Welcome! Today I want to base my post off the article “Supermarkets Offer Personalized Pricing” by Olga Kharif.
In the article, Kharif uses two examples of individualized pricing and both refer to lowering the price for an item the buyer uses frequently; one was for eggs and the other was for a free loaf of bread. The idea behind the first example was to offer the customer a deal around the time she generally purchases eggs, because it may encourage her to buy them more frequently (2013, p.1). For the loaf of bread, the point was to encourage an extra trip to the store in which the consumer may choose to purchase other items he needed or wanted while he was there (2013, p.2). In both instances, the customer benefited from the prices.
However, this leaves me with questions. If prices could be personalized and lowered for customers, then couldn’t they also rise when an item is in high demand or needed within a certain time? Is some form of discrimination involved with this kind of system? And it makes me wonder if personalized pricing could become more problematic than helpful.
I found a journal article called “Personalized Pricing as Monopolization” by Ramsi A. Woodcock. In the article, Woodcock argues that personalized pricing is a form of price discrimination in the sense that the goal is to “charge each individual consumer a price personalized to match that consumer’s maximum willingness to pay for the product” (2019, p.314). Basically, companies charge the consumer as high as they can and still have the consumer purchase the product, which in the end, doesn’t benefit the consumer at all.
There may be a way around that particular approach in the system though. Another article I found called “Shopper Alert: Price May Drop for You Alone” by Stephanie Clifford mentions how a consumer managed to avoid price spiking. She noticed a way to “game the system” by alternating between two brands of ground coffee (Clifford, 2012, p.3). Both companies, in order to remain in competition with each other, would offer her cheaper prices to get her to continually buy their product (2012, p.3). Essentially, when companies are no longer in competition with one another, that’s when the risk of price monopolization comes into play. So, in order to keep prices low within a personalized pricing system, there still has to be competition between companies just like with uniform pricing.
Another article I found called “The Benefits of Personalized Pricing” by Adam N. Elmachtoub also points out that “implementing any form of price discrimination, including personalized pricing, may be costly and/or difficult” due to the “need to engage in price experimentation and market research, invest[ing] in information systems to store customer data, and build[ing] analytics expertise to transform these date into personalized pricing strategy” (2018, p.2). So there’s a chance that, not only would the system not be all that beneficial, but it would cost a bunch of money to have it properly implemented.
I could see personalized pricing being beneficial. We already see potential benefits from it from advertisements of great deals popping up while we are on social media. However, because companies still need to make money—and they enjoy making money as much money as possible—I feel like they would take advantage of the system in a way that they would benefit more from it than the consumer.
References
Clifford, S. (2012). Shopper alert: Price may drop for you alone. New York Times, 9. Retrieved from https://msu.edu/~conlinmi/teaching/MBA814/NYTpricediscrimination.pdf
Elmachtoub, A. N., Gupta, V., & Hamilton, M. (2018). The value of personalized pricing. Available at SSRN 3127719. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3127719
Kharif, O. (2013). Supermarkets offer personalized pricing. Companies & Industries. Retrieved from http://www.businessweek.com/articles/2013-11-14/2014-outlook-supermarkets-offer-personalized-pricing
Woodcock, R. A. (2019). Personalized pricing as monopolization. Connecticut Law Review, 51(2), 311-374.Retrieved from https://heinonline-org.proxy.lib.utk.edu/HOL/Page?public=true&handle=hein.journals/conlr51&div=12&start_page=311&collection=journals&set_as_cursor=0&men_tab=srchresults
Social Informatics 