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Online price discrimination has attracted immense popularity and heat in the last few months when the Wall Street Journal revealed some websites that used variable prices based on users’ location and other statistics.

This came as breaking news for those who used to think of the ecommerce market as a reliable and fair shopping arcade.

So, let’s see how this thing works, and how you can save yourself from this manipulation.

Here is an example of how different prices appear on the screens: 

As you can see, the product is the same but the prices are quite different! Surely you won’t feel good when you find out that your friend bought the same DVD from Amazon for $5 which was way less than what you paid for it.

Is it an effective pricing strategy?

Be a part of it to know it well. We did the same thing. After weeks of trying, we hit pay dirt in tracking a computer programmer who designed such websites for ecommerce sellers.

The name and companies he used to work for have been kept anonymous due to the non-disclosure agreement. Anyway, what’s important here is that he revealed some important facts about this pricing tactic.

The different deals and prices appear as per the location, browsing history and operating system used by the potential buyer.  

Now, it shouldn’t come as a surprise that several world-famous online retailers and multinationals hire people to keep track of their online visitors and customers.

Well, what do you think? Is it an effective pricing strategy when we take into account the increasing competition and awareness among consumers? So far, this price tampering, as we may call it, has proven to be a ‘luck by chance’ practice for many online companies.

For instance it backfired on Amazon in 2000, when one online buyer deliberately cleared the cache before buying a DVD. The so called smartly designed website recognized him as a new user and showed lower prices to lure him. He reported a gain of $3.5 after deleting the cookies.

In time when companies are giving rewards and additional benefits to loyal buyers, it may not be very sensible to charge frequent buyers and visitors more.

Effective it may be, but it may not last long. What do you say?

Is this practice ethical?

This is a real topic of debate now. First we need to decide whether this price discrimination is legal or not. Then we would be in a better position to discuss the ethical aspect.

Well, charging a different amount from different customers is legal, almost in all parts of the world. A shopkeeper selling Estee lauder in J.C. Penny would definitely be charging more than someone selling the same scent at any other local mall or hypermarket.

But this discrimination becomes illegal when it is based on religion, locality or any other demographical factor. But then, who would be willing to sell more discounts to their community members only?

Unfortunately, this does not even come under the anti-violation of price fixing laws. According to the federal Robinson-Patman Act, all the sellers must treat their customers equally. Any differential treatment would be considered illegal. So, the price tampering that we are discussing here does not fall under this.

However, the federal trade commission can interfere in cases where online information has been used to manipulate the prices. Well, this is just an idea for those who have been victims of this pricing strategy.

Now let’s get back to our discussion of whether it is ethical to differentiate users on the basis of geography and other habits. Companies claim to retain cookies and maintain records for marketing purpose like sending customized offers to frequent visitors, as per their browsing record. It may be ethical provided the customers allow it.

But this is not the only side of the story. This data is then used to adjust the price on their screen, plus some companies even sell it to other marketing agents. Where does professionalism fit in there?

It is not ethically right for travel sites like orbit and several other airline companies to charge more from buyers who are using Mac and less from users of Windows operating system. Don’t you think it is too stereotypical to assume Mac users are wealthier as compared to the latter?

Regardless of how companies rephrase it, it remains unethical. How would they know if the person buying from Africa is earning less than a user logged in from a UK based IP address? These websites are not smart enough to judge that.

Moreover, we have cyber geniuses amongst us these days. It is a piece of cake for them to log in from an IP address different from their own state. These people may take undue advantage of such practices.

The funniest part of this story is that users did not even know that they have been manipulated. We get to know it in very rare incidents, where friends or relatives have bought the same thing through the same seller but at different price.

Well, there can be different viewpoints to it, depending upon whether the user is on the receiving end or the opposite side. Being on either side, do you think it’s professionally right to adjust prices this way?

Examples of companies known to practice this strategy

The research report of the Annenberg study brought the name and price discrimination incidents of several companies to the fore. In one of the cases, Dell computer offered the same laptop for different prices depending upon the nature of the business and size of the company.

Well, this may be justified under policies of commercial sales and corporate packages. But what about the online camera retailer that adjusted the prices of cameras, as per the history of user’s price comparison clicks?

Staples Inc. is an upstart player in this market. The company adjusts the price not only on the basis of users’ suburb, but also their distance from rival companies like Office Depot and Office Max.

Below is an example of Staples Inc. where the same product has been charged a different price, on the basis of varying zip locality.

Have you ever been ripped off by any such website? Well who knows! Most of the online buyers have been the victim of online price tampering but are still not aware of it. Here is how we can reveal such websites.

Act smart…

Look for the product you are planning to buy via different electronic mediums. For example, check the price of it on your Smartphone, personal computer and laptop. You can always ask your friends to check it out for you, in case you don’t have these gadgets available.

You can also try changing the zip codes or disable third party cookies before making the purchase. It is your money; don’t waste it to manipulative pricing strategies or your lack of knowledge.

The future of online price discrimination…

No one can predict the future of the ecommerce industry. The concept of websites varying prices is relatively new for majority of online buyers. Studies suggest that more than half of the victims of online price discrimination are still unaware of this pricing strategy.

