“Big data” is leading towards risky dynamic pricing methodologies
The relationship between a retail business and its customers is often a peculiar one. In an age where information by and large flows freely, a retail business can assess the interests and proclivities of its customers, and a customer can assess the quality and competitive pricing of a retailer. Comparison shopping is now a common tactic and many Internet sites even do the work for you, listing the various locations you can find a product and which of them offer the cheapest deals. Likewise, more comprehensive data tools are allowing retailers to collect more intuitive information on the consumers in their area. However, big companies like Google have an entirely different set of tools to leverage. A recent article published on Storefront Backtalk, written by Mark Rasch, takes a unique look at how Google’s interest in a patent to “dynamically price” electronic content based on a wealth of information collected about the user suggests that the move towards “big data” is bringing some ethical and business-centric questions to light. Among other points, the article says:
“We expect different prices at Neiman Marcus than at Walmart (NYSE:WMT). We expect different prices for toothpaste from Tom’s of Maine, a Colgate-Palmolive (NYSE: CL) company, than for generic Rite Aid (NYSE: RAD) toothpaste. What we don’t expect is that the woman in front of us in line will pay less for the same item because the retailer suspects we have a higher threshold for paying. Or that we really like the product. Or that we really need it right now. That’s what Google’s patent allows retailers to do.”
It’s hard to deny the intuitiveness of the suggested system, but that doesn’t make it feel any more comfortable to us as consumers. A retail business could stand to increase profit margins drastically by being able to do similar things as this, but is it legal? Is it appropriate? The article’s summary makes mention that our 21st century retail industry is beginning to look more like a 7th century bazaar or something of the nature – and that’s not an inaccurate picture to paint.
Of course, there are other areas of business that already have a rudimentary form of this tactic in place. The more a person needs something, in general, the higher they’re willing to pay. Rent in high-volume areas where many people work or need access to public transportation is drastically higher than in rural or suburban environments, for example. But when a product has a uniform labor cost and is being sold to different people at different price levels, many questions can be raised.
Still, it’s not as if this system is universally detrimental to the consumer. The aware buyer will seek out products that they may not need at the moment but might in the future, and if the retailer’s system is as comprehensive and intuitive as it would hope to be, it would set a lower price level to entice the buyer to make the purchase.
What do you think of this trend? Share your thoughts with us in the comments!