July 25, 2024
Photo by Matthew Henry on Unsplash
Should Surveillance Pricing Be Allowed or Prevented by the FTC?
The Federal Trade Commission (FTC) is investigating “surveillance pricing,” where companies use artificial intelligence to set different prices for the same item based on individual customer data. This practice could lead to varying prices for the same product depending on a customer’s characteristics and behavior.
According to CNBC, the FTC has questioned eight companies — Mastercard, JPMorgan Chase, Accenture, McKinsey, Task, Revionics, Bloomreach, and Pros — about their use of AI and customer data in pricing. FTC Chair Lina Khan expressed concerns that such practices could exploit personal data to set higher prices and undermine privacy. The investigation aims to reveal how these practices affect consumer pricing.
“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices. Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen.”
FTC Chair Lina Khan via the FTC
Different forms of price surveillance have existed for quite some time — from charging different amounts to specific age groups to the newer notion of dynamic pricing at fast-food restaurants. Additionally, individual businesses that have loose pricing can adapt based on their perception of their customer. For example, appliance installers, car repair shops, and handymen might charge more if they notice that their customer is from a more affluent neighborhood or has an expensive car.
Per Lee Hepner, senior legal counsel for the American Economic Liberties Project, and reported by Governing, instead of determining prices based on supply and demand, surveillance pricing examines factors like your credit card and bank balances, or “whether it’s late at night and you’re looking for an Uber home,” to assess your ability and willingness to pay.
Industry experts are growing concerned over the amount of personal data being collected, the sensitivity of the data, and how businesses will use surveillance pricing as a means to go after even more personal data and more frequently.
According to Fast Company, another concern is the “individualized nature of that price personalization. A surveillance pricing system amasses data about each specific consumer, and feeds them a price based on the information it’s learned.”
Although the negatives seem apparent enough, other experts see surveillance pricing in a more positive light.
Jacobin highlighted that business school professors researching personalized pricing are enthusiastic about its potential. There are many academics involved in this field, with MIT offering courses about using data to “improve” pricing. Harvard even has a Pricing Lab department dedicated to analyzing data and conducting experiments such as the Billion Prices Project.
Jacobin further explained that the theory behind this optimism is that “an individualized price is better for the consumer.” For instance, a ZipRecruiter experiment revealed that 60% of consumers in the sample paid less with personalized pricing. However, the outlet noted that “making things cheaper isn’t really what economists mean by ‘better for the consumer.’”
BrainTrust
Melissa Minkow
Director, Retail Strategy, CI&T
Georganne Bender
Principal, KIZER & BENDER Speaking
Brett Wickard
CEO, FieldStack
Recent Discussions
Discussion Questions
How can businesses balance the advantages of AI-driven personalized pricing with privacy concerns and economic fairness while maintaining consumer trust?
What might be the long-term effects of surveillance pricing on market competition and consumer behavior, especially regarding the use of personal data to influence prices?
How should regulators craft policies to protect consumers from potential abuses in personalized pricing while still fostering innovation?
Poll
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Personalized pricing should not be banned. It is not the job of the government to dictate pricing or pricing strategies. What is more problematic, however, is unauthorized data sharing and use that can be used to feed into personalizing pricing algorithms. If consumers willingly share data, then that’s on them. If companies are pulling details from things like tax records, insurance, or other personal sources then that should clearly be stopped. The real issue here comes down to data protection and governance. In any case, while personalized pricing is used in some arenas, it is not all that mainstream in regular stores where the shelf price is the price you pay. Although, personalized coupons and offers can bypass this, of course.
If consumers are signing up for pricing variability, or giving personal data to form algorithms toward surveillance pricing, then thats a choice, and there should be no issues. But most Americans also probably feel a sinking sense that their personal data is unsafe, harvested at will, or hacked a little too often (count the form letters received in the mail stating a data breach was found at one of your trusted providers). And so government policy probably needs to get sink more teeth into consumer laws which prevent pricing advantages from surveillance on the many people who never asked for it.
We can have both basic consumer protection laws and allow for opt-in price variabilities to keep growth innovation going.
