Personalised pricing is happening: Here’s what you need to know
Online platform Wish was caught red-handed by the Dutch ACM, on account of engaging in personalised pricing. What does this mean for the future of the practice?
This just in: following actions of the ACM (the Dutch Authority for Consumers and Markets), the online e-commerce platform Wish has blocked the use of personalised pricing in the EU. This is the first case of personalised pricing to be brought out into the open by a European consumer authority. In this blogpost, I will discuss the case and what this news might mean for the future of personalised pricing.
In an earlier post, I discussed that big data has allowed companies to engage in more personalised online marketing practices. Personalised advertising, newsletters and recommendations – all strategies employed by companies to court their (prospective) clients. Personalised pricing fits right into this list, with companies using consumer data to set prices tailored to specific consumers or consumer segments.
Though a lot can be said for the benefits of personalisation in general, the practice does pose certain risks with regards to the future of e-commerce and the interaction between companies and consumers. Companies are increasingly able to base their pricing on large amounts of data, often without our knowledge – think of your social media activity, purchase history, device type, among many other new kinds of data. Personalised pricing has been a widely debated topic among various disciplines, due to its potentially adverse effects on (trust in) markets, certain consumer groups and the relationship between companies and consumers. For example, the use of algorithms to analyse consumer data and set prices accordingly, can result in (unintentional) systematic disadvantage or exploitation of certain consumer groups.
In light of these concerns, Directive (EU) 2019/2161 on the better enforcement and modernisation of Union consumer protection rules (also known as the Omnibus Directive) – which became applicable at Member States’ level on May 28 – put forward the first initiative towards specific EU regulation of personalised pricing. Companies that engage in such a practice are required to disclose to consumers that the price is personalised on the basis of automated decision-making. The ACM issued a press release, stating that they will enforce compliance with these stricter rules.
And that they did. The ACM found that Wish was engaging in exactly this practice: personalising prices, without disclosing it to consumers. The prices on Wish were personalised based on – among other factors – consumers’ location and purchase behaviour. Under the Omnibus Directive, companies must clearly indicate the use of personalised pricing prior to the purchase, and consumers must also understand in what ways their personal data affect prices. Wish had failed to do so, not disclosing the personalisation of prices at all.
As mentioned above, this is the first case of personalised pricing to be brought out into the open by a European consumer authority. Up until now, empirical research failed to find systematic evidence that personalised pricing was prevalent: though price fluctuations were observed, it remained difficult to determine whether these fluctuations were the result of actual price personalisation. Furthermore, most of the anecdotal evidence stemmed from the US market, adding to the question how much of it is actually happening in the EU.
Interestingly, Wish has decided to end its price personalisation in the EU as of 25 May 2022, instead of being transparent about its engagement in the practice, as demanded by the ACM. Given that previous instances of (alleged) price personalisation, albeit in the US, were met with great consumer backlash and research has shown that consumers find the practice unfair and unlawful, Wish’s decision is still understandable. Being the first company to openly admit to price personalisation and continue the practice, might evoke major consumer backlash that even a multi-billion company like Wish might not recover from.
In my recent article, in press at the Computer Law and Security Review, I report on the interviews that I conducted with several Dutch companies on this very topic. I asked them their opinions on the practice, as well as factors that influence their decision to (not) engage in personalised pricing. What we confirmed is that one of the main factors to not engage in the practice is that of consumer backlash. If there was a sure-fire way for companies to ensure that consumers would not find out about the personalised prices, most of them would do it first thing tomorrow – if they had access to the necessary (financial) means, that is.
All things considered, the fact that the ACM has managed to bring personalised pricing to light is a great milestone. The question remains what this will mean for other companies. Will this case inspire companies to bring their own engagement in the practice to a halt, or will this only provide incentive for companies to find ways to conceal their personalised pricing strategies even more? The fear for consumer backlash still holds many companies back and will continue to do so for now, but at the same time the norms of what we deem (un)fair change constantly. By conducting empirical research on this topic, it will hopefully become clearer whether we can expect more of these cases in the future and what – if anything – we can do to regulate this practice.