
How Retailers Use Personalized Prices - hrasyid
https://hbr.org/2017/10/how-retailers-use-personalized-prices-to-test-what-youre-willing-to-pay
======
bo1024
At some point in the next 5 years, I predict there will online services that
will "proxy-shop" for you. They will specialize in building profiles (cookies,
logins, etc) that get offered low prices, then use these to purchase products
on your behalf. Perhaps a browser plugin, so that at the moment you go to
check out on a product, you send the product's link to the service and they
get it for you at a lower price.

Then retailers will attempt to bring legal challenges against them for
breaking terms of service, that will be interesting...

~~~
baxtr
I have been thinking about that exact service for a while. One big issue is
that you need the reverse engineer the pricing models of retailers, i.e.
mapping out a high-dimensional space. For that you need a lot of data _from
the retailers_. They could probably ban you quickly if you start pulling price
quotes en masse. Then you need to invest a lot in cloaking techniques etc.

~~~
crdb
You don't. At least we didn't.

Here's the real problem:

1\. modern shopping sites are built haphazardly without structure;

2\. a typical page load time is 10-20 seconds for many (most?) shops.

1\. matters because you cannot build a simple crawler. This is because
sometimes, the brand is in the title, the description is in the brand, and the
gender is in the quantity, which itself is in the photo as a pixellated
image...

You must load the entire page and figure out where the attributes are in a
smart way. You can do this today with headless chrome, in the old days with
Selenium, etc.

... which brings us to 2. A mainstream, regionally-dominating shop,
particularly any that adopt the marketplace model (Amazon, Taobao, etc.) may
have as many as 20 million products. Given 2., good luck refreshing this price
list in a sane time, even if you crack the attribute extraction.

If by some miraculous feat you solve these issues you now have to product
match an inventory of billions of listings, most of which are misspelt,
missing attributes (brand, etc.), and use photos that even a human could not
match by sight. Think how hard it is to find exactly what you want on eBay...

The only way is to get the data directly from the retailers. Assuming they
will give it to you, you end up with the same problem of feed poisoning that
you have with marketing.

~~~
baxtr
Oh one thing you could do: Create a huge community of users who share their
purchase data and other data.and then build the model through that died so if
you want to participate and save you need to be part of the panel

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shubhamjain
The extent of my profile that can be built (and is probably available) is
absolutely insane. Picture this: most people use a single email ID to register
anywhere. Dating sites, e-commerce, social networks, banks, and even offline
stores. My online purchases can be linked with my preferences on OKCupid that
can be linked to ads I am clicking that can be linked to my offline behaviour.
Personalised pricing is direct result of that. Who knows what other
interactions are being shaped by it. Because the power of having this profile
is limitless.

There's a Gmail trick to avoid it by using "+random_name" suffix but that is
easy enough to circumvent. Disposable email IDs are banned from most sites and
I never found it easy to integrate in my workflow. I have been pondering about
building a service that acts as a mask to your real email ID, can be
configured to forward emails to your real ID and can work with your personal
domain name. I know some people who are running similar kind of setup here; a
service might be helpful for those who don't might not want to go through the
trouble.

~~~
blfr
Whether on Google Apps or using Exim, all my domains have a catch all address
so emails to unmatched local names (addresses) are sent to a single inbox. I
then use servicename@mydomain.tld for registration at each service.

It's not much more difficult to circumvent than gmail's +randomname but a
little fuzzier. There's no way to know from the outside how many people are
using each domain.

~~~
EGreg
It is good to use +randomname for another reason: so customer service
departments can't be tricked into giving up your data, since the attacker
can't even guess your login id.

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ben1040
Orbitz also played with how they rank search results. After finding Mac users
were likely to spend 30% more on a nightly room rate, they started putting
higher priced rooms at the top when Mac users searched.

[http://www.npr.org/sections/thetwo-
way/2012/06/26/155756095/...](http://www.npr.org/sections/thetwo-
way/2012/06/26/155756095/orbitz-shows-mac-users-pricier-hotel-options-big-
deal-or-no-brainer)

~~~
bubblethink
I'm waiting for the day my Linux browser agent string pays off. So far, I've
only seen random sites refusing to work for no good reason.

~~~
vostok
I wonder if Linux users spend more or less. I can definitely imagine that
American Linux users are wealthier than Americans in general if you exclude
non-traditional distributions (Chrome OS, Android, etc.) from the Linux
category.

