what they can afford to pay for a product (less).
So, capitalism will, due to targetted pricing, become the self regulating thing that it should be and finally narrow the gap if not between the rich and the poor, at least between the haves and the have nots with more equal distribution of goods due to pricing pressures.
(seems kind of ridiculous, eh? This is the logical conclusion of what people are paniced about. The fact is that targetted pricing is a fad and will amount to nothing because markets work at a macro level and will force *all* prices to competetive levels)
For individual price fixing to work, it has to appeal to the consumer on a number of possible levels:
- Product appeal
- Convenience
- Value (or apparent value). Why do you think all those do-dads on TV include "free" items? To build value into otherwise worthless junk.
- Impulse purchase
- Level of trust
- Time limited offers
Any experienced on-line purchaser or consumer usually has a rough idea how much certain items are worth, i.e. CDs, movies, etc. This is why I don't think price discrimination will feature large differences is price. It's easy enough just to call down to my favorite music store and ask how much a particular movie or CD is before I purchase on-line, or check other web sites. The point is, comparison shop. If you shop around, the most a price discriminator could get away with is a few dollars, not the amounts that some people have indicated here, but YOU HAVE TO SHOP AROUND. Whenever I am considering a large on-line purchase, I compare the price to what is offered at a local store.
The problem, of course, with shopping around is it entails effort and many want the web to be effortless, so they impulse buy or worse yet trust the deal that's offered to them without shopping. It's the same in the real world, you have to comparison shop.
What I think you will find instead of huge price fluctuations is package deals and specials tailored to the individual consumer. I see nothing wrong with that, actually it quite appeals to me. I regularly receive specials from an on-line electronics dealer that I frequent and have taken advantage of quite a few of these specials, after comparing prices first.
My 2 cents.
To wit: imagine the "Preferred List" technique, where you and Mr. Jones receive a catalog. There is a product which normally lists for $700, but Mr. J's catalog has it for $500, where your catalog has it for $600. This is unfair. However, imagine being in an online auction for the same product. He bids $500, you bid $600. You win, AND you save money.
The only difference is that you feel superior in the auction method due to beating a number of people, whereas in the Preferred list method, you feel inferior due to being excluded from a perceived "gift".
Can ultra efficient price discrimination limit and eventually prevent entries into a market?
Imagine that Amazon.com succeeds in charging you exactly what you'll pay for. This means that you'll see their price, you'll consider it, and, WHAM, you'll click on the patented, novel, Buy(TM) button.
Now imagine that a new, energetic startup, Nile.com, decides that it wants to enter the internet book-selling market. It, not having the resources that Amazon has, is forced to use a "one-price-fits-all" strategy. Nile, by the laws of economics, will not be as efficient. And less efficient companies will lose out to more efficient ones, again, according to the laws of economics.
So all Amazon.com has to do to prevent Nile.com from gaining market share is operate at a high efficiency whenever there's a competitor. Once the competitors are toast it can go back to acting like a monopoly. The difference here is that NO ONE WILL EVER KNOW. If you don't know what price your neighbor paid, how can you claim that they've raised prices? Especially in a world where raising prices can actually mean not lowering consumer prices when distributor prices fall.
You're always happy with Amazon's price (remember this is a perfect price discrimination structure), so there's no incentive to look elsewhere. Amazon.com just keeps the excess profit from falling prices and only lowers them when new companies enter the field.
Bingo, a perpetual monopoly, one that can't be broken by anti-trust laws and investigations. Or am I seriously wrong in my theorizing?
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But the Elderly #1 Vote, #2 have lots of time top write their Elderly congressional reps, #3 Vote, while Teenagers, #1 have NO MONEY, #2 don't vote, #3 can't vote, #4 are teenagers, and by that definition heniously evil beings from another world put here to annoy old people, in the eyes of most old people :)
:)
Could you imagine the lawsuits that would ensure if you offered at young people ONLY community, no one over 55 allowed ?!? and yet having one that allows ONLY people ver 55 is OK
errr....umm...*whooosh* *whoosh* Is this thing on ?
about three years ago. It was reported in the NY Times. They were charging for DVD's based on past spending habits. If you were known to be willing to pay a lot for a DVD you saw the higher prices.
There was a customer uproar and a threat of a class action suit. They publicly recanted and said "never again."
