When, why, and how is it ethical to charge different prices to different customers? These questions are prominent and pressing for retailers that hope to take advantage of people’s varying willingness to pay, so that they can earn the best profit margins and avoid leaving money on the proverbial table.
Some forms of personalized pricing are clearly ethical and widely accepted by consumers. Someone who wants a dishwasher delivered and installed in their kitchen pays more than another shopper who carries a box containing the appliance from the store, loads it in their truck, drives home, and installs it themselves. Both retailers and consumers find such a price difference acceptable and reasonable. Furthermore, consumers generally accept basic supply-and-demand concepts, such that they recognize they might have to pay more for a limited edition version of their favorite sneakers. But other forms of personalized prices are clearly discriminatory and legally prohibited, such as redlining in housing markets or higher banking fees charged to minority or low income consumers.
Somewhere in between though, retailers allegedly have tried to adapt dynamic pricing methods that charge more to people who live in (wealthier) zip code areas or to online shoppers who are browsing from a Mac versus a PC, based on broad evidence that people with more money will pay more. The so-called pink tax refers to the higher prices often charged for the same products when they are marketed to women rather than men. Are such practices ethical?
Perhaps even more important is another question: Whether they are considered legal and ethical or not, will such practices undermine consumer trust? Even if a wealthier customer has the ability to pay a higher price, realizing that they have paid more than another buyer, for no other reason than their tax bracket, is likely to evoke irritation and reactance. Thus from one perspective, transparency is key. It is up to retailers to tell consumers why they are being charged a particular price and what input informed that price decision.
Such transparency is obviously the more ethical choice, with positive implications for consumer trust. But it also seemingly might undermine the retailer’s strategy; a seller might not want to risk telling a buyer that she or he is paying more than other buyers, for fear of losing the sale.
There are not currently clear or decisive answers to these questions, despite the powerful need to resolve them. As artificial intelligence and machine learning technologies make it increasingly easy for retailers to change their prices, rapidly and for each consumer, dynamic and personalized pricing tactics logically should become even more common. Thus, even if the answers are not clear, the discussions need to continue.
Discussion Questions:
- Select a controversial form of dynamic or personalized pricing, and argue both for and against its ethicality. What factors inform each side of the argument?
Source: Cleber Ikeda, “What Do Retailers Owe Customers When It Comes to Personalized Pricing?” Retail Wire, November 9, 2021