Are You Ready to Pay More? The Reality of Personalized Pricing
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Understanding Dynamic Pricing
During a recent layover in New York, I found myself checking into a modest hotel, only to be informed by the concierge about an unexpected resort fee. Confused, I scanned the small lobby for any signs of a resort-like environment. "What kind of resort amenities do you offer?" I inquired.
With a smile, he responded, “We have complimentary breakfast.”
Raising an eyebrow, I couldn’t help but think that breakfast should already be included in the room rate. Nevertheless, I resigned myself to making the most of the bland coffee and stale pastries. It seemed illogical to be charged a resort fee in a place that lacked any resort features, but in the bustling summer of New York City, I expected inflated prices.
Most people anticipate that airline tickets, hotel stays, and transportation costs will rise during peak seasons, like summer vacations or holidays. We all accept the reality of higher costs during these busy times. However, what is less understood is the concept of personalized pricing, where companies adjust prices for individual consumers without their knowledge.
Buyer Beware
In recent years, additional fees have become increasingly common. For instance, I overheard a United Airlines flight attendant informing passengers that their ticket price did not include checked luggage, which would cost them an extra sixty dollars. I hoped their base fare was at least competitive with budget airlines like Spirit.
Gone are the days when complimentary meals were standard on flights. While extra fees and tiered pricing systems can be frustrating, at least they apply uniformly. Personalized dynamic pricing, however, introduces a far more concerning issue.
In our digital age, retailers like Safeway, Home Depot, Staples, Orbitz, and Amazon utilize data analytics to tailor prices based on individual purchasing history. This personalized dynamic pricing is particularly troubling as it is often hidden from consumers, who may unknowingly pay different amounts for the same product.
Although companies may argue that this practice rewards customer loyalty by offering discounts to frequent shoppers, it can also lead to discriminatory pricing. Rafi Mohammed notes in Harvard Business Review that a ProPublica study found pricing disparities based on zip code, with Asians disproportionately facing higher prices.
The Dark Side of Dynamic Pricing
When Bruce Springsteen announced tickets for his European tour, I was eager to buy a pair for his Copenhagen concert. However, since he was also touring in the US, I opted to wait—an unfortunate choice. For a staggering price of $4,000, I could have experienced the concert up close.
It was disheartening to see dynamic pricing applied by an artist who advocates for the working class, especially as the economy faces potential recession and the cost of attending one of his shows could equal a week’s worth of groceries for many.
Springsteen's tickets surged in price due to demand. However, Ticketmaster’s strategy of granting access only to “verified fans” gave certain individuals an unfair advantage. Those fortunate enough to have time and resources could secure tickets while others were left behind. While Ticketmaster does not officially claim to use personalized dynamic pricing, the requirement for personal data during the verification process raises concerns about its potential use.
According to Jason Koebler from Vice, Ticketmaster’s evolving sales strategies give scalpers ample opportunity to exploit the system, making it harder for average fans to secure tickets.
The Illusion of Fair Pricing
We once celebrated the sharing economy, as companies like Uber and Airbnb promised fairer pricing models. However, now we face smart pricing for Airbnb and surge pricing for Uber, with Airbnb imposing a twenty-percent fee on experiences that rivals credit card interest rates.
If these companies are willing to stray from their original promise of reasonable pricing, how can we trust they won’t employ more targeted practices like personalized dynamic pricing?
Just last month, Uber attempted to charge me a whopping hundred dollars for a fifteen-minute ride home from the airport, when the normal fare is around forty dollars. Thanks to my spouse's quick thinking, we managed to reduce the cost to thirty by changing the drop-off location.
This experience left me questioning whether the initial high fare stemmed from dynamic pricing or if it was merely a coincidence.
Trust in the Marketplace
The traditional negotiation dynamics between buyers and sellers have diminished, leaving customers to spend excessive time deciphering what constitutes a fair price. Companies are increasingly complicating this process, leading to a loss of consumer trust. Exploiting consumers' urgency, demographics, and purchasing behavior for profit marks a troubling shift in our economy, contributing to an unpredictable market that erodes confidence in pricing.
Ultimately, companies have the power to choose how they engage with their customers. There is an opportunity for transparency and integrity in pricing strategies. And perhaps, companies wouldn’t mind if consumers engaged in some tracking of their own.
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