Will online retailers use personalized pricing for good or evil?

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Online retail has some work to do in terms of personalization. Shoppers want retailers to remember their preferences to improve and tailor their overall experience. But this should be done within reason because there is a very fine line between retailers being helpful and being creepy.

Sailthru conducted a study and found that 51 percent of retailers want to offer personalized discounts and 75 percent of shoppers want a personalized experience. About 97 percent of retailers are using discounts as a part of their pricing strategy already, but it’s a matter of putting together the personalized experience with the discounts that are already commonplace.

One shopper doesn’t want to be charged more than another, but online retail is already set up for personalized pricing. Just think about how many coupons and promo codes are floating around on the internet. Mindshare found that 70 precent of millennials search for discount codes before placing online orders. With that said, personalized pricing is already alive and well in online retail. It’s just a matter of implementing it in a way that doesn’t upset loyal customers.

You might be thinking that personalized pricing sounds an awful lot like price discrimination, in which different shoppers are charged different prices for the same goods. There are three degrees of price discrimination.

  • First degree price discrimination prices items based on customers’ willingness to pay. However, it should be noted that this is difficult to implement accurately since determining the maximum price for each individual isn’t easy.
  • The second charges shoppers different prices based on the quantity they buy. If this reminds you of Jet at all, you’re not alone. The newest online retailer poised to disrupt the industry has a number of factors that go into its dynamic pricing calculator. One of these factors is quantity. The more you buy, the less you’ll pay. Is Jet’s pricing model personalized pricing? Somewhat. It seems to be more that the retailer is rewarding shoppers for making its logistics easier with real-time dynamic price drops.
  • The third (rather unpopular among consumers) segments shoppers based on demographics, like proximity to a retailer’s brick and mortar location, and charges accordingly. This one can be illegal if those demographics include race, religion, etc.

Even with the help of dynamic price changes, pricing online still isn’t quite as flexible as it is in-store. The experiences on and offline are inherently different. An associate in your favorite store can give you 10 percent off because you’re having a bad day, but online shopping doesn’t work like that. That doesn’t mean that the personal element of pricing has to be lost in the world of e-commerce.

Turning to data to figure out what a shopper has bought in the past and how much they usually spend can provide insight on what they might need to check out again. Maybe a small discount or the suggestion of a complementary item could do the trick. However, providing discounts can be a slippery slope because shoppers often get conditioned and will no longer check out without them.

Personalized pricing should be viewed as a positive tactic for retailers that helps them connect with their customers and keeps them coming back. Luckily, e-commerce is the perfect industry to make it work because digital prices can change quickly with dynamic pricing and the amount that a shopper pays at checkout is private.

While personalized pricing has long been a staple of commerce, online retail is the new frontier. Just as if personalized pricing were a super power, retailers have the ability to use it for good or evil, but I’m hoping that they’ll use the opportunity to build loyalty.

Angelica Valentine
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Angelica Valentine

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