LONDON, United Kingdom — Personalised pricing is as old as commerce itself. A market stall owner sizes up a prospective customer based on a wide range of signals — such as how she speaks and dresses — then offers her a special price: “For you, ten dollars.”
Today, consumers are more used to standardized pricing and the ‘law of one price’ generally prevails, based on the logic that differences between prices for the same good are eliminated by market participants taking advantage of arbitrage opportunities. Indeed, so the theory goes, when a product is sold via multiple channels, the cost should not vary by more than the differences in shipping, taxation and distribution costs. If it does, with a huge range of retailers to choose from, customers will simply shop elsewhere.
Nonetheless, some online retailers are returning to the tactics of the bazaar, leveraging the data trails generated by Internet users to set different prices for different customers.Just like the seller at a market stall, e-tailers can now ‘size up’ each customer that visits their site. “Every retailer, once you get to their website, they know where you are from because of your IP address. And they know that to the accuracy of a ZIP code, so they can know that you are from a more affluent area, for example,” said Hana Ben-Shabat, partner for the Americas at A.T. Kearney, a global consulting firm.
This, combined with cookies, can tell a company a significant amount about individual customers, including some of the websites they have visited, how regularly and for how long; which products they inspect and purchase. In addition, cookies store information that customers volunteer in online forms — for example, shipping address and other profile data. Based on this kind of data, it’s possible for retailers to predict what products a consumer is interested in buying, when they are likely to buy them and, critically, the price they would be willing to pay.
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