Everyone has a price: Retailers are starting to charge different people different prices. The more you shop, the less you pay

Everyone has a price

November 11, 2013

Michael Baker

Retailers are starting to charge different people different prices. The more you shop, the less you pay. Charging different customers a different price for the same product is not exactly a new idea. The airlines have been doing it for ages, so have the hotel chains. They are simply exploiting the fact that different kinds of people have a different level of willingness to pay.Now, some traditional retailers would like to get in on the act too. Surprisingly, they are not about to do it on the internet, where each transaction is concealed from every other customer, but right there in the conventional store, in the open, in plain view of everyone.

New technology provides them with the means to do it. But is it such a great idea, even if it is being done in the name of a noble cause, such as personalising the shopping experience or rewarding the most loyal customers?

Britain’s largest home improvement retailer, B&Q, thinks it’s a worthwhile idea and is off to the races with a test of variable pricing in its stores using electronic shelf labels. The way it works is this: the “smart” shelf label identifies a passing shopper’s mobile phone signal and matches it to a loyalty program or purchase history. The display price of the product then automatically adjusts to an amount consistent with the customer’s loyalty standing.

Lets say there are two customers – one is a frequent shopper with a terrific standing in the retailer’s loyalty program and the other shops at the store only occasionally. The first one probably pays a lower price.

The same technology can be used for the less novel goal of altering prices across the store by time of day or time of week to try to smooth out store traffic flows.

Smoothing out customer traffic flows is a key objective of airlines and hotels, which want to maximise occupancy but cannot do so by charging everyone an identical price for the same flight or hotel room. Restaurants effectively do the same thing when they offer the same menu items more cheaply during off-peak periods.

In some instances, variable pricing is more sinister. Online retailers have been known to vary prices according to the demographic or geographic profile of a customer. Earlier this year, a federal government inquiry attacked global IT players for gouging Australian consumers just because they lived in Australia.

Another unpleasant example of profiling is instances where online retailers have charged a higher price for the same item to customers accessing their web sites from an Apple device, since it is widely believed that Apple owners are better off than those operating Windows-based machines.

That kind of thing is flat-out price discrimination.

If a retailer like B&Q uses dynamic pricing technology to lower the price for a loyal customer it is not guilty of discrimination. Does that make it a good idea?

There could be one problem – the electronic shelf labels are in full public view.

People know when they sit in a plane seat that they are paying a different price to the person sitting next to them but they don’t really think about it too much because the discrimination occurred in a private transaction and wasn’t “in your face”.

It’s a case of “what you don’t know won’t hurt you”. It’s the same for a hotel room – you’re not going to go round knocking on everyone else’s door to find out what they paid.

Making the price discrimination so publicly visible in a physical store setting is quite another matter and may send out a bad message about the retailer. One customer who is not a loyalty program member watching the person next to him getting a better price on the same item might not feel particularly inclined to shop there again.

The B&Q experiment will be watched with great interest. Potentially one of the biggest gifts of the technology revolution is the ability for retailers to personalise shopping and make marketing offers more relevant to each individual consumer. Whether the B&Q model is a smart application of this principle, or just a dumb idea that alienates a lot of customers, remains to be seen.