February 03, 2010
OpEd Guest Post By Robert Farago, E-Commerce Consultant
Consumers don’t know about it, and if they did, chances are they wouldn’t like it, but more and more e-tailers are turning to customer-specific “dynamic pricing.” The practice analyzes information tied to a consumer’s computer cookies—including ZIP code, browsing, and shopping history. The e-tailer’s software automatically varies the price for any given item, charging different customers different prices for the same product. “Most consumers are totally unaware of the practice,” Shop Smart magazine deputy editor Sue Perry told Newsfactor.com. “The changes can be as little as $2, $3 and $4, but it all adds up.”
“Dynamic pricing has always been with us,” Wharton University marketing professor Pete Fader wrote in a study by the Annenberg Public Policy Center. “Think of the classic hagglers in the market of a Middle East bazaar. People will pay very different prices for the same bolt of fabric… Fixed pricing is a much later phenomenon and it’s an artificial one. Companies must engage in flexible pricing practices in order to honor their responsibilities to their shareholders. If retailers charge a flat, low price to make everyone happy, they’re leaving a lot of money on the table.”
Dynamic pricing—also known as targeted pricing, flexible pricing, or tailored pricing—is strictly kosher. Attorney Marcelo Halpern of Chicago’s Latham & Watkins told ZippyCart price customization’s legality was last established in 1996, when Denise Katzman filed a class action lawsuit against Victoria’s Secret. Katzman sought legal redress after discovering that a male colleague’s catalog featured a lower price on an identical item. Judge Robert W. Sweet dismissed the case, calling the complaint “objectively unreasonable.” “Fair market value is defined as what a willing buyer is willing to pay to a willing seller,” Halpern said. “Aside from certain federally regulated product categories like pharmaceuticals… under U.S. law an online business can charge whatever the market will bear to whomever will pay it.”
Even when dynamic pricing isn’t customer-specific, it offers e-tailers significant profit potential. A pilot program by Digonex Technologies for Warner Brothers boosted the bottom line for selected music titles by over 15 percent. Digonex also claims they raised relevant revenues by over 20 percent, and elevated sales volumes by over 35 percent. Digonex recently announced a deal with the Cleveland Cavaliers basketball team for their Sports & Entertainment Analytical Ticketing System (SEATS) software. The program sets seat prices according to a proprietary list of variables. “Although the Cavs play indoors, our customizable system could even take into account weather forecasts,” asserts Digonex PR Director Chris Pohl.
As far as price-conscious consumers are concerned, Editor Perry reckons its computerized caveat emptor. “Experiment by clearing cookies or using different computers. Compare prices at rival sites or shopping comparison sites. Don’t leave items in the online cart. Track past purchases to compare prices.” Either that or . . . haggle?
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