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June 11, 2005
'Price customization' — The dirty little secret of Internet stores
Everyone knows that you can find a lot of different prices for the same thing online, just as you can in the real world.
Most people thought the online disparities would fade away with the ease of comparison but that hasn't happened and probably never will.
Because I don't know about you but I'll gladly pay 10% more for something from Amazon as opposed to buying from an unknown online source.
Still, I must say I was kind of surprised when I learned about the practice of "price customization" in Ted Bridis's June 1 Associated Press article.
Long story short: "Price customization" is when a website notes that an individual is a first–time visitor and possibly "bottom feeding" for the lowest price, then shows a price higher than a repeat customer would receive.
Huh.
This practice is not illegal, it turns out, as long as the price discrimination is not on the basis of race or gender.
Huh.
Still seems sort of unfair, doesn't it?
Or maybe it's just me.
The Annenberg Public Policy Center conducted a study called "Open to Exploitation" and found that two–thirds of Americans thought that "price customization" is illegal.
The study also showed that most Americans know much less about the internet and online commerce than they think they do.
The Annenberg Center website contains a link to the quiz given to study participants: take it and see how you fare.
You'll be surprised, I'll bet — and not in a good way.
Here's Bridis's AP story.
- Study: Shoppers Naive About Online Prices
Most American consumers don't realize Internet merchants and even traditional retailers sometimes charge different prices to different customers for the same products, according to a new survey.
The study, "Open to Exploitation," found nearly two-thirds of adult Internet users believed incorrectly it was illegal to charge different people different prices, a practice retailers call "price customization."
More than two-thirds of people surveyed also said they believed online travel sites are required by law to offer the lowest airline prices possible.
The study, expected to be released Wednesday by the Annenberg Public Policy Center of the University of Pennsylvania, is the latest to cast doubt on the notion of sophisticated consumers in the digital age.
It said 87 percent of people strongly objected to the practice of online stores charging people different prices for the same products based on information collected about their shopping habits.
"I don't think people understand this is being done," said Willi Stabenau, 23, a musician in New York who participated in the survey.
"We don't let ourselves be tracked that way in any other facet of our lives. Why would you want that to happen while you're shopping?"
The Internet empowers careful shoppers to conveniently compare prices and features across thousands of stores.
But it also enables businesses to quietly collect detailed records about a customer's behavior and preferences and set prices accordingly.
Changing prices is generally lawful unless doing so discriminates against a consumer's race or gender or violates antitrust or price-fixing laws.
Stabenau said he shops online frequently but always remembers: "They're after your money, and you want to spend as little as possible."
"People are fooling themselves if they believe otherwise," Stabenau said.
Stores aggressively try to retain loyal customers who generate the highest sales while discouraging bargain-hunter shoppers who are less profitable because they check many sites for the same product at the lowest price.
They are known within the industry as "bottom feeders" who don't show any brand or merchant loyalty.
First-time buyers at a retailer could see higher prices than a firm's repeat customers, and retailers may not offer discounts to consumers who buy the same brands regularly without even looking at alternative products on the same site.
"It's really murky because companies are so loathe to discuss this," said researcher Joseph Turow.
"This is a new model of shopping reality. The question becomes, what do people feel is right? Can't more openness be the order of the day?"
The study urged government to require retailers to disclose exactly what information is collected about customers and how the data is used, and it urged schools to teach students better how to protect themselves as consumers.
Turow found a retail photography Web site charging different prices for the same digital cameras and related equipment depending on whether shoppers had previously visited popular price-comparison sites.
He said grocery stores increasingly offer personalized discounts and coupons based on a person's shopping behavior.
Amazon.com outraged some customers in September 2000 after one buyer deleted the electronic tags on his computer that identified him as a regular customer and noticed the price of a DVD changed from $26.24 to $22.74.
The company said it was the result of a random price test and offered to refund buyers who paid the higher prices.
The Annenberg study was based on results from a telephone survey from Feb. 8 to March 14 of 1,500 adults who said they had used the Internet within the past 30 days.
The margin of sampling error was reported to be plus or minus 2.51 percentage points.
June 11, 2005 at 10:01 AM | Permalink
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