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The Downfall Of Custom Pricing: Getting Your Shoppers To Shut Up

Written by Mark Rasch
June 28th, 2012

Attorney Mark D. Rasch is the former head of the U.S. Justice Department’s computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

How much is that doggie in the window? For Internet users, the answer may soon be, “It depends on who you are, and how much I know about you.” And this trend may upset a host of laws concerning deceptive trade practices, fair pricing and even contract, trespass and computer crime laws. Not only can online retailers charge different prices to different consumers, they may also be able to prevent one consumer from telling others how much they were charged.

First off, is this approach likely? Yes, because it’s the next logical step. The world’s third-largest retailer by revenue (and second-largest by profits), Tesco, has just started using a customer’s CRM history to dictate whether he or she is shown expensive or low-cost products. Orbitz is doing something very similar, by assuming that Macintosh users will spend more on hotel rooms than Windows users. The most direct example is Safeway, which has spent the last two years offering “individualized discounting” for E-Commerce shoppers, which is barely one hair-splitting pixel away from customized pricing. (This is Safeway’s Just For U program.) How much resistance can consumers offer? They’ve been paying different fares for the identical airline seat for decades. So let’s remember that the concept of customized pricing is hardly science-fiction.

Consumers have been conditioned to the “privacy bargain”—we give up personal information, allow our spending habits to be tracked (sometimes across merchants or Web sites) and, in return, we get 10 percent off a pack of 9-volt batteries. But what if, as a reward for our giving up privacy, we don’t get offered discounts, we don’t get shown particular special offers and, instead, we get charged a higher price for goods or services than others? To what extent are retailers required to offer all comers the same price, and how can they keep consumers from revolting?

The danger for retailers in differential pricing to customers is that those shoppers will compare notes—and social sites today make that annoyingly easy. It’s bad enough (well, for retailers at least) that consumers can compare the price of a Sealy Posturepedic at 1,000 different Web sites to find the cheapest one. But because the “loyalty” Web site prices are only available to registered loyalty customers (or because consumers are directed to prices based on cookies, browser configurations or whether they have been to the site before), it is much more difficult for an individual consumer to compare the price he or she was quoted by a particular Web site against a price quoted to a different customer at the same (well, almost the same) Web site. As the Arab marketeer said in Casablanca: “For special friends of Rick’s—one hundred francs.”

But interested consumers can share information, right? There’s a way around that, too, for retailers. But beware, it may be fraught with peril.

Web sites typically have Terms of Use or Terms of Service, a legally binding contract between the parties—namely, the merchant and the consumer. If you want to use this site, you have to agree to these conditions. Theoretically, the merchant could put in a “nondisclosure of prices” clause in the Web site. For example: “This price is for you, and you alone—don’t tell anyone else about the prices quoted. If you do, then your use of this Web site is in excess of its authorization.”

In theory, if such a Web site warning was put up, then disclosing the prices not only results in a potential breach of contract but also can subject the consumer to claims of “trespass to chattels,” computer hacking, and civil and criminal liability. You see, it’s a crime to “exceed the scope of authorization” to use a computer, and the consumer is only “authorized” to see the prices if he or she doesn’t disclose them. Disclosure = withdrawal of consent = trespass = crime.

And yes, people have been prosecuted for violating a Web site’s terms of use. Also, companies have been sued for “spying” on the otherwise public prices of their competitors due to a Terms of Use provision prohibiting that.

So why don’t companies do that to keep their “special” prices secret? Because, ultimately, this means monitoring and then suing their customer base. And outside the recording industry, it is not considered de rigueur to sue your customers. They tend to not like it, and they tend to have bad feelings about the retailer. Nevertheless, we can expect more companies—particularly those where prices are volatile—to use personal data to “personalize” the shopper’s experience. And by that I mean get those shoppers to pay top dollar for items.

Whether charging different amounts to different consumers based on their personal data constitutes a fraudulent or deceptive trade practice is something for the FTC or State Attorney’s General to look at. And you can bet that they will.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.


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