If not, is it legal to have a lunch counter with only $100 lunches, but a 95% discount for whites? Or a University with $1,000,000 yearly tuition but a 90% discount for whites?
And if none of the above is legal, then I submit that other forms of Price Discrimination should be illegal too, be it gender, income class or anything else.
I'm an American. I love this country and the freedoms that we used to have.
You keep mentioning "discounts." Well, what's a discount? You sure the "senior discount price" isn't the real price, and there's actually a "middle-aged person surcharge?"
People were upset with Coca-Cola Co. when they introduced the coke machines that would automatically increase the price when it got hot. Idiots...they should have marketed it as a discount. Coke machines that automatically lower the price when it gets cold. The prices would still be the same...say $0.50 for cold, $0.75 for hot, only the marketing is different. Then they'd be a consumer-friendly company that "gets it," instead of a price-gouging villian.
We don't have a state-run media we have a media-run state.
Maybe I'm understanding this incorrectly, but I find it odd that this discriminatory pricing is a "holy grail of capitalism". I can understand how it would benefit a corporation (at least in the short run) to wring every last penny out of its customers, but think about it from a slightly different angle:
Assume for a moment that consumers place the highest value on specific goods, like water, food, housing, and transportation. Assume also that fringe goods (computers, clothes, entertainment) must, by definition, be valued lower than more basic goods. In an economy where pricing of basic services is discriminatory, the providers of basic goods will be able to raise their prices on an individual basis, according to the consumer's ability to pay.
Given the nature of these goods, the providers should be able to raise their prices to consume all of their customers' available income. There are no substitutes for these goods, and if there were, presumably they would be priced similarly.
In this extremist's scenario, *everyone* would be living below the poverty level, with NO discretionary income. All of their income would be consumed in purchasing these most basic services. And what would the companies be gaining from this? Nothing -- all their money would just mean they pay more for their basic goods and services. Sounds a lot like communism to me, but this would gradually degrade into an agricultural society as people lose their jobs when no one buys their products.
In a less extreme scenario, the disparate discretionary income of consumers at different income levels would, in theory, be able to purchase only the exact same relative value of goods and services, even the CEO's of the megalithic corporations with all their money. Wow. That still sounds like communism.
Capitalism is built on my ability to consume more than you because I (presumably) contribute more to society than you, or vice versa. Anything that upsets this delicate imbalance undermines our very way of life. I will grant you, though, that this is a great argument against Adam Smith's "Invisible Hand".
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True science means that when you re-evaluate the evidence, you re-evaluate your faith.
- Production value - The actual cost of bringing the product or service to the consumer.
- Utility value - The amount a customer is willing to pay to obtain a good or service.
Assuming that the utility value is higher than the production value, what is best for the consumer is to pay as close to the production value as possible, whereas what is best for the vendor is for them to pay as close to the utility value as possible.The techniques that you mention are all effective ways of hiding the production value and inducing consumers to pay the utility value and hence are "good for business". But a wise consumer will find out the production value of a product and refuse to pay much more regardless of technique used or personal utility value. Price targeting hurts those who can't find the production value, either because they don't have the time, aren't sufficiently educated, or are locked into a particular vendor--which is why customers tend to get angry with businesses that price differentiate.
Price differentiation basically allows companies to maximise profits from ill-informed consumers when there isn't much competition or comparison shopping to undercut the inflated prices. While it might be easy to be unsympathetic with people who don't take the time to get the best price, the fact is that it is very hard to find good, reliable information on production costs, especially when companies are able to target far more resources to keeping that information hidden than consumers are able to bring to bear on finding that information.
In other words, customers aren't being irrational or illogical by opposing price discrimination. They are merely trying to ensure that they get the best value for their dollars. The fact that some price discrimination techniques generate less rancor than others doesn't change the fact that it is in the consumer's best interest to oppose price discrimination in general.
4: The airline technique: "Security" background checks. "Antiterrorist" ID cards to verify that you didn't ask somebody with a preferred lifestyle to buy your ticket more cheaply, or that you didn't buy a ticket from somebody who changed their plans.
5: The airline technique, part 2: prices which change by the second, and aren't revealed until after you've expressed interest. Advertised prices which don't exist. Sorry, Mr Wealthy Employed Person, the price for this flight is now a little more expensive than your cleaner paid for her flight. It's all computerised, you understand.