It is difficult to imagine an ordinary pricing model being too far off from supply and demand. But surveillinece pricing is not ordinary. This is because surveillinece pricing is based on data, making it difficult to predict. Companies must constantly monitor the market and adjust their prices accordingly. This makes surveillinece pricing a risky but potentially lucrative strategy.
Generally, surveillance pricing is based on indicators of a consumer’s ability and willingness to pay, which seems misguided because it can lead to unfair pricing practices that exploit consumers’ personal data.
Moreover, it often lacks transparency, making it difficult for consumers to understand why they’re being charged a particular price. This can erode trust and lead to negative perceptions of the company.
The companies will use your credit card information, bank balances, your next pay day, or the economic class you belong to, and I believe that sooner or later, consumers will rebel.
Consumers might rebel by demanding more transparency and regulation in pricing practices, potentially leading to stricter laws that protect their personal data. They could also boycott companies that engage in unfair pricing, opting instead for businesses that offer clear and consistent pricing structures.
Additionally, the rise of consumer advocacy groups could amplify these voices, pushing for greater accountability and ethical standards in the marketplace. Db
I agree, especially that there is a consumer backlash coming. Who knows the free market may correct this if enough companies take different approaches and advertise against this? As you note, transparency is key here.
Agreed with this – transparency is key.
I have been in pricing for a few decades and I can tell you this won’t wash. Give me something like a promotion or digital offer on my bill without having a card on my bill – then we can talk….
Surge pricing is bad enough and Uber already raises prices at peak times, now we have surveillance pricing that’s determined on your perceived social status and bank account? Nope. It’s not only unfair, it’s ridiculous.
100% agree. I wonder how many proponents of “personalized pricing” are simultaneously decrying China’s “social credit” policy in which what you are allowed to do, where you can go, and what you can buy is based on “data.”
There is an important difference between the two, of course. One is run by private companies, that you don’t necessarily have to deal with. The other is run by a totalitarian state, from which there is no escape.
This
Banks, mortgage lenders and hundreds of other business have been using Pricing based on a personal attributes including locations and Financial attributes. This is something the Government should let ride out and avoid intervening in. The Process will work its self out like free trade and supply and demand almost alway does.
This question wasn’t asked in the piece, but I seriously doubt that retailers will brag about their ability to change prices based on the customer’s age or social status. There isn’t a customer alive who’ll think that this kind of technology is going to benefit them, nor should there be.
Agreed. This is something that would cause annoyance and erode loyalty. No retailer wants to be seen to do this, or be exposed as doing it!
Is it really possible to “balance privacy concerns” when the very essence of the process is to invade privacy (on the old “it’s for your own good” premise)? Of course – whether intentionally or not – this piece foredooms a possiblity of us being fans by its nomenclature: call it “cutomized pricing” and the approval meter will, if not soar, then at least move into positive territory. For now, I’ll sit on the sidelines, judgement-wise.
This very much reminds me of rumours that circulated some years ago that some online retailers were charging different prices based on the device you were using to browse – showing a higher price for Apple device users because these were profiled as having more disposable income.
Nonetheless, balancing AI-driven personalized pricing with privacy concerns and economic fairness while maintaining consumer trust requires thinking about a number of things – which actually fall under the banner of responsible AI:
- Transparency: Clearly communicate how data is collected and used. This builds trust and ensures customers are aware of the benefits and risks.
- Data Protection: Implement robust data security measures to protect consumer information from breaches and misuse.
- Opt-In Models: Allow customers to choose whether they want to participate in personalized pricing, giving them control over their data.
- Fair Pricing: Ensure that personalized pricing does not exploit vulnerable customers. Regular audits and ethical guidelines can help maintain fairness.
I have to admit I’d never heard of surveillance pricing before. But now that I have read about it I can feel my blood pressure going through the roof. That word…’surveillance’…puts me right over the edge. The opportunities for abuse sound plentiful. Surge pricing is uncomfortable, but at least it’s rooted in pure supply and demand. The article also brought to mind a fuzzy recollection of the logic, “from each according to his abilities, to each according to his needs.” Just think how helpful AI could be in revisiting that thinking. I’m being deeply sarcastic of course. It sounds like surveillance pricing could open a Pandora’s Box of bad behaviors.
