Delta’s Personalized Pricing Sparks Debate on Privacy Rights
Delta Air Lines recently disclosed its implementation of personalized pricing, a strategy that determines how much customers pay based on their personal data. This revelation has reignited an ongoing debate about the ethics of charging different prices for the same product or service. The question now is: how far can businesses go in utilizing personal information to set prices?
Differentiated pricing is not a new concept; discounts for students and seniors are well-known examples where consumers pay varying prices based on broad demographics. However, personalized pricing takes this a step further by analyzing individual characteristics derived from data rather than explicit customer disclosure. According to John M. Yun, an associate professor of law at George Mason University, personalized pricing constitutes a form of price discrimination. This occurs when prices are adjusted based on personal traits, such as location or age, without the customer actively sharing that information.
Yun explains that unlike traditional dynamic pricing, which varies according to market factors like supply and demand, personalized pricing relies on a customer’s unique online behavior, device usage, and purchase history. For example, while dynamic pricing might raise airfares during peak travel seasons, personalized pricing could result in different fare options based on an individual’s purchasing patterns.
Product steering is another related practice, where companies display different products based on the consumer’s profile without altering the prices. In a notable case from 2012, Orbitz displayed higher-end hotel options to Mac users, assuming they would prefer more expensive accommodations. While both personalized pricing and product steering use personal data, the former directly influences how much a customer pays.
Target stirred controversy in 2019 when it was revealed that the price of a television dropped by $100 when viewed online from a location other than its stores. Although Target attributed the difference to distinct pricing strategies for in-store and online purchases, the incident highlighted concerns regarding privacy. Yun noted, “It’s a consumer’s right to be upset or not upset,” emphasizing that effective personalized pricing should assess a customer’s willingness to pay while respecting their privacy.
As personalized pricing becomes more prevalent, consumer acceptance will play a crucial role in determining its future. Following Delta’s disclosures, American Airlines CEO Robert Isom criticized the practice, framing it as deceptive. Yun acknowledges that while maximizing profitability through personalized pricing may be economically sound, three significant factors could impede its widespread adoption.
First, consumer acceptance is essential; customers who are uncomfortable with personalized pricing may choose competitors that do not employ such strategies. Second, competitive pressures will influence companies, as retailers offering personalized pricing risk losing customers to those who do not. Lastly, a societal stigma may arise against companies that utilize these pricing tactics, as seen in the backlash against Uber when it was accused of charging different prices based on the rider’s smartphone battery level.
The implications of personalized pricing are complex. Individuals may find themselves benefiting from lower prices at certain life stages, such as when they are students, while potentially facing higher costs later in life. Yun emphasizes that the impact of personalized pricing can differ significantly across various markets.
Even in the absence of personalized pricing, companies commonly use dynamic pricing, targeted discounts, and product steering. Current laws can address unfair pricing practices if personalized pricing becomes problematic. Notably, the scrutiny of antitrust authorities is focused on companies acquiring competitors’ pricing data through algorithms, as exemplified by the case against RealPage, which faces legal action for alleged antitrust violations.
When it comes to consumer concerns about personalized pricing, Yun humorously suggested rebranding it as “bespoke pricing.” However, he cautioned that this would not resolve the underlying issues of data collection and transparency. The key question remains whether consumers possess enough information to make informed decisions about companies practicing personalized pricing.
“Ultimately, information is the key,” Yun stated. “Do consumers have enough information to make a disciplined and informed choice about companies and brands that engage in a certain pricing practice?” While concerns about personalized pricing are valid, Yun believes that being cautious does not equate to dismissing the practice altogether.
