What do retailers owe customers when it comes to personalized pricing?
Cleber Ikeda is investigative analytics and intelligence director at Walmart. Any views and opinions expressed herein are personal and may not represent those of Walmart. The content of this article does not contain nor reference confidential, proprietary information of Walmart.
Artificial intelligence-powered dynamic and personalized pricing offers retailers a means to satisfy customers and protect profit margins at the same time. It’s not hard to understand why retailers are increasingly employing these tools in their operations. Beyond the business potential, however, there are also ethical concerns raised by their use.
Dynamic pricing is an automated pricing process that leverages data analytics on established parameters to enable fast pricing decisions by anticipating always-changing market conditions. Personalized pricing is a subset of dynamic pricing whereby retailers segment customers and sell them products and services at prices they are willing to pay.
Being able to charge customers a higher price where they see a value provides retailers with opportunities to increase profit margins. Tighter pricing for items in instances when customers are reluctant to go up can generate frequency of purchase and, in turn, create opportunities for loyalty building.
The primary ethical dilemma connected to personalized pricing is the customer perception of fairness. Using zip codes, for example, to charge higher prices in wealthy neighborhoods might not reflect the purchasing power of less fortunate inhabitants at the border of those areas. This practice could prevent some customers from accessing products and services they could afford at regular prices. Wealthier customers might also perceive unfairness and intrusion of privacy by knowing they are paying more only because they can afford it.
Privacy regulations and customers’ expectations of their privacy are key aspects to consider. If personalized pricing is being deployed, customers should be informed in easily accessible, plain language. In that sense, privacy and transparency go side by side. Customers should have access to their data and determine if they want to authorize companies to use it and in what ways. International laws such as GDPR and CCPA cover this.
And finally, what if something goes wrong? Retailers must be in the loop to make sure automated price changes are not violating customers’ rights. That ability to oversee unintended pricing outputs should be supplemented by the ability to manually take over pricing when conditions demand.
- Will personalized pricing end retailers’ use of dynamic pricing? – RetailWire
- Amazon Doesn’t Consider the Race of Its Customers. Should It – Bloomberg
DISCUSSION QUESTIONS: What are the ethical considerations retailers should consider in deploying dynamic and personalized pricing? What fail-safes need to be put in place to avoid losing the trust of consumers?