Pandora’s Box (can of worms) is precisely what first came to my mind. Agree 100%
Ok, so we are at the point where are are discussing the retail version of “Minority Report” now?
“We know that Michael would willingly pay 15% more than Mary for this fishing pole because the data says fishing is his passion and this is Mary’s first fishing trip.”
This group knows that there are few more passionate about the use of technology in retail, but this is beyond the pale.
“How can businesses balance the advantages of AI-driven personalized pricing with privacy concerns and economic fairness while maintaining consumer trust?”
They can’t and shouldn’t, “personalized pricing” based on data is far different than showing people products they want, it’s a form of discrimination that opens the door to millions of lawsuits.
“They can’t and shouldn’t.” Full stop. ‘Nuff said. There is a HUGE gap between curation and pricing. HUGE.
I can’t think of a better way to generate some really negative perceptions about your brand. Consumers are already squeamish about privacy. When they realize they’re paying different (Higher) prices than the person behind them in line because the retailer thinks they can afford it, that’s not going to go over well. Another example of asking “can we” and not “should we.”
sounds like Karl Marx meets George Orwell. I do not want anyone to know everything I do. I even hate it that Apple maps anticipates where I am heading when I get into my car. Furthermore, I can see that this will lead to more well off people paying more for a carton of milk. Progressivity in taxation is enough. I see this as a very dark future.
Even if the U.S. had adapted rules for handling private data as they have in Europe, it would still not have been enough. But the reality is, as much as we want to talk about it, we have all accepted that data is not our own. Wherever we go, whatever we do, it is being tracked. I doubt any of us will choose to live as a hermit.
Having now surrendered to the accumulation of data by others, why should companies not use that information to price products accordingly? Being an elite member of certain airlines and hotels provides better pricing and services several steps above others. Did you ever get an email prompting you to buy a product at a “special” price? Do we really think the price is the same for everyone receiving the email? Companies have used targeted prices forever. Now, the tools are just better.
I’m a big fan of dynamic and personalized pricing. There’s a way that this can occur without being exploitative. If the fluctuations are based on buying behaviors and external factors/overall inventory, rather than demographic customer information, I don’t see a problem with it at all, and it can actually benefit consumers more than they realize.
Sounds like Big Brother to me. Just sayin’.
I said the same thing, although I added in karl Marx because anyone making, say $200,000/year will be asked to pay twice as much for a gallon of milk.
A progressive price system. Ugh!
Surveillance pricing under different monikers has been going on for quite a while — However, it is often hidden or obfuscated (i.e. legalese) from consumers, so distrust is understandably high. The government should require easy to understand disclosure and adopt reasonable guidelines – but then let the market decide.
This is a slippery slope. If a customer finds out they are charged more compared to another customer (who happens to be a friend), what do you think that will do to the trust and confidence either customer has about the brand. That issue is just a starter. You have all types of privacy issues, profiling, etc. If the price changes due to something outside profiling the customer, such as supply and demand issues, then the company has good reason to engage in dynamic pricing.
Talking About Personal Data. Data, data everywhere. And cheap, too.
Credit scores drive interest rates. The higher your score, the lower the rate. Grocery store prices in more urban areas, or areas with higher crime rates are already higher. It really depends on how the data is used.
Technically speaking, if a customer is logged in, dynamic pricing could already factor in your historical return rate, average number of line items per order, delivery distance, etc. Should a person who never returns items have to pay as much as a serial returner?
But there is obviously still a lot of potential for abuse. And no doubt regulations will vary by country, so where a retailer or brand sells will greatly impact how much they can take advantage of personalized pricing.
This isn’t going to fly. It was never meant to fly, or they wouldn’t call it ‘Surveillance pricing.’
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Personalized pricing should not be banned. It is not the job of the government to dictate pricing or pricing strategies. What is more problematic, however, is unauthorized data sharing and use that can be used to feed into personalizing pricing algorithms. If consumers willingly share data, then that’s on them. If companies are pulling details from things like tax records, insurance, or other personal sources then that should clearly be stopped. The real issue here comes down to data protection and governance. In any case, while personalized pricing is used in some arenas, it is not all that mainstream in regular stores where the shelf price is the price you pay. Although, personalized coupons and offers can bypass this, of course.
