The Federal Trade Commission is seeking public comment on personalized pricing, the practice of changing the price for a consumer based on their personal data and what businesses think a consumers is willing to pay.
“When consumers see a listed price, they expect it to be [the] same price that everyone else sees, not the retailer’s estimate of how much they are willing to pay based on their personal data,” FTC Chairman Andrew Ferguson said in a prepared statement Wednesday.
Consumers are anathema to what they see as the unfair pricing practices. With the FTC publication of its proposed enforcement policy statement, businesses have yet another reason to be wary of implementing personalized or surveillance pricing.
The FTC cannot ban personalized pricing outright, but those businesses that fail to tell consumers how their data is being used to set prices may be in violation of Section 5 of the FTC Act and other legislation, the FTC said.
The FTC’s focus on the topic also follows recent state laws from Maryland limiting surveillance pricing and Connecticut banning the practice. Over two dozen states have introduced more than 40 surveillance pricing bills, according to the law firm Holland & Knight.
The most well-known examples of personalized pricing are grocery deliveries, ride-share services, travel and hotel pricing, according to Jeannie Walters, founder of Experience Investigators.
AI supercharged the pricing practices, with businesses able to draw on information like device type used to shop, location, purchase history, income and credit rating.
A Consumer Reports and Groundwork Collaborative investigation into Instacart’s pricing practices, for example, found that some grocery prices differed by as much as 23% for an identical item from one customer to the next. Since that investigation, Instacart stopped providing grocers technology that allowed them to simultaneously charge consumers different prices for the same products.
Another Consumer Reports investigation into Uber and Lyft found that the median price difference between the lowest- and highest-price groupings was about 42%.
“I know travelers often will compare who gets the best rate for a rideshare to the hotel,” Walters said in an email to sister site CX Dive. “A group of five people could see five different prices, even from the same place to the same destination.”
Trust: hard to earn, easy to lose
It’s easy to understand why customers would lose trust in a company when they see someone else pay a different price for the same service.
“Trust is hard to earn and quick to lose,” Walters said. “Research has shown that when companies obscure or hide pricing consumers actually spend less, not more. People want to be treated fairly. Different prices for the same things feels inherently unfair.”
In fact, a 2024 Consumer Reports study found that two-thirds of U.S. consumers oppose the practice.
“If you’re embarking on a variable pricing strategy, put aside the appeal of revenue maximization for a moment and look at your approach through the lens of fairness,” Jon Picoult, founder of Watermark Consulting, said in an email.
The FTC highlighted a series of examples that raise questions of fairness as well as the commission’s Section 5 concerns:
- A food delivery company could quote a higher price to a consumer based on data that leads the company to believe the consumer is unable to leave their homes to purchase food.
- A hotel could charge a higher price to a consumer that data shows is traveling for a funeral or other can’t-miss event.
- A retailer could charge a consumer more for a home-security camera system if court filings indicate that the customer has recently been the victim of a crime.
Businesses ought to make a distinction between the short-term financial gain from personalized pricing and its long-term effect on customer loyalty and trust, Picoult said.
“If your pricing strategy leaves customers feeling exploited, it’s not going to end well for you,” he said. “If you’re pressing forward with a variable pricing strategy, make sure it is defensible to both consumers and regulators.”
Walters urges businesses to do the right thing, adding that acting in response to a federal deadline isn’t a good look. But if companies decide to profile customers, they need to monitor the practice.
“These types of automations can be wrong,” she said. “It's important to audit what's happening to ensure the decisions are based on real standards and not hallucinations.”
