Online shopping is increasingly delivering personalised shopping. But soon we are going to have to get used to personalise pricing – and accept that the price you pay might not be the price I pay. Is it unfair? Unethical? Quite possibly: but right now no-one is doing anything to stop it…
Imagine this: I go into a shop. I buy a box of cornflakes. I pay and walk out. You go into the shop five minutes later: you buy an identical box of cornflakes, pay and walk out. A copycat transaction? Not necessarily. Personalised shopping is already here: personalised pricing is on the way. You might pay more for your cornflakes than I did.
That sounds like a ridiculous scenario: shops cannot have different prices for different customers. But with more and more shopping moving online, personalised pricing is an idea we need to get used to.
Your own personal shop
Think about it. If I walk into a shop I am seeing a general display. The shopkeeper – whether it is a one-off local store or a national chain – must produce a display catering to the average customer, with everything they sell on display.
But when I shop online I am receiving a personalised shopping experience. Amazon knows what I have bought previously, and it knows what I have browsed. More importantly, it knows what people that have bought what I have bought have also bought. It is predicting with increasing accuracy what I am likely to buy – and making sure I see those items.
The Amazon algorithm is using data from millions of people: it knows that people who buy James Patterson books are also likely to enjoy books by Lee Child. It knows that people who buy nappies are likely to buy nappy-rash cream and teething products.
But my youngest child is 19: no way is Amazon going to recommend nappy-rash cream to me. It is like walking into a corner shop where everything I do not buy has been taken off display – and things I might buy are strategically placed next to things I regularly buy.
How will this impact prices?
We have always known that prices can go up and down, moved by increasing demand or scarce supply. We are all familiar with headlines such as ‘Hurricane wipes out coffee crop: prices set to rocket.’
But that meant that coffee went up for everyone: personalised pricing will see prices rise and fall for individual shoppers, based on what the retailer knows about them.
Surely we already have personalised pricing?
You could argue that some groups already pay less for goods and services because they can afford less. Special deals for pensioners or those on benefits: the young person’s railcard. But those deals apply to everyone in the group: everyone between 16 and 25 is entitled to a third off their rail fares. With personalised shopping, you will be in a rather more exclusive group: a group of one.
Should we be worried?
Tech-savvy companies are already starting to charge different customers different prices – and that discrimination is getting more and more precise and, therefore, more profitable for the companies concerned.
Clearly, some customers are more expensive to service: the previous history might show that their cards are more likely to be declined, or that they are more likely to return goods. And it is not just traits like that which could end up costing you more – there is also the question of inertia.
The cost of the free trial
The implications of ‘big data’ become really frightening when they are combined with AI and behavioural insights. Retailers can now make very subtle changes to what they offer us and see how we respond: in effect, consumers could be treated like guinea pigs.
Nowhere is this more evident than in the ‘free trial.’ There is no-one reading this article who has not taken out a free trial – or a discounted introductory offer – and then forgotten to cancel it. You look at your bank statement and there it is: what was once £7.99 a month is suddenly £39.99 a month.
We already see this at work in markets such as broadband and mobile phones: in the UK’s broadband market, for example, prices jump by an average 43% at the end of a fixed-price deal. Utilities and banking are other sectors that like to take advantage of consumer inertia, in a tactic known as ‘bait and squeeze.’ Firms compete fiercely to get you as a customer: you may not be a profitable customer initially, but they are relying on the fact that you will simply auto-renew by default.
Are you still paying for your mobile?
We have all done this as well: forgotten to upgrade our phones so that we continue to pay for the handset long after we have theoretically paid it off. What sort of trading practice is that from the mobile phone companies? It is like the butcher knocking on my front door and saying, “You bought some sausages three weeks ago. I know you paid for them and you have eaten them, but you didn’t tick the box to say you didn’t want sausages every weekend. So you owe me six quid for the last two weekends.”
Isn’t this all unfair?
Yes, of course, it is. ‘Big data’ – the tracks we leave when we use the internet – is allowing firms to work out how much we are willing to pay for something with increasing accuracy. And that is what they will charge us.
Add in our own inertia when it comes to renewing contracts and British consumers are wasting billions every year. And the people who are wasting the biggest proportion are the vulnerable – those who are not financially aware and/or do not have access to up to date financial information.
Could our politicians do more to protect us from these trading practices? Of course, they could: how easy would it be to stop the mobile phone companies’ never-ending charges for handsets? But while there seems to be any number of initiatives on financial mis-selling, when it comes to us being ripped-off over goods and services Westminster goes quiet.
Personalised pricing – the inevitable consequence of AI and big data – is only going to see the consumer at more of a disadvantage. And if all this sounds a little like 1984 and Big Brother – or Big Shopkeeper – that is because it is.
But there is, perhaps, one silver lining. Big data might be the best hope for the beleaguered British high street. If you do not want personalised pricing, if you do not want retailers to track everything you do online then there is a simple answer. Grab some cash and head for the high street…