Personalised Pricing – Part 1

Personalised Pricing – Part 1
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I’m writing this in two parts, here’s the first one. The second part will address some of the scarier things associated with personalised pricing, e.g. exploiting a person’s vulnerabilities to set prices and/or T’s & C’s.  Let’s first consider the context.

What’s in a Name?

In Romeo and Juliet Shakespeare claims that “a rose by any other name would smell as sweet”. And that’s an attractive thought, implying that we can tell whether something is good or bad no matter how it cleverly it is spun. However, an army of people make their livings by demonstrating that this isn’t the case: poets and writers, lawyers and politicians, and the whole of the marketing, advertising and PR industries.

When we’re offered a bottle of red wine, somehow “This tasty, medium-bodied red has herb sausage notes on a slightly floral, red fruit nose, leading to flavours of cured meat and bright, tart red berries with a touch of herbs. Good concentration and character.” seems rather more interesting and attractive than “a red wine, £6.50”.

So when the internet companies tell us that they are collecting our data so that they can “personalise” their interaction with us, then we should perhaps be a little wary. Being offered a personalised service sounds really good, and our assumption is that a personalised service must be better than a non-personalised service. But let’s pause and take a closer look at what this very nice word is actually describing.

Consider “personalised pricing”. If we don’t think too much about this, we might assume that because the company knows who we are, they are going to offer us a better price than someone they don’t know. But is this actually what is happening?

Consider renewing your insurance. I think we have all experienced receiving our renewal notice and finding that the price has increased compared with the previous year. And if we have checked the cost of like-for-like insurance with other companies we will normally find that we can get the same insurance for less (I’ve just done this with four separate renewals, and every time my existing insurer was going to charge me significantly more than other companies). These renewal prices were “personalised”. They knew what they had charged me last year, they knew that I had previously routinely renewed the policy, and therefore they set a price that was calculated to maximise their profit whilst minimising the likelihood that I would switch to another supplier.

As Guardian journalist Charles Arthur noted recently, many websites are using personal data to set the prices you are offered, and he cites the example of air fares changing when you turn off cookies in your browser. The sites are using information about the other sites you visit and other purchases you make to identify you as someone who is more concerned about quality and convenience than price, and they are using that information to set the price they offer you. Turn off cookies and the price you are offered is “non-personalised” and significantly cheaper than your “personalised” price.

So far, companies are only beginning to experiment with personalised pricing. But as they gather ever greater quantities of our personal data, and get ever more skilful at analysing that data to understand and predict our choices and behaviour, why would we imagine that the personalised prices they offer us will be to our benefit rather than to theirs?