"Personalized pricing has spread across many industries. Here’s how consumers can avoid it."
Recently, Delta Air Lines announced it would expand its use of artificial intelligence to provide individualized prices to customers. This move sparked concern among flyers and politicians. But Delta isn’t the only business interested in using AI this way. Personalized pricing has already spread across a range of industries, from finance to online gaming.
Customized pricing – where each customer receives a different price for the same product – is a holy grail for businesses because it boosts profits. With customized pricing, free-spending people pay more while the price-sensitive pay less. Just as clothes can be tailored to each person, custom pricing fits each person’s ability and desire to pay.
I am a professor who teaches business school students how to set prices. My latest book, “The Power of Cash: Why Using Paper Money is Good for You and Society,” highlights problems with custom pricing. Specifically, I’m worried that AI pricing models lack transparency and could unfairly take advantage of financially unsophisticated people.
The history of custom pricing
For much of history, customized pricing was the normal way things happened. In the past, business owners sized up each customer and then bargained face-to-face. The price paid depended on the buyer’s and seller’s bargaining skills – and desperation.
An old joke illustrates this process. Once, a very rich man was riding in his carriage at breakfast time. Hungry, he told his driver to stop at the next restaurant. He went inside, ordered some eggs and asked for the bill. When the owner handed him the check, the rich man was shocked at the price. “Are eggs rare in this neighborhood?” he asked. “No,” the owner said. “Eggs are plentiful, but very rich men are quite rare.”
More Information at:
https://www.pbs.org/newshour/economy/personalized-pricing-has-spread-across-many-industries-heres-how-consumers-can-avoid-it