However, companies like Staples and Orbit have definitely set a trend of price tampering in this market. So far, there is no such law specifically against these activities.

But as technology advances, we can always hope for a solution, to manifest soon. When there are people who can design such websites, surely there are those who can crack those websites or invent a way of disabling their pricing function.

For now, it is best to stay aware and act smart.

Arie Shpanya

Published 14 May, 2013 by Arie Shpanya

Arie is the founder and executive chairman of Wiser and a contributor to Econsultancy.

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Comments (9)

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Ann Druce

Of course this is highly unethical. I don't think price differences at brick and mortar businesses is the same thing at all - sometimes one chooses to pay more to shop in a nicer environment.

But it happens in tourism in some countries too, with foreigners paying more than citizens in entrance fees to attractions like Kruger Park. I suppose it's the same logic as charging Mac users more, and it's equally flawed.

over 3 years ago

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Luis Pires

I tend to stay away from the concept of right vs. wrong for the simple reason that what's right for me, may not be for the next person, and vice-versa.

In contrast, I prefer to ask: 'is this condusive to success in the long term?' And based on that question, I'd say no.

There is a reason why 'used car sales lots' creep me out. It's because I know the people working there believe they can take advantage of folk that walk in. Maybe they do, maybe they don't. I don't know. But I'm willing to pay more for the peace of mind. Besides, It's not going to be long before some clever developer can figure out a way to bring transparency to pricing and expose the companies that have adopted such policies.

In our business we respect the consumer and work with absolute transparency. I may loose some sales in the short-term, but I am certain I'm gaining sales in the long-term.

over 3 years ago

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Deri Jones, CEO at SciVisum Ltd

Luis

You encapsulated that so well:

> In our business we respect the consumer and work with absolute transparency. I may loose some sales in the short-term, but I am certain I'm gaining sales in the long-term.

Respect, and transparency - spot on!

PS: Background reading - worth reading Scott M Peck for many reasons - but on this theme (he uses the word civility) - particularly organisational-wise, try: 'A World Waiting To Be Born: Civility Rediscovered'.
He kicks the book off with a challenging criticism of some marketing...

over 3 years ago

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Ketharaman Swaminathan

If online pricing discrimination doesn't work, Amazon, Dell, Staples and other Big Daddies of the industry wouldn't be doing it. To me, the real question is whether it's legal or not. Not sure why "the price tampering that we are discussing here does not fall under" the Robinson-Patman Act. To me, it seems like a slam-dunk that it does.

over 3 years ago

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Deri Jones, CEO at SciVisum Ltd

Ketharaman

> If online pricing discrimination doesn't work ... (they) wouldn't be doing it.

Depends whether you mean 'works in the short term' or 'works in the long term'.

Many sharp business practises work rather well in the short term...

over 3 years ago

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Steve

who cares. When I buy something it's up to me to research and find the price that I'm willing to pay. If It's $ 10 more and I got what I want and like it then only I care if I got what I wanted for the right price. In the end it's up to the consumer to be aware and to be satisfied with their purchase. Do you really want government involved in this and regulating it? They screw everything up and then add regulation costs to the product and you'll end up paying more anyway. Wake up people and stop being such dumb*sses.

over 3 years ago

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Steve

who cares. When I buy something it's up to me to research and find the price that I'm willing to pay. If It's $ 10 more and I got what I want and like it then only I care if I got what I wanted for the right price. In the end it's up to the consumer to be aware and to be satisfied with their purchase. Do you really want government involved in this and regulating it? They screw everything up and then add regulation costs to the product and you'll end up paying more anyway. Wake up people and stop being such dumb*sses.

over 3 years ago

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Ronald

You don't always have the option to go elsewhere. For example, Amazon often marks up Kindle books (subject to copyright, of course) by 2-300% for non-US buyers, over the US price. They wash their hands and say it is publishers, which may well be true. If such practices had a firm cost basis, I wouldn't object, but they don't - electrons cost much the same to send anywhere. Interestingly, some countries have specific legislation stopping publishers from forcing print book shoppers through local channels, at a much greater price than (say) US prices. But they can avoid this "problem" for e-books by tracking user locations. In others words, they rip-off shoppers because they can.
The solution: I stopped buying from Amazon and visit my library, or borrow from a friend. The publisher and Amazon lose a sale, and I urge others to do likewise. My guess is that overpricing books also increases piracy, just as it did for music.

over 3 years ago

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Deepa Govind, Homepreneur at 560070

Hi,

I was exploring differential pricing for my website (I offer services, not products) based on the country (currency) of incoming visitor. That's how I bumped to this article.. glad to have read this.

I am all for transparency and trust and integrity.but, from my perspective as aservice provider, dealing with cross continental clients ( I am from India, and I cater to clients in India, US, UK, Australia, Japan etc)..it only seem to make sense to show the pricing (on my webpage) in their local currency.

I believe it would give a sense of "comfort" when they see prices in local currency.. this, and, I intent to set up payment channels based on the currency.
PS: I donot want to use Drop-box-what is your currency

So, do you think it would be unethical to do so?

I am still exploring the idea of differential currency, so open to suggestions

Thankyou

over 2 years ago

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