Price Discrimination in Online Shopping

Pablo Valerio, International Business & IT Consultant | 5/2/2013 | 27 comments

Pablo Valerio
Every grocery shopper knows that supermarket chains have been applying "zoning" for many years, and there is a significant price difference depending where you shop.

But online retailers, including Amazon, Best Buy, and Staples, and travel sites such as Orbitz, are increasingly using sophisticated analytics to price the same product or service differently depending who you are and where you live.

Except for advertised prices, people living in more expensive neighborhoods will pay higher prices for the same products unless the presence of cheaper competitors makes chains change their offers. While such discrimination can be frustrating for customers, it allows retailers to compensate for lost revenue when they need to liquidate stock and/or compete in certain locations, allowing them to stay in business. Some brick-and-mortar retailers with online shopping sites use price by location to be able to compete locally. For instance, one might see higher prices at a Staples in Harvard Square in Cambridge, Mass., than the same retailer in Somerville, just three miles away.

Tests conducted by journalists from Wall Street Journal demonstrated that priced a basic Swingline stapler depending on the zip code of the customer. There were differences up to 10.5 percent. Users in price-sensitive areas and others where Staples has more direct competitors received lower prices.

A study from the Universitat Politecnica de Catalunya and Telefonica detected several methods used by retailers to differentiate potential customers and set different prices, such as combination of browser/OS, type of technology (tablet or smartphone) used to make a purchase, location, and personal information.

Search discrimination is another way to get more revenue from potential buyers. Search engines, knowing the user's history, display more expensive choices to users looking for a specific category instead of a single product. Two users looking for hotels in the same city, for the same dates, can get different choices depending on their location and search history. Booking sites make money on commissions paid by hotels, airlines, and other travel services and it is in their interest to get people to choose the most expensive choices.

Of course, there are two sides of the story. Those price differences can help some people get the service they want. The fact that some airline passengers pay a higher price for the same seats means that other people can afford traveling by plane.

Should CIOs help make price discrimination a reality? It depends on your potential market. I think it would be easier from a technical point of view, and less likely to create an angry customer, to offer special discount coupons to online shoppers instead of displaying different prices. Also, it is very important to keep existing customers happy by offering them the best deals.

As price discrimination grows, and price comparison becomes easier, discriminated customers may choose to go elsewhere. Still, used sparingly and with the right product mix, it could become another excellent tool to provide your CMO. If nothing else, to apply the tool, you need to know your customer and their habits better than you might know them now.

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Taimoor Zubair   Price Discrimination in Online Shopping   5/28/2013 12:24:31 PM
How is the general response?
Before reading this article, i wasn't aware of price discrimation practised in online shopping. That doesn't take away my comfort though, it means because of my locality i am getting comparatively cheaper products than the other well-developed areas. But how do the customers in general respone to this policy as a whole? I am sure it wouldn't be an all positive response as it must be frustrating to pay a higher price for the same article just on account of living in a different locality.
SaneIT   Price Discrimination in Online Shopping   5/14/2013 9:11:27 AM
Re: Price discrimination
Having lived in Michigan for quite some time I'm familiar with the cross over between Canadian and US TV.  It's a good example of how regional pricing and programming falls flat.  The pricing games mentioned in the blog post are like someone in Michigan watching Red Green, just because you cross a lake or river doesn't mean you're much different than the people on the other side.
glenbren   Price Discrimination in Online Shopping   5/13/2013 9:01:26 AM
Re: Price discrimination
In Canada, we get all the American TV shows and sporting events, but we get them with Canadian ads, which is good, unless you're watching the Super Bowl.
SaneIT   Price Discrimination in Online Shopping   5/13/2013 7:59:16 AM
Re: Price discrimination
I wasn't going to bring that up but since you did, I watched Olympic events that were not airing on US airwaves by hiding behind a proxy with a European based IP address.
Pablo Valerio   Price Discrimination in Online Shopping   5/13/2013 5:33:33 AM
Re: Price discrimination
@glenbren, every time you visit a website your OS, IP address and Browser are sent to the website, including version numbers and your display resolution. Also transmitted is the referring site and, in case of a search engine, your seach keywords.

This is important to provide you with the best browser experience. Some webs will switch you to their mobile site with light pages if you are using a smartphone or tablet.

But it can be used to profile the user, and generate different pricing.
User Ranking: Blogger
Pablo Valerio   Price Discrimination in Online Shopping   5/13/2013 5:28:22 AM
Re: Price discrimination
@SaneIT, I know some people used VPNs to get seats for the Olympic Games last year, since they sold seats based on buyers' location.

When in Europe I use a free VPN service to watch some American TV shows not available for European users.
User Ranking: Blogger
glenbren   Price Discrimination in Online Shopping   5/9/2013 8:24:35 AM
Re: Price discrimination
I'll give it a try, thanks!
SaneIT   Price Discrimination in Online Shopping   5/9/2013 7:21:07 AM
Re: Price discrimination
I use hidemyass  there are browser plug ins so you can just click the plug in button and surf from behind their proxy. It's quite handy for region locked media sites or doing things like trying to get better seats from ticketmaster.
glenbren   Price Discrimination in Online Shopping   5/8/2013 11:00:59 AM
Re: Price discrimination
I've had that happen when trying to buy tickets online :(

Do you have any recommendations for a good proxy? I've used free ones like Hot Spot Shield and browser add-ons that don't always work but do always seem to screw up my computer somehow. I'm in Canada and it gets very annoying when I get a message that I'm not allowed to watch a video or access a website because of my location.
SaneIT   Price Discrimination in Online Shopping   5/8/2013 7:48:01 AM
Re: Price discrimination
They use cookies to track your location based on IP, the OS version and browser information.  It's all relatively easy to collect data, then when you see a price it's based on the criteria they are using to determine pricing.   I know that sites like Ticket Master have been doing similar things for some time. If you checked prices once for a general admission ticket and didn't like the seats it tried to sell you it would never show you any other seats, unless you used some tricks like switching browsers or using a proxy service to hide your IP address.
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