If consumers are signing up for pricing variability, or giving personal data to form algorithms toward surveillance pricing, then thats a choice, and there should be no issues. But most Americans also probably feel a sinking sense that their personal data is unsafe, harvested at will, or hacked a little too often (count the form letters received in the mail stating a data breach was found at one of your trusted providers). And so government policy probably needs to get sink more teeth into consumer laws which prevent pricing advantages from surveillance on the many people who never asked for it.
We can have both basic consumer protection laws and allow for opt-in price variabilities to keep growth innovation going.
It is difficult to imagine an ordinary pricing model being too far off from supply and demand. But surveillinece pricing is not ordinary. This is because surveillinece pricing is based on data, making it difficult to predict. Companies must constantly monitor the market and adjust their prices accordingly. This makes surveillinece pricing a risky but potentially lucrative strategy.
Generally, surveillance pricing is based on indicators of a consumer’s ability and willingness to pay, which seems misguided because it can lead to unfair pricing practices that exploit consumers’ personal data.
Moreover, it often lacks transparency, making it difficult for consumers to understand why they’re being charged a particular price. This can erode trust and lead to negative perceptions of the company.
The companies will use your credit card information, bank balances, your next pay day, or the economic class you belong to, and I believe that sooner or later, consumers will rebel.
Consumers might rebel by demanding more transparency and regulation in pricing practices, potentially leading to stricter laws that protect their personal data. They could also boycott companies that engage in unfair pricing, opting instead for businesses that offer clear and consistent pricing structures.
Additionally, the rise of consumer advocacy groups could amplify these voices, pushing for greater accountability and ethical standards in the marketplace. Db
I agree, especially that there is a consumer backlash coming. Who knows the free market may correct this if enough companies take different approaches and advertise against this? As you note, transparency is key here.
Agreed with this – transparency is key.
I have been in pricing for a few decades and I can tell you this won’t wash. Give me something like a promotion or digital offer on my bill without having a card on my bill – then we can talk….
Surge pricing is bad enough and Uber already raises prices at peak times, now we have surveillance pricing that’s determined on your perceived social status and bank account? Nope. It’s not only unfair, it’s ridiculous.
100% agree. I wonder how many proponents of “personalized pricing” are simultaneously decrying China’s “social credit” policy in which what you are allowed to do, where you can go, and what you can buy is based on “data.”
There is an important difference between the two, of course. One is run by private companies, that you don’t necessarily have to deal with. The other is run by a totalitarian state, from which there is no escape.
This
Banks, mortgage lenders and hundreds of other business have been using Pricing based on a personal attributes including locations and Financial attributes. This is something the Government should let ride out and avoid intervening in. The Process will work its self out like free trade and supply and demand almost alway does.
This question wasn’t asked in the piece, but I seriously doubt that retailers will brag about their ability to change prices based on the customer’s age or social status. There isn’t a customer alive who’ll think that this kind of technology is going to benefit them, nor should there be.
Agreed. This is something that would cause annoyance and erode loyalty. No retailer wants to be seen to do this, or be exposed as doing it!
Is it really possible to “balance privacy concerns” when the very essence of the process is to invade privacy (on the old “it’s for your own good” premise)? Of course – whether intentionally or not – this piece foredooms a possiblity of us being fans by its nomenclature: call it “cutomized pricing” and the approval meter will, if not soar, then at least move into positive territory. For now, I’ll sit on the sidelines, judgement-wise.
This very much reminds me of rumours that circulated some years ago that some online retailers were charging different prices based on the device you were using to browse – showing a higher price for Apple device users because these were profiled as having more disposable income.
Nonetheless, balancing AI-driven personalized pricing with privacy concerns and economic fairness while maintaining consumer trust requires thinking about a number of things – which actually fall under the banner of responsible AI:
I have to admit I’d never heard of surveillance pricing before. But now that I have read about it I can feel my blood pressure going through the roof. That word…’surveillance’…puts me right over the edge. The opportunities for abuse sound plentiful. Surge pricing is uncomfortable, but at least it’s rooted in pure supply and demand. The article also brought to mind a fuzzy recollection of the logic, “from each according to his abilities, to each according to his needs.” Just think how helpful AI could be in revisiting that thinking. I’m being deeply sarcastic of course. It sounds like surveillance pricing could open a Pandora’s Box of bad behaviors.
