By Neal Lemery
Have you wondered how artificial intelligence has moved into your life, and subtly affected your decision-making?
A very real commercial practice now seems to be thriving in our lives as consumers in the marketplace: surveillance pricing.
I’ve noticed that when I Google a product or an idea, my Facebook page is soon offering an ad for the product or that line of consumer goods, or a posting from a related group or company. I’ve blamed it on algorithms, but I’ve come to learn that such “placement” is a deliberate marketing technique, geared to profit from potential customers who have a buying history for that type of product. This marketing practice goes even deeper.
Surveillance pricing lurks in the shadows of the internet, subtly watching what we consumers are doing, and how we are spending our money.
Google tells me what it is and how it works:
- “Data Collection: Retailers gather your personal information, including browsing history, location, device type, shopping habits, and inferred income.
- “Individualized Pricing: Instead of setting a standard price for everyone, algorithms calculate a unique price or targeted discount for each person.
- “Difference from Dynamic Pricing: Traditional dynamic pricing changes costs based on general market factors like supply and demand (such as airline seats or surge rides). Surveillance pricing changes costs based on who you are.”
Amazon and other online retailers keep track of who you are, your buying history, and a variety of evidence-based sources to know quite a bit about you. From that data, including your search history, the prices listed for what’s on your shopping cart will be individually tailored to what the algorithm thinks you would be willing to pay.
The practice is becoming widespread in grocery stores, travel, hospitality, ride sharing, and on-line retail. If the algorithm “thinks” you have an urgent need, or a high income, the price you see could be higher than for other consumers looking for the same product or service. There’s no federal law outlawing the practice, but some states are starting to outlaw or regulate this relatively new corporate practice.
New York requires a printed notice disclosing the practice, and consumers are seeking to use existing privacy laws to fight back. One can adjust their “app” settings to limit what a company can glean from you, and Maryland and California are looking at new legislation.
The Federal Trade Commission recently released a study on surveillance pricing, saying “Staff found that consumer behaviors ranging from mouse movements on a webpage to the type of products that consumers leave unpurchased in an online shopping cart can be tracked and used by retailers to tailor consumer pricing. Federal Trade Commission Report
“The FTC’s 6(b) study focuses on intermediary firms, which are the middlemen hired by retailers that can algorithmically tweak and target their prices. Instead of a price or promotion being a static feature of a product, the same product could have a different price or promotion based on a variety of inputs—including consumer-related data and their behaviors and preferences, the location, time, and channels by which a consumer buys the product, according to the perspective.”
Cornell Law School writes that: “Surveillance pricing can occur during both online and in-person transactions. While shopping in-person, sellers may use digital price tags to dynamically change the price in real time depending on the customer. A major concern is that surveillance pricing may be discriminatory and use characteristics such as race or gender to determine pricing. Another potential harm of surveillance pricing is that it encourages further collection and distribution of personal information.” Cornell Law School
The old maxim, “Buyer Beware” is taking on new meaning in this age of technology and on-line “convenience.”
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