Gotcha: Hosed by “dynamic pricing”

In a prior post My computer’s algorithms tell me that you’re willing to pay higher prices we reported that online retailers were using software that helps them detect shoppers who can afford to pay more or are in a hurry to buy … and, present pricier options to them or simply charge more for the same stuff.


For example:

Cookies stored in shoppers’ web browsers may reveal where else they have been looking, giving some clues as to their income bracket and price-sensitivity.

A shopper’s internet address may be linked to his physical address, letting sellers offer, say, one price for well-to-do zips, another for low income zones.

“Price customization” software can collate such clues with profiles of individual shoppers that internet sellers buy from online-data-aggregation firms … All fairly cheaply.

For example, Orbitz detects whether people browsing its site are using an Apple Mac or a Windows PC and recommends pricier hotels to Mac users.

Some online firms charge people different rates for the same products … for instance, by charging full price for those assumed to be willing and able to pay it, while offering promotional prices to the rest.

Allocating discounts with price-customization software typically brings in two to four times as much money as offering the same discounts at random,

One way to do this is to monitor how quickly shoppers click through towards the online seller’s payment page: those who already seem set on buying need not be tempted with a special offer.

Similarly, companies are beginning to scan Twitter for info on the shoppers since their tweets give useful hints about whether a discount is needed to clinch the sale.

Well, a WSJ investigation revealed that the online pricing tricksters are getting even trickier …

Reporters from the WSJ found that:

  • In 1997, a startup called Personify sold software that tried to personalize Web pages for shoppers. For example, people taking a certain path through a site could be tagged as price-conscious and be shown low-end items … but, “The idea was more advanced than the technology could support at the time”
  • Websites are adopting techniques to glean information about visitors to their sites, in real time, and then deliver different versions of the Web to different people. Prices change, products get swapped out, wording is modified, and there is little way for the typical website user to spot it when it happens.
  • Many sites switch prices at lightning speed in response to competitors’ offerings and other factors, a practice known as “dynamic pricing.” Other sites test different prices but do so without regard to the buyer’s characteristics.
  • Several companies, including Staples, Discover Financial Services,  Rosetta Stone  and Home Depot  are consistently adjusting prices and displaying different product offers based on a range of characteristics that could be discovered about the user. including “customers’ browsing history and geolocation
  • Staples website tweaks prices based on a person’s proximity to rival stores … if rival stores were within 20 miles or so, usually showed a discounted price. Statistically speaking, by far the strongest correlation to Staples’ prices involved the distance to a rival’s store from the center of a ZIP Code. That single factor appeared to explain upward of 90% of the pricing pattern.
  • Some sites, Orbitz & CheapSeats for example, offer “mobile steals” — discounts based on whether or not a person was using a mobile device. Orbitz says some deals are also available on the iPad, but only  if a person installs the Orbitz app.
  • Home Depot says it uses IP address to try to match users to the closest store and align online prices accordingly.

Caveat emptor …

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