The White House has released a report titled “Big Data and Differential Pricing” which examines the concern that companies use the consumer information to charge different prices to different customers — a practice that economists call price discrimination.
The report finds that though substantive concerns about differential pricing in the age of big data remain, many of them can be addressed by enforcing existing antidiscrimination, privacy, and consumer protection laws. The report also calls for increased transparency into how companies use and trade their data as a way to promote competition and better inform consumer choice.
There are two trends driving the increased application of big data to marketing and consumer analytics, the White House report says. The first trend is the widespread adoption of new information technology platforms, most importantly the Internet and the smartphone. These platforms give businesses access to a wide variety of applications like search engines, maps, blogs, and music or video streaming services. In turn, these applications create new ways for businesses to interact with consumers, which produce new sources and types of data, including (1) a user’s location via mapping software; (2) their browser and search history; (3) the songs and videos they have streamed; (4) their retail purchase history; and (5) the contents of their online reviews and blog posts. Sellers can use these new types of information to make educated guesses about consumer characteristics like location, gender, and income.
The second trend is the growth of the ad-supported business model, and the creation of a secondary market in consumer information. The ability to place ads that are targeted to a specific audience based on their personal characteristics makes information about consumers’ characteristics particularly valuable to businesses. This, in turn, has fostered a growing industry of data brokers and information intermediaries who buy and sell customer lists and other data used by marketers to assemble digital profiles of individual consumers.
The report also notes that there is only anecdotal evidence about how businesses are using big data in the context of personalized marketing and differential pricing. This evidence suggests that sellers are using pricing practices that fall in three categories: (1) exploring the demand curve; (2) steering and differential pricing based on demographics; and (3) behavioral targeting and personalized pricing.