Different customers, different prices: Companies use data for personalized pricing

My husband, John, and I decided to try a little experiment the other day. We’d just finished shopping at a supermarket in Queens and wondered: How much would an Uber cost to get home?

We each typed in our address and on the count of three, confirmed the ride. John’s price was $8.91. I was given $9.96.

“I don’t really use Uber, so maybe it’s trying to get me to use it more?” guessed John.

That’s one theory. But the company said it does not personalize fares. In a statement, Uber said variations in prices reflect things like how many drivers are active and how many customers are requesting similar trips. 

In general though, companies now know more than ever about our habits. That’s powerful information — not just for advertising, but to understand how much any given person might pay for something beyond the realities of dynamic pricing. It’s called “surveillance pricing,” when companies set different prices for different customers. After much backlash, Instacart recently ended a pilot that allowed retailers to charge different prices for people living in the same city. 

Personalized pricing isn’t new. In fact, it’s been around in some form as long as commerce has.

“People think that personalization is a 21st-century phenomenon due to the internet. It goes back to peddlers and before,” said Joseph Turow, author of “The Voice Catchers: How Marketers Listen In to Exploit Your Emotions, Your Privacy, and Your Wallet.”

Shopkeepers would game out what customers were willing to pay. 

“They would actually keep notebooks on the people they spoke to and would write down specific characteristics,” like what kind of clothes you wore or who your friends and family were, said Turow.

The difference is before, a business owner had to guess if a woman’s baby bump was indeed a baby bump. Now, a retailer knows the instant she adds prenatal vitamins to her cart. 

“It’s legal to do it, and some economists would say that price differentiation is just part of the way that economics works,” said Turow, adding that a lot of consumers have no idea surveillance pricing is happening. “But to me that’s problematic.” 

No one really knows how common surveillance pricing is. But what is clear is that retailers are watching us closely. 

“Behavior patterns, their browsing history, their loyalty that they might have, whether it’s through credit card or through points,” said Shikha Jain, a retail partner at the consulting company Simon Kucher. “And so you do see that happening more and more.”

Often retailers are using that information not for surveillance pricing, but surveillance discounting: Here’s a coupon for being a member or 10% off that immersion blender sitting in your cart. It’s why, as a consumer, it’s more difficult than ever to figure out if you’re getting the best price.

“Price discrimination sounds really scary, but effectively it means that it’s good for some consumers and not so good for others,” said Garrett Johnson, a marketing professor at Boston University. 

If you want to compare prices, said Johnson, you kind of need to hide. 

“So you can open the website in incognito mode, using your mobile phone, you know, maybe even turn off your wifi,” he said.

But are we really going to do this dance every time we buy something as mundane as toothpaste?

I decided to shop for toothpaste at Walmart online, on two different browsers. On one, I signed into my account, which had my information. On the other, I was anonymous, but added my shipping address for an exact location comparison. 

I scrolled through the search results and saw a few price discrepancies, including a tube of Colgate toothpaste. On both searches, I was given the same type, same cool mint flavor and same 6.3 oz. size — at different prices. On the page where I was not signed into my account, the tube was $3.74. On the page where I was signed in, it was $3.96.

I reached out to Walmart about their pricing policy. In a statement, the retailer said: Because prices can vary by market, customers may occasionally see slight differences as price matches and changes are executed in real time. 

All this to say, personalized pricing or not, there’s some kind of algorithmic something happening here. Turns out, companies know a lot about us. But we don’t know so much about them — or how they decide what we pay.