Thursday, June 23, 2005

Price customization

Tom Colligan sent me a copy of an article from the June 19, 2005 Washington Post describing how Internet retailers offer customers different prices depending on their online history. The author of the piece, Joseph Turow, writes "It seems to have become an article of faith that the unseen moguls behind all sorts of Web sites are cherry-picking consumers, customizing ads, manipulating prices and changing product offers based on what they've learned about individual users without the users' knowledge." Turow's reaction seems initally to be not one of outrage but of a reactionary blame-the-victim defensiveness: "I'm disturbed by what this reflects about our general retail environment -- the evolution of what I would call a culture of suspicion. From airlines to supermarkets, from banks to Web sites, American consumers increasingly believe they are being spied on and manipulated. But they continue to trade in the marketplace because they feel powerless to do anything about it." Turow seems to think it's wrong to be suspoicious of commercial operators and marketeres. Whereas it seems to me that one should never be anything but suspicious of them -- they have too much incentive to screw you over if you are content to be naive, with the incentive mounting in strength the more obvious your naivete becomes. Turow writes, "My point is, precisely because he's Internet - savvy, he's automatically suspicious that information may be used against him without his knowing it." This is a good thing; paranoia is a heightened form of awareness when it comes to the market. If you read The Wall Street Journal for any stretch of time, you'll realize just how true this is.

But Turow is also actually troubled at the market's power to ride roughshod over customers wishes. Customers, slavishly dependent on the market, must put up with however it chooses to configure itself in various sectors for maximum profitability. I learned this when I had to buy a mattress and was subject to some of the sleaziest salesmanship I've ever encountered.. (A reminder: NEVER BUY FROM SLEEPY'S, unless of course you like being treated like a simpleton, or a criminal when you try to hold them to their warranty guarantees.) Turow writes, " Frankly, it's hard for any dispassionate observer to believe there's no 'price customization' when associates from the influential McKinsey consulting firm write in a 2004 Harvard Business Review article that online companies are missing out on a "big opportunity" if they are not tracking customers and adjusting prices accordingly -- either to attract new buyers or
get more of their money." He details how companies will profile an ideal customer -- the biggest dupe -- and target them appropriately with rice breaks while weeding out the more demanding and discriminating customers. If you care about quality, you'll be discouraged out of the market in a variety of subtle ways -- meaner customer service, no price breaks, etc. And the pressure to connform to a personality type faashioned by marketers maximizing profit will increase to an even greater level than what currently exists. We'll have incentives to strive to become a perfect shopper for the corporations who feed us our palaver.

He forecasts an ominous future: "The mysteries surrounding database marketing will increasingly make us not so much competitive as wary: Are our neighbors getting a better deal not because they shopped harder or bargained smarter, but because of some database demographic we don't know about and can't fight?"

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