6: The insurance technique: you're not told what you're buying until after you bought it. Your opportunity to complain is delayed until a point when complaining would leave you vulnerable. Didn't we mention that breakdown cover wasn't included? Oh well, you can always purchase from someone else, and drive without insurance for a few weeks.
7: The insurance technique, part 2: Tell us your name, your postcode, your SSN number and your last 3 partner's names before we'll answer your phone-call. Now, let's talk about prices for people with a $70,000 income.
8: The rebate technique offer a rebate ('retard-bait') which increases the price for poorer, better organised, more vocal, or more price-conscious customers, whilst imposing a surcharge on those who don't care enough about the money to sue in small-claims court for the 'forgotten' cheque.
9: The rebate technique, part 2: offer a rebate coupon, which takes so much personal information, or claims to be opt-in for spam, such as to impose a surcharge on those who value their privacy and don't supply the details. Just fill in the coupon with your address and mobile telephone number, and you can write to our customer services department if you'd like to opt-out of certain types of advertising.
10: The government technique: You must declare your earnings. Now give us 40%.
Assuming that the utility value is higher than the production value, what is best for the consumer is to pay as close to the production value as possible, whereas what is best for the vendor is for them to pay as close to the utility value as possible.
This sort of economic philosophy doesn't foment economic growth. If we live in a world where everyone nickels and dimes each other to the point where the total profit through the supply chain is on the order of pennies on the dollar, then it drags down the whole system. I don't want to get into an Econ 101 example here, but if Consumer A doesn't want to pay for the utility value of Product X made by Company Y, and thus forces the price point to have no built-in profit, this impacts the ability of Y and all its vertically integrated vendors to reinvest profits in new technologies to increase productivity (in the interest of decreasing production value/costs), and also prevents Consumer B, who works for Y, from getting a year-end bonus. Consequently, Consumer B doesn't have enough disposable income to consider buying Product I from Company J, who Consumer A happens to work for, ergo A ends up in the same position with respect to his disposable income.
The net-net of this is that the economy remains in stasis. There's no profit motive, little growth of life-saving or bettering technology, and no opportunity for individuals to profit. It's almost communist.
So to complete the thought, people should actually be willing to pay close to the full utility value, or the value which it personally brings to their lives, for the good of the economy. If owning this "thing" will save me $10,000 -- or an equivalent amount of time/frustration -- a year (ipso facto, not "according to advertising"), I should be willing to pay any asking price up to say $9,999, even if it only cost $1 to produce.
The matter of the producer's profit is immaterial to me; it's the net positive value (realized value - price paid) to me that matters. Behaving as though the producer has no right to profit is fundamentally more selfish than rampant profiteering.
Price differentiation basically allows companies to maximise profits from ill-informed consumers when there isn't much competition or comparison shopping to undercut the inflated prices
I would daresay that a smart Company C would use price differentiation to present the more competitive price to the informed, cost-conscious Consumer D; they would be motivated to buy the product since they would save time shopping around -- they would come to trust that Company C has the best prices, and would buy again. The less competitive, but still fair price is presented to Consumer E, who is independently wealthy and doesn't give a shit about clipping coupons. E requires a different overall marketing strategy, since they might be more swayed by advertising punch, fads, etc. The extra profit can be used to further growth in E's market.
They are merely trying to ensure that they get the best value for their dollars.
Of course they are, but the way you put it reminds me of my grandfather demanding I give him the fucking 4 cents change left over when I go to the store to buy a loaf of bread for him.
Discrimination by private individuals and entities should be and usually is legal, because people have the right to freely associate, or not to. (There are exceptions under current "law" but they are of dubious Constitutional validity.)
On the other hand, government must protect all persons equally, and thus it must not discriminate for reasons such as race, color, gender, age, etc. (again there are exceptions but those also are of dubious validity).
Now, that's the law. Here's my opinion: in a functioning economy with competition, discrimination due to color is usually a really, really stupid thing to do, regardless of morality. Minority people's money is just as good as anyone else's. If you don't want it, I guarantee there is a competing business that does. It's only when there is a real lack of competition, and a history of institutionalized lack of equal justice under the law, that private discrimination ends up causing significant harm.
Nonaggression works!