~~~
clydethefrog
In the beginning of Humble Bundle (pay want you want for a collections of
games for all platforms) they showed the average price paid per platform.
Linux was always the highest.

~~~
hiram112
I doubt this had little to do with any relationship between linux users and
their likelihood of overpaying on a hotel room or rental car.

The price paid by Linux users was almost certainly bumped up by Linux gamers
explicitly trying to support game studios who supported Linux.

You wouldn't see the same thing with hotel rooms or most other products that
weren't intimately tied to the OS itself.

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Macha
I wonder how sustainable some of these approaches are and how often people
will just stop buying from places that prey on them too much. For example,
I'll often end up paying more for e.g. flights if it's not too costly and it
removes the hassle of comparing days/large numbers of airlines to save 50
bucks. But if they started charging me double what others were paying, I'd
just stop using that airline.

Likewise, I've noticed a similar behaviour with ads on youtube. If you always
click the skip ad button, you'll always get the 15s unskippable ads, or 30s
ads. But when I stopped for a while (because a lot of the channels I watch are
solely supported by them), YouTube kept pushing the line until it was showing
5 minute ads for 10 minute videos. So now I skip them again to avoid the
gradual creeping increase in ad length.

~~~
jstanley
I refuse to participate in YouTube's opaque ad selection system. If the video
has an ad, even if it's skippable after 5s, I don't watch the video.

I very rarely get shown ads.

~~~
Spivak
Why not get an ad blocker? Good for attention, privacy, and security.

~~~
jstanley
I do on my computer, but I watch a lot of YouTube on my phone.

I ran AdBlock Plus for a while until I discovered that it runs as an open
proxy, allowing anyone on the same wifi network as you to fetch content
through your phone.

In combination with a VPN client that routes everything over the VPN, I
considered that an unacceptable risk.

~~~
Spivak
Firefox for Android has extension supprort and in particular uBlock origin
support. Same as your desktop browser.

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laxatives
There must be some incredible data being mined by Amazon via Whole Foods. At
the Whole Foods in Palo Alto, there seems to be an elaborate pricing
experiment in the ice cream department. Entire brands (Talenti) are dropped in
price 70%. Other times, particular flavors are reduced that much, sometimes
less so. For Talenti, the entire brand is sold out. Some of the on-sale
flavors go quickly or are also sold out while others are completely ignored,
despite the discount (namely anything from Three Twins, who's blurb on their
ice cream and their shop at SFO make them sound like assholes). Maybe 25% of
the options in that section are discounted, and the amount of discounts varies
as well, with a number of different steps like (80%, 50%, 35%, 20%, 10% or
similar). Nothing else in the shop is stratified like that. Beer and wine
might have 2% of the options on sale. Ditto produce and meat. Most departments
offer no discounts.

~~~
cosmie
To your point on beer and wine: state liquor licensing boards control retail
pricing structures pretty heavily. In Tennessee for example (the state I’m
most familiar with), the price of beer can be set at whatever, but liquor
can’t be sold below cost and wine can’t be sold below a 20% markup over cost.
It makes discounting a bit tricky, to ensure you stay compliant. Especially if
you already have competitive pricing.

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rahimnathwani
Summary: Except for auto dealerships, retailers don't use personalized prices.

What a terrible article:

1) Its first example of "personalized pricing" isn't actually personalised: it
was the result of an A/B test.

2) It says 'Outsize profits can be extracted from “top of the demand curve”
customers' when, in fact, the top of the demand curve is normally when price
is zero. The author seems to acknowledge this as they reference 'the downward
sloping demand curve highlighted in Economics 101'.

3) The only convincing example given in the article is that of 'auto
dealerships', which are the _least typical_ retailers there are. People hate
going to auto dealerships, but they love doing other types of shopping, in-
person or online. Part of the reason is the personalized pricing (and process
of haggling), but this has existed for many years, and the rise of the
internet has actually made it easier for consumers, not harder, to get a
reasonable deal.

4) "A key question is whether personalized pricing, on the web or in-store, is
ethical." A better question would be 'How do retailers use personalized
prices?'. That's the question I thought would be answered, given the title.
The author's answer seems to be "Except for auto dealerships, they don't".

~~~
alex_young
Sounds like grocery stores do it:
[http://abcnews.go.com/Business/supermarkets-introduce-
person...](http://abcnews.go.com/Business/supermarkets-introduce-personalized-
pricing/story?id=21010246)

~~~
fjsolwmv
Just For U is a comical disaster if a flop. It's the sort of user
friendliness/usability you expect from the marketing team of an old grocery
story -- an A/B -test driven development by finite monkeys at keyboard

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huffpopo
Retailers who ask customers if they would like to donate to charity after a
sale are using it as a test to see if they can raise prices.

~~~
fjsolwmv
That seems like a very weak and noisy signal compared to, you know, directly
changing prices, which they do all the time.