Pandora’s Box (can of worms) is precisely what first came to my mind. Agree 100%
Ok, so we are at the point where are are discussing the retail version of “Minority Report” now?
“We know that Michael would willingly pay 15% more than Mary for this fishing pole because the data says fishing is his passion and this is Mary’s first fishing trip.”
This group knows that there are few more passionate about the use of technology in retail, but this is beyond the pale.
“How can businesses balance the advantages of AI-driven personalized pricing with privacy concerns and economic fairness while maintaining consumer trust?”
They can’t and shouldn’t, “personalized pricing” based on data is far different than showing people products they want, it’s a form of discrimination that opens the door to millions of lawsuits.
“They can’t and shouldn’t.” Full stop. ‘Nuff said. There is a HUGE gap between curation and pricing. HUGE.
I can’t think of a better way to generate some really negative perceptions about your brand. Consumers are already squeamish about privacy. When they realize they’re paying different (Higher) prices than the person behind them in line because the retailer thinks they can afford it, that’s not going to go over well. Another example of asking “can we” and not “should we.”
sounds like Karl Marx meets George Orwell. I do not want anyone to know everything I do. I even hate it that Apple maps anticipates where I am heading when I get into my car. Furthermore, I can see that this will lead to more well off people paying more for a carton of milk. Progressivity in taxation is enough. I see this as a very dark future.
Even if the U.S. had adapted rules for handling private data as they have in Europe, it would still not have been enough. But the reality is, as much as we want to talk about it, we have all accepted that data is not our own. Wherever we go, whatever we do, it is being tracked. I doubt any of us will choose to live as a hermit.
Having now surrendered to the accumulation of data by others, why should companies not use that information to price products accordingly? Being an elite member of certain airlines and hotels provides better pricing and services several steps above others. Did you ever get an email prompting you to buy a product at a “special” price? Do we really think the price is the same for everyone receiving the email? Companies have used targeted prices forever. Now, the tools are just better.
I’m a big fan of dynamic and personalized pricing. There’s a way that this can occur without being exploitative. If the fluctuations are based on buying behaviors and external factors/overall inventory, rather than demographic customer information, I don’t see a problem with it at all, and it can actually benefit consumers more than they realize.
Sounds like Big Brother to me. Just sayin’.
I said the same thing, although I added in karl Marx because anyone making, say $200,000/year will be asked to pay twice as much for a gallon of milk.
A progressive price system. Ugh!
Surveillance pricing under different monikers has been going on for quite a while — However, it is often hidden or obfuscated (i.e. legalese) from consumers, so distrust is understandably high. The government should require easy to understand disclosure and adopt reasonable guidelines – but then let the market decide.
This is a slippery slope. If a customer finds out they are charged more compared to another customer (who happens to be a friend), what do you think that will do to the trust and confidence either customer has about the brand. That issue is just a starter. You have all types of privacy issues, profiling, etc. If the price changes due to something outside profiling the customer, such as supply and demand issues, then the company has good reason to engage in dynamic pricing.
Talking About Personal Data. Data, data everywhere. And cheap, too.
https://www.nytimes.com/2024/07/26/technology/driver-data-sold-for-pennies.html?unlocked_article_code=1.-U0.eQYz.XFMZqziblVr9&smid=url-share
Credit scores drive interest rates. The higher your score, the lower the rate. Grocery store prices in more urban areas, or areas with higher crime rates are already higher. It really depends on how the data is used.
Technically speaking, if a customer is logged in, dynamic pricing could already factor in your historical return rate, average number of line items per order, delivery distance, etc. Should a person who never returns items have to pay as much as a serial returner?
But there is obviously still a lot of potential for abuse. And no doubt regulations will vary by country, so where a retailer or brand sells will greatly impact how much they can take advantage of personalized pricing.
This isn’t going to fly. It was never meant to fly, or they wouldn’t call it ‘Surveillance pricing.’