The FTC is increasing scrutiny of personalized pricing based on consumer data.
The Federal Trade Commission (FTC) is taking a closer look at the growing use of personal information to decide how much individual shoppers may be charged for the same product or service. The agency is warning businesses that collecting detailed information about customers and using it to create personalized pricing practices could lead to legal trouble if shoppers are not told how their information is being used.
The issue centers on personalized pricing, a practice that allows companies to study customer information and adjust prices based on what a person may be willing to pay. Businesses have used different prices for certain groups for years. Senior citizens and college students, for example, often receive lower prices on products, memberships, or services. The newer concern involves pricing decisions made for individual people based on large amounts of personal data.
That data used for personalized pricing practices can come from many sources. A company may look at a shopper’s past purchases, browsing activity, location, type of phone or computer, and other online behavior. Even small actions, such as spending extra time looking at a certain product, can provide information about a shopper’s interest. Computer programs can then process that information and help determine what price may be shown to that person.
The FTC says companies should clearly tell customers when personal information is being used to create a special price. The agency also wants businesses to explain what kind of information played a part in the pricing decision. The notice would not make personalized pricing illegal by itself. Instead, the FTC says enforcement action could be taken against companies that fail to provide the required information.
The debate has grown as businesses have gained access to more customer information. Online shopping has made it easier for companies to track buying habits and study how customers behave. New pricing software can process large amounts of information quickly, making it possible to change prices without a person manually reviewing each customer.
Concerns about the practice increased after reports involving Instacart. The company had allowed some retailers to test different prices for individual shoppers in several cities. The tests involved people placing the same items in shopping carts at about the same time. Instacart said the testing was intended to help retailers learn more about customer preferences, but the company later ended the tests following public criticism.
Food delivery services could also face questions under the FTC’s position. For example, a customer could be shown a higher food delivery price because a company knows something personal about that shopper. Ride-share companies could face similar concerns if a passenger were charged more because the company knew the person did not have another ride service app available for comparison.
Supporters of stronger rules argue that customers should know when personal information affects the price of something being purchased. Without that information, shoppers may believe a price is based only on normal market conditions when personal details may have played a part.
States have also started taking action. New York has adopted rules requiring companies to tell customers when personalized pricing is being used. Maryland has taken a stronger position in the food market by banning certain systems that change food prices for individual customers.
The FTC says more information is still needed about how often businesses use these pricing methods. Even so, the agency considers undisclosed higher prices based on personal information a possible harm to consumers. As pricing software becomes more common, federal and state officials are likely to face continued pressure to decide how much information companies should be allowed to use when setting prices for individual shoppers.
Sources:
FTC warns retailers on using private consumer data to raise prices
Your Data Sets Your Price. A Federal Study Showed Exactly How
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