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Risk Based Pricing and Consumer Privacy

AcxiomApril 24, 2014

In today’s blog I want to comment on a marketing practice that touches on all aspects of RSVP – risk-based pricing.

There was a healthy discussion in the recent FTC workshop on alternative scoring about risk based pricing.  Some felt it was unfair that a retailer charged different prices for the same stapler at different store locations based on whether there was a competitive store nearby, while others felt the market should be allowed to make these kinds of calls where competition exists.

Risk based pricing is not new.  We have lived with for decades.  The most common examples of it are in the airline and retail industry.  The price of an airline ticket can vary greatly based on when you buy it, whether you are in a frequent flyer program, and other factors that, quite frankly, most of us don’t understand.   There are many retail examples in the grocery industry where a gallon of milk or gasoline can vary from store to store and be influenced by whether you have a shopper card for the brand. 

As we embrace big data, there are fears that some may be charged more based on their ability or willingness to pay.  The question is whether or not this is a good or fair thing.

Our quest for transparency could lead us to take the position that all kinds of pricing practices should be disclosed.  But this will likely penalize the marketplace, and limit the creativity of companies to compete.

We should be very careful about regulating pricing approaches.  This is a very slippery slope.  Consumers are not compelled to buy, at least not for most products and services.  And consumers have the ultimate shopping aid – Internet search – where they can learn more than ever before about competitive prices.  If prices are too high, consumers won’t buy, and someone will likely offer the product at a reduced or discounted price to steal market share.  While I don’t pretend to be an economist, competition plays a big part in how risk based pricing is determined, and this is a good thing.

New forms of risk-based pricing based on big data should be welcomed, not criticized, and certainly not regulated.  We believe that instead of going down the regulatory path, we should educate consumers about pricing practices – teach them how to shop and how to get the best deals, if they want to put in the effort.  Let it be the consumer’s choice about whether they want to put more energy into shopping for the best price or take the first, closest, or most convenient option.

Other key issues to watch include:

  • Still awaiting the FTC report on their investigation into data brokers.
  • The White House report on big data is due out this month.