The Internet has been praised as being “The Great Equalizer,” for leveling the playing field by providing a platform for the free exchange of information, and for being a global marketplace without borders that provides consumers with unprecedented levels of choices. However, in the eyes of some retailers, it appears that all consumers are not created equal.
Several major companies are compiling consumer information, including geographical and income data, to determine what price they will offer each potential customer. And these price discrimination practices are raising ethical red flags with consumer advocacy and consumer privacy groups.
At issue: Is it wrong for companies to sell the same online products to different consumers at different prices?
Price discrepancies are not a new phenomenon. For example, some restaurants have a lunch menu and a dinner menu. The lunchtime prices are generally lower, although the customer usually gets the same amount of food during both time periods. Many movie theatres have matinee pricing, although they are showing the same films. Some automobile oil change centers offer discounts to women on certain days, while some restaurants allow kids to eat for free when their parents accompany them. And many retailers offer discounts to senior citizens and military veterans.
These practices are perfectly acceptable to most people. So what makes online pricing different? How and why does online price discrimination qualify as an ethical issue?
The answer may lie in the fact that the price differentials listed above are clearly stated by the establishment and generally understood by the public. In addition, the discounts apply to everyone who meets the stipulation. Therefore, every person who comes into a specific restaurant or goes to a movie theatre during the stated time frame will receive a discount. Every woman who goes to the auto care center on a certain day, and every senior citizen and military veteran who goes to the specified store is qualified for, and receives preferential pricing.
This is vastly different from an online retailer who decides to offer the same product to two different people at a different price based on the consumers’ financial status or zip codes, especially when consumers aren’t aware that they are being sold the same products at a higher price.
According to a Wall Street Journal investigation which resulted in an article titled, “Websites Vary Prices, Deals Based on Users’ Information,” Staples, Home Depot, Lowe’s, Discover Financial Services and Rosetta Stone are some of the companies that vary their prices and product offers depending on consumer information.
Staples uses consumers’ IP addresses to determine their zip code. And 86 percent of the time, the company shows an 8 percent higher price for the same item if the user lives further than 20 miles from a competitor’s store. However, the Journal also notes that the areas that receive discounts have a higher income level than those who don’t. In response, Staples admitted that prices vary by location as a result of “many factors.”
Lowe’s offers location-based pricing as well. For example, a refrigerator that sells for $449 in Los Angeles, Chicago and Ashburn, Va., is $50 more in seven of the other cities used in the Wall Street Journal’s test.
Rosetta Stone, which sells foreign language software, offers discounts close to 20 percent for certain U.S. and Canadian consumers, but not to online consumers in Argentina and the U.K.
And in another Wall Street Journal article, online travel site Orbitz discovered that consumers who own Mac computers tend to spend almost 30 percent more per night on hotel rooms than consumers who own PCs. As a result, when a Mac user and a PC user visit Orbitz’s website, even if they type in the same search information, the Mac user will be shown travel options that are at least 11 percent higher.
Officials at Orbitz responded that Mac users could choose to sort results by price, and also noted that the prices themselves were not different—Mac users were just shown the higher priced options first.
We can expect this trend to grow, based on the type of information provided by companies like Forrester Research, which recently released a report that showed iPhone users are more likely to research, compare and purchase products on their mobile devices.
So what are the implications of this type of price discrimination? Critics are concerned that companies will use consumer information to help them target their ideal customers. Businesses already have the ability to track a consumer’s location based on the IP address. And according to Daily Finance, businesses can also identify the type of device used by the consumer and also track purchases that customers make on their website.
Companies can also purchase consumer information from data brokers like Acxiom Corporation, which collects such information as education level, marital status and political affiliation, in addition to other personal data such as age, race and sex.
But is it fair for online retailers to penalize consumers because they reside in the “wrong” area or have an undesirable zip code? And is this a slippery slope to excluding consumers if they didn’t attend college, or if they’re considered too old? Will Republican retailers refuse to offer deals to consumers identified as Democrats? Will gay retailers offer higher prices to conservative Christians?
In any event, it appears that the Internet—The Great Equalizer— may be the next battlefield in the war for equality.