How retailers use personalized prices to test what you’re willing to pay

If you’ve noticed closely enough, you might have observed that there are times when you look up hotel or flight prices on your phone and on the website and see a disparity between the two. Let’s delve into why it is so.
  • The fundamental concept of the downward sloping demand curve in Economics illustrates that, for most products, some customers are willing to pay more than others. To exploit that, pricing managers employ techniques that try to determine and charge the exact price that each customer is willing to pay.
  • Larger profits can be extracted from customers who value the product highly. Meanwhile, if discounts can be discreetly offered to customers with a lower willingness to pay or lower disposable income, additional sales are reaped. The result is a more profitable customer base, with some shoppers paying more than others.
  • Web retailers can profile their shoppers based on certain giveaways. Is a shopper using a laptop, app, desktop, or internet on their smartphone? What operating system are they using? Where are they located? A customer’s actions also provide pricing clues: What other products are they looking at? How many times have they visited the site?
  • Much like car salespeople can profile their customers based on their appearance, web retailers can electronically evaluate the characteristics and actions of each shopper to create a profile that generates a personalized price.
The bottom line, though, is that based on a few characteristics (app or web, signed in as a member or not), a rudimentary type of personalized pricing is occurring: Some customers are receiving different prices than others. Whether it is ethical, is a question that remains to be discussed. 


4 thoughts on “How retailers use personalized prices to test what you’re willing to pay”

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