By Andrew Miller
The Federal Trade Commission could soon start cracking down on businesses that adjust prices based on customer data.
Its new proposal, released August 19, targets what it calls personalized pricing.
Personalized pricing is the practice of using an individual’s data, things like purchase history, location, or device, to set a price tailored to that specific person.
As automated pricing tools and third-party e-commerce platforms have become cheaper and easier to plug in, the practice has spread well beyond large retailers.
The FTC’s proposal offers examples: a hotel charging more because its data suggests the guest is traveling for a funeral, a food delivery company charging more to consumers it believes are less able to leave their homes, or a retailer bumping a price the moment it detects a shopper browsing from inside one of its own stores.
To be clear, the FTC’s announcement is not a new set of rules.
The FTC also acknowledges it lacks the authority to ban personalized pricing outright. In addition, it recognizes plenty of legitimate uses such as insurance premiums tied to risk, loan rates tied to credit, and rideshare fares that move with supply and demand.
The biggest concern is the sheer volume of data companies have access to, which allows them to change the price on the shelf or screen based on each customer’s situation.
To make matters more transparent, the FTC believes these businesses should clearly disclose that the price is personalized, the basis for the personalization, and the types of data used to set it. Failure to disclose that information likely constitutes an unfair or deceptive practice under Section 5 of the FTC Act.
The proposal firmly states that a business needs to go beyond simply telling a customer they’ve received a “specially selected” or “personalized” price. The missing context makes this misleading.
A passable explanation for special pricing would be basing a price on the consumer’s purchase history with that business.
If your business uses data-driven pricing, there are a few steps you can take now.
First, identify every place where price, discount, or fee amounts can vary based on data tied to an individual rather than a factor like time or location.
Then, compare your current customer-facing language against the FTC’s three-part test. This means not only saying the price is personalized, but why and what data was used.
Finally, confirm this data was collected with sufficient disclosure and consent.
If your business wants to weigh in on the FTC’s proposal, the public comment window is open until September 18. You can file a comment through the FTC’s docket at regulations.gov.
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