The Office of Fair Trading is probing whether some websites use data to hike prices for individual consumers – legal expert Vanessa Barnett says the opposite is likely to be the case.
By Vanessa Barnett, Partner and e-commerce specialist, at City law firm Charles Russell LLP
7:00AM GMT 23 Dec 2012
The Office of Fair Trading (OFT) has recently launched a ‘call for information’ on online personalised pricing. Personalised pricing is the use of data relating to a specific user (purchase history, browsing history, demographic, hardware, operating system, etc) to deliver a bespoke price offering.
This data could come from a retailer’s own database, be enhanced by third party data or be data offered up by the user’s computer/tablet/phone (including via cookies).
This is the second time the OFT has turned its attention to online personalisation. In May 2010 it published its Online Targeting of Advertising and Prices report, where it said that it could find no evidence of wrongdoing on the part of the market, but said it would keep a watching brief as technology developed. This report was originally triggered by suspicions about online advertising targeted by browsing behaviour – which has in fact become the norm today, despite consumers original reservations. Indeed, there is now some anecdotal evidence to suggest that consumers would rather see relevant adverts than ‘spam’ adverts.
The concern of the OFT in launching its call for information is a suspicion that these types of personalisation technology are somehow being used to hoodwink consumers into spending more money – the question asked by the OFT is “if this is harmful, where are the boundaries of acceptable conduct, and is consumer protection legislation being breached”?
Notwithstanding that tone of suspicion, the OFT admits that it does not have any evidence that retailers are doing this, but says “we are aware that there is a lot of concern about this practice”.
As with most new uses of technology, a knee-jerk reaction seems to be that the technology is bad. If we look at this in context, retail is a very competitive business – consumers are empowered, know their rights and have access to information to make price comparisons. So it would be an ill-advised retailer who deployed personalisation technology to materially drive up prices. That retailer would very soon find themselves with fewer customers.
On the contrary, let’s look at how pricing personalisation can really drive sales. For example, if I wanted to buy a new television I could either do the research myself (via retailers’ websites) or I could use one of the many well known price comparison sites. If I wanted to go even further, I could look into research by Which? All of this would give me a good idea of the price for the television without even visiting a shop.
Now imagine that one of the websites I have visited to research the price of the television had actually deployed personalised pricing. That retailer would have sufficient data to enable it to make me a discount offer I might accept – the offer that brought it below the prices being shown on the various other sites I have looked at for research purposes. The offer that actually achieves the sale, rather than no sale.
So rather than this technology driving prices up, the more obvious use of personalised pricing is personalised discounting. (But that doesn’t sound so controversial, does it?)
This type of personalised discounting is, after all, what many retailers’ loyalty schemes are all about – what we have with online personalised pricing is that kind of data but enhanced with external information. It also works for customers not enrolled in loyalty schemes.
Remember too that there is also no obligation on a retailer to charge the same price for everyone. A jar of Marmite will cost significantly more in the premium food store than in a local supermarket. Why? Because the customer base is different, based on data around regional demographics. Online personalised pricing is no different – it is merely hyper regionalisation, to a region of one person.
But of course, there is one key difference. Standing in the premium food store (or the local supermarket) I cannot easily make a choice between the two – if I want Marmite at that precise moment, I have only one choice of seller. Online purchasers are not so constrained and can easily divert to any number of other sites to make a purchase. And that’s the reason why personalised pricing is more likely than not to drive prices down rather than up.
Of course, as in the bricks and mortar retail world, there will be anomalies and sharp practices. We cannot avoid this – but let’s not judge something as suspicious, just because of that.
I predict that this will boil down to transparency. We already have all the right laws in place to do this: the Data Protection Act and its quiver of regulations already ensure that retailers must be transparent about how personal data is obtained and used.
One thought on “Personalised pricing: driving prices down? Yes, a Price Just for You !”
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