~~~
huffpopo
Going by industry gossip it is a very strong signal. Strong enough to be worth
while even though they know customers hate it.

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firefoxd
Slightly related. I regret not having taken a screenshot to prove it, but oh
well. A friend and I both open google.com and type weather. We are on the same
Wifi, both using chrome, both signed in, and we each get our very own current
temperature for the exact same city. Different by a few degrees that is. We
hard refresh, we sign out, we clear cookies, still different on each machine.

With personalisation I wonder if they go as far as telling you how hot it
feels for me as opposed to how hot it is.

~~~
shostack
How would they know how hot it feels for you? Have you given any input on
that?

~~~
firefoxd
I complain a lot about the weather near my phone, who knows maybe someone is
actually listening for once :)

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dogruck
Some stores offer coupons and price matching guarantees to attract price
sensitive customers. Some stores tout that every customer gets "the same low
price."

A new facet on the old games.

~~~
sharemywin
just a whole lot faster and bunch more data mining.

~~~
dogruck
I remember reading a data science research paper in the early 1990s that
explained how Walmart had created a massive database containing all point-of-
sale records. The data was stored in a relational database, and Walmart was
mining it to be nimble with prices.

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bluetwo
So their basic premise is a lie.... "We find you the lowest price"...

In fact they are finding the lowest prices, then trying to maximize the amount
you pay for it.

Disgusting.

~~~
mgkimsal
> "We find you the lowest price"...

"We find you the lowest price (that we think you'll actually purchase)".

FTFY?

~~~
jimmaswell
Supply and demand except on the individual level?

~~~
njarboe
Yes. This if a very old concept and everything used to be sold this way in the
market place. No price tags or signs anywhere. Learn how to haggle and try and
get the friend discount.

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aorth
Slightly related: I was just looking to buy Microsoft Office 2016 for Mac for
my mother. She's American, but I'm currently in Bulgaria. The Microsoft web
store says it's $149 but when I add it to my cart it becomes 289 Bulgarian
Leva, which is about $174 (and the whole page annoyingly switches to the
Bulgarian language). Then I look on Amazon.com and see you can get it for
$129. God I hate digital software pricing.

~~~
cjg_
Seems like the price difference easily can be explained by the 20% VAT rate in
Bulgaria?

~~~
aorth
Ah, indeed!

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golemotron
I'm surprised no one is talking about how progressive this is. Rich people (or
people who signal 'rich') pay more and facilitate discounting at the low end.
Companies discount to increase marketshare.

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Nokinside
Several pricing methods together for close to optimal price discrimination.

1\. Scientific experiment to determine the price. With enough customers, it's
possible to determine optimal price level using scientific method. Vary the
price and see how it affects demand and discover what customers are willing to
pay.

2\. Divide customers into segments, and apply scientific pricing into
segments. Segmenting can be heuristic based on devices used and behaviour.

3\. Personalization comes last. It's segmentation in the finest level. If user
be identified, his social networks analyzed etc, it's possible to model his
behaviour and determine users price sensitivity and how the user perceives
value. Triggering purchase decision can be personalized. For some people
showing generated review or rating helps to make a decision, for some you need
to show purity values (images of people in white clothes in the sun), for some
you must indicate that they are able to "win" over the seller. Access to the
mobile gaming data with in app purchases is massive leg up in personal
profiling. Data from mobile gaming can be used to experiment and model
personal behaviour and personality.

~~~
hnhg
You need scale for all of these, right? How would you start with an entirely
new product or service with no previous presence in the market?

I guess you could look at similar products but if you're targeting a new
market entirely, you might have no assurances that your assumptions are
correct.

~~~
Nokinside
You revert back to more traditional pricing methods.

Pricing was advanced field even before the internet. Everyone doing it should
first study pricing at least few days to get a feel and ideas and to know what
kind of pricing methods to use and how to determine the initial price and how
to change it.

~~~
hnhg
What are they, out of interest? Is there a good primer anywhere online?

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nimbius
Or in other words...price discrimination as a service

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yalogin
Is this legal? Can they really code in a different price based on the end
user's profile? That sounds super shady to me. I know there have long been
suspicions that Amazon does this but I thought all of them turned to be false.
If a company as big as Orbitz is doing it, are there other companies that do
it too? I am surprised this has not come out sooner.

