< Dynamic Pricing


Friday, December 17, 2010

BOB GARFIELD: This is On the Media. I'm Bob Garfield.

BROOKE GLADSTONE: And I'm Brooke Gladstone. Online shopping sales will soon reach their annual peak. Last year the most profitable day for online merchants was December 15th, when they took in 913 million dollars. And that total is predicted to rise. The bad news for Internet retailers? Online customers are more fickle than their brick and mortar brethren, more likely to window shop, more prone to compare prices, and much less loyal to any particular store. Retailers have tried to level the playing field with some digital tricks, among them, “dynamic pricing,” which essentially means changing the price of a good based on what they think a consumer is willing to pay. If the e-store you’re browsing in believes you’re tight with a dollar, it might lure you in with a lower price or free shipping. If they think you’re willing to spend a bit more, well, they may ask you to. Annie Lowrey, who covers business and the economy for Slate, says that dynamic pricing has always existed on some goods, but that it’s begun to pop up in places you wouldn't expect.

ANNIE LOWREY: We know that for airline tickets, for hotel rooms, for car rentals, for credit cards, for debit cards, for other financial products, when there’s a lot of variability in the pricing already and the goods might be time sensitive or tied to the consumer very specifically, we know that dynamic pricing happens online for all of those goods fairly consistently. What we're looking at now is how dynamic pricing is influencing the sales numbers and the purchase prices for goods that aren't time sensitive and that there isn't any real logical explanation for why one person should pay some set price for a DVD and another person should pay a different price.

BROOKE GLADSTONE: Can you give me an idea of the kind of information that vendors might use to set prices differently for different customers?

ANNIE LOWREY: One way to think about this happening is to think about not just if you’re buying one good and putting it in your shopping basket online and checking out, but say that you’re buying a number of goods over the course of a day. Perhaps a company will look into your cookies and will look at your purchase history with the company and will say, you know, she has five things in her shopping basket - why don't we offer her discounts on the sixth and the seventh, and why don't we offer her free shipping, whereas somebody using a different browser with different cookies on their computer will have a higher price.

BROOKE GLADSTONE: Is all of this legal?

ANNIE LOWREY: It is legal. It is illegal for companies to discriminate based on age or race, but they can absolutely charge different prices to different customers depending on things like your sales history, your cookies, your browser. It’s not illegal for a company to charge two different people two different prices for the same good on the same day, even in the same second. That’s not illegal.

BROOKE GLADSTONE: Mm. What can consumers do about this? And what I'm asking for here, Annie, are some pre-Christmas shopping tips. How do you game the system?

ANNIE LOWREY: [LAUGHS] So it’s still early days for retailers. They're still figuring out the best ways to do this and they're still putting a lot of research in and time into figuring out how to best optimize prices for, you know, their own sales and their own purposes. So, therefore, it’s actually pretty easy to game the system. One thing that customers can do is that if they're shopping at big online retailers, they can try using two different browsers. They can clear out their cookies on one browser and maybe do something called private browsing, and then also do it in their regular browser that they use every day. If there’s a difference between any price, any interest rate, if there’s any offers that pop up on one browser or another, you’re probably being subject to dynamic pricing and you probably want to be careful. Another thing that you can do is you can put items into a shopping basket and leave the shopping basket. There’s a lot of evidence that companies are becoming a lot more savvy about offering you free shipping and offering you discounts if you just leave things in a basket for a while because they'll want you to purchase them and they'll want to spur you to purchase them. Another thing to do is just to keep an eye on consumer reports. If companies are caught doing this brazenly, there tends to be a pretty public outcry about it, and so you can check some of the consumer blogs or the consumer groups. And one sort of final way to game the system is also just to ask companies for discounts. If you email customer service, there’s some evidence that some companies online will actually happily do it.

BROOKE GLADSTONE: And you also recommend – and this is a rare product endorsement – if you want to beat dynamic pricing, at least for the time being, it’s worthwhile not just to use a different browser but specifically to use Chrome, which now carries the connotation of being savvy.

ANNIE LOWREY: Yes so if you use a shmancier browser -

[LAUGHTER] - a newer, a more tech-savvy browser like a Google Chrome, as opposed to something like Internet Explorer, yeah, there’s a chance [LAUGHS] that you might be quoted lower prices –

[BROOKE LAUGHS] - for things, on some goods at least. [LAUGHS]

BROOKE GLADSTONE: Okay, so looking at this business and all the other instances in which our online behavior is tracked and used, does it make you want to wipe your slate clean or are you fundamentally okay with it?

ANNIE LOWREY: It certainly gives you pause. It’s certainly a little eerie that companies can know so much about you without you telling them. It does feel a little bit invasive. And it’s worrisome to even think that you might have to shop with two different browsers or to think that you might need to be gaming the companies because they're gaming you. But the truth is that that always happens, and it happens in really variable ways. And because there are ways to counteract this, and because the consumer has so much power online, where it is so easy to comparison shop and so easy to find information about different companies and different products and, you know, how companies are using your data or how companies are selling different people different things, ultimately the consumer really is king here. And the fact that companies are doing this is a lot in response to the fact that consumers have forced them to bring prices down so much online by comparison shopping.

BROOKE GLADSTONE: Annie, thank you so much.

ANNIE LOWREY: Thank you. I really appreciate it.

BROOKE GLADSTONE: Annie Lowrey reports on economics and business for Slate. Right now, the laws about how far companies can peek into your personal information online are pretty vague. The federal government has taken a hands-off approach to online privacy for fear of interfering with online commerce. Technology companies have complained that even if they want to follow the rules it’s difficult to know what’s okay and what isn't. The good news? This week the Obama administration called for the creation of a Privacy Policy Office. The Privacy Policy Office will create a, quote, “Privacy Bill of Rights,” a framework that’s supposed to spell out the rules about data gathering online.