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.

Comments

Price manipulation by consumers

[Anonymous Coward]

Couldn't this be turned around by making false online identies? Tailoring it to garner the best prices?

Re:Price manipulation by consumers

[Blue Stone]

" Couldn't this be turned around by making false online identies? Tailoring it to garner the best prices?

I don't see how you could do that whilst retaining the same credit card.

More interestingly, is how are they going to deal with someone browsing a website anonymously, and then loggin into their account, and seeing a different price?

Dear whatever.com, I notice you're charging me over the odds. Since you don't value my custom, I shall make my purchase elsewhere.
Sincerely.

Re:Price manipulation by consumers

[pla]

Couldn't this be turned around by making false online identies? Tailoring it to garner the best prices?

Yes, it could, thus the only reason I don't really feel all that concerned about the possibility of vastly different prices for different people.

Not just online, though, but more importantly, in the real world as well. From the article, for example, it talks about the diehard Coke drinker paying twice as much because the company will exploit his preference. Easy solution? Find a similarly diehard Pepsi fan, and each buy the other's soda for them. So both pay less than the mean rate, as the respective companies try to lure each over to their own product with extremely discounted prices.

Now, in some situations this wouldn't work. But for anything costing more than a few bucks (electronics, for example), "shopping around" would go from "check pricewatch" to "ask grandma (or someone who would normally have significantly different buying habits than yourself) how much she can get that great new toy for".

Finally, a way to screw corporate America with their own tools of torture. Bring it on!

Re:Price manipulation by consumers

[Sloppy]

The problem is that a false id with no purchase history, would likely get a higher price, not a lower one. Sure, you can do all your shopping under the fake id and essentially become the virtual person. But that doesn't really get you anything, does it?

Nevertheless, I'm unconcerned about this. If you consent to paying $n for a widget, then don't complain. If you want to complain, then don't consent. People just need to learn how to Just Say No to prices that they think are unfair. It's like when I hear people complain about the price of a Coke in a movie theater, I just want to kick their ass. Which is worse: that they offer you a coke for $5, or that you bought it?

Differential Slashdot Subscription pricing next?

[neye_eve]

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.

Potential for Abuse

[dmarx]

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?

Artificial Barriers to Trade

[Schezar]

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...

Geeks always win.

Nothing new

[Anonymous Coward]

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.

Bartering

[stoolpigeon]

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.

Re:It can easily be abused by unscupulous merchant

[mccalli]

For instance, a tow truck or taxi driver may charge a well-to-do suburban driver who breaks down in the inner city several times the going rate, just to get their rich butt to safety.

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

Examples of Price Discrimination

[Anonymous Canard]

There is already price discrimination. Every time I walk into a grocery store I pay a premium for my food in order to maintain my privacy by refusing to use a discount card. Realistically I represent a small minority of consumers who values privacy over money and the market can charge a premium for selling to me and others like me.

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.

Re:It can easily be abused by unscupulous merchant

[TopShelf]

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.

I can't recall the user, but someone here at /. has the sig along the lines of, "all models are wrong, some are useful." A very good thing to keep in mind...

Only if you pay cash == privacy

[C. Mattix]

To all the people that say that they don't use discount cards in order to maintain privacy, do you ever pay with credit card, debit card, or check? Many many companies use Catalina Marketing as their targeted marketing company. That company establishes who you are looking at your bank account number, or your credit card number. Then they can follow that number from store to store establishing correlations. From their website:

Catalina Marketing provides a multi-dimensional understanding of the customer by combining purchase behavior inside and outside of the store with demographical information, attitudes and preferences ... Manages one of the sixth largest databases in the world, containing over 100 million customer records

For more information check out CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering).

Buying another type of meat...

[mykepredko]

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

Re:US Legal Ramifications To Targeted Pricing

[Tackhead]

> 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.

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.

OK, this may seem obvious, but...

[Hamster Lover]

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.

Re:US Legal Ramifications To Targeted Pricing

[josh crawley]

I would say that there are at least 3 different forms of targeted pricing, none of which are that bad for the consumer:

• The "Used Car Salesman" Technique: The Used Car Salesman has a listed price, and a "bottom line" price which is his minimum profit. He's never going to let you know the bottom line. If you want to take the list price, that's fine by him - maximum profit. If you want to haggle it down, he's going to haggle you back in a number of ways; value of your trade-in, financing available, etc., but if you try to undercut his bottom line, end of conversation. This is targetted in that the UCS is going to base his arguments and approach based on what he thinks you are willing to pay, even though you may be trying to go cheaper than this.
• The "Preferred List" Technique: This is the one that really rankles people most, since it implies that somebody else is getting a benny that you aren't. When you find out that Mr. Jones across the street gets a catalog with lower prices just because he's in a different demographic segment, there's a certain amount of jealousy that "he's saving $5 where you aren't, therefore that company is giving him $5." Nothing could be further from the truth. Mr. Jones is only being marketed to more aggressively. Also, it's a staple of capitalism that the money exchanged for a product is valued by the seller more highly than the product being bought, and vice versa. Otherwise, why would the transaction take place? Therefore, the "loss" that the consumer feels by paying a higher price than another is really just a form of covetousness, since they can avoid the "loss" by simply declining to purchase.
• The Auction Technique: Obviously we see this all over the place on eBay and Priceline, but it is also a form of targeted pricing. Rather than relying upon some classification of the customer to try to determine their "willing to pay" price, the customer is encouraged to volunteer it. There is still a "bottom line" as in the UCS Technique, which is enforced by Reserve prices or by declining to transact after the auction. However, the customer is quite often willing to pay the same higher price that they would be rankled by in another marketing method, due to some form of "gambling frenzy" that overrides the psychology of "perceived loss". In reality, the customer is just becoming honest about what they are able and willing to pay, or what is an acceptable value proposition.

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".

Hampering entries into the market

[otter42]

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?

Amazon already tried this

[bdsesq]

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."