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ChuckMcM
I expect this to have a large downside in that it introduces a negotiable
element into the price. And as such you'll see it become mandatory that you
negotiate (just as frequent flier miles became mandatory) and as a result
margins will decrease.

~~~
ubernostrum
Also, while people here are thinking mostly about retailers like Amazon, I'd
say that even with all the data they have and the processing and engineer
power they throw at it, they still haven't caught up to the airlines in terms
of efficiency at determining how much people are willing to pay for something.

Airline yield management -- which includes both setting the price buckets for
different fare classes, and deciding which flights/routes get allocated
certain numbers of seats in different fare classes -- is a dark art.

And in case someone happening by is confused by that, I'm not talking about
economy class versus first class here. In the US, for example, there may be a
dozen or more different fare classes which all book the same type of seat in
the same cabin of the same aircraft, but which have different prices attached
to them. This is the source of a lot of (inaccurate) advice to do things like
booking tickets on certain days of the week or at certain times to try to get
the lowest price. Airlines dynamically allocate and re-allocate differently-
priced fare classes to flights all the time, and unless you really _really_
know what you're doing, have time (which isn't free) to spend on it and pay
(which also isn't free, obviously) for a service that lets you scan inventory
by fare class, you're not going to reliably get the lowest price.

For example, by my count currently American has 14 fare classes which
initially book into the economy cabin (and with different rules about how and
whether they upgrade to a different one), Delta has 15, and United has 17.
These vary by level of discount, restrictions on change/refund, who they're
offered to (Delta has some which are known to be explicitly a "we only use
this to indicate a fare where we're trying to price-match another airline on
the same route", for example, and all three have fares for things like
government and military travel), etc. and price differently.

~~~
nopzor
Yeah airlines "yield management" and "pricing" departments are indeed a black
art.

But, by and large, they're still not "personalizing" pricing. Instead they are
basing pricing on factors like demand, destination, whether you're doing a
Saturday stay (business travelers wont, so they'll charge more), how close you
are to departure, etc etc.

Plus they're now tweaking their frequent flier programs as a way to encourage
people not to buy the "absolute cheapest" fare available.

I recently booked a delta flight from sfo to San Juan, connecting in jfk. Got
off in jfk and "missed" my flight. Saved over $1000 versus buying a ticket on
the same flight from sfo to jjfk.

~~~
ubernostrum
You did a hidden-city ticket, is what you mean.

Airlines don't much care for that, and are known to shut down frequent-flyer
accounts or take other punitive actions against you if you do that.

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LarryMade2
On a related note - Recently I've noticed that pricing, or more specifically
menu selection, is also happening in brick and mortar shops.

Going to a McDonald's, I noticed their menu boards went displaying children's
meals or value items during my last visit - looking around the window and
floor ads, I did see mention of discount items available but nothing in the
menu-board slideshow.. Didn't think of asking at the time, thought it was odd,
now I have come to realized they were gaming me for higher sales items.

Now will stick to establishments with printed menus and non-video menu boards.

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rahulchowdhury
Guess, will have to use a cheap phone to book my flight tickets next time. :-P

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samblr
I have recently learnt it is same with energy companies. My monthly contract
prices were hiked up to get more out of heating bill for energy company. I was
left disgusted since we live in a relatively warm house and energy bills are
minimal. After spending an hour with support - it became clear that prices are
tailor made for postcode - read each individual home.

~~~
jldugger
At least where I live, gas and electric are pretty heavily regulated, and fees
are itemized to where I can tell you how much I pay per kilowatt for
decomissioning hydroelectric dams.

PG&E does offer equal payment plans, where you pay the same amount every
month, but they still track usage and bill/credit you every year for the
difference between their estimate and your reality.

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efrafa
Not exatcly the same, but if you fly with norwegian, booking ticket through
Norway locale will sometimes save you more than 25%.

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blfr
In Poland an easy way to get a lower price is to go through price comparison
engine like Ceneo[1]. Many retailers will offer significant discounts to users
specifically looking for the lowest price.

[1] [https://www.ceneo.pl/](https://www.ceneo.pl/)

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timthelion
The best way to avoid being manipulated in this way is to stop buying things.

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whazor
In some hotels, when paying less for a room, you might actually get a worse
room. Some rooms have cracking beds or bad wifi reception. That is why you
might find different prices for similar rooms in a hotel.

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smn1234
so this is retailers doing "a/b testing" across different devices to see how
much money they can happen to squeeze out of you depending on which experience
you're willing to use to complete the transaction? Is mobile shopping costlier
because of added cost to build the mobile app? Is it because mobile users
don't do as much comparative research? Is it throwing a dart in the dark to
hope mobile users are least likely to have time to shop around and will
purchase given limited time to make a decision?

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bricss
I may guess that is Booking.com doing the same stuff.

~~~
devdas
I'm sure they would love to, but they don't hold inventory or set pricing.

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csmuluern
Hello :)?

