Consumers have been hearing about “surveillance pricing” for a while, and now the Federal Trade Commission has a plan to curtail the practice.
If you have been on Instagram or TikTok recently, you’ve probably seen influencers telling you to purchase your plane tickets at the library or use a VPN to mask your location because of dynamic pricing that changes based on location and search frequency.
But now the FTC is stepping in, proposing a new enforcement policy regarding personalized pricing, which it defines as “the use of personal data to set prices according to the amount that a company believes an individual consumer is willing to spend.”
While personalized pricing, which is also known by other monikers, including surveillance pricing, dynamic pricing, surge pricing, real-time pricing, and demand-based pricing, has been around for years. But it has become more invasive in recent years thanks to artificial intelligence.
“AI dynamic pricing is a process where product or service prices are adjusted in real time based on various market factors and demand,” according to IT solutions company Bull.
“Unlike traditional models that often rely on rigid assumptions or ignore competitor actions, this solution uses Machine Learning (ML) to estimate price elasticity: how quantity demanded changes relative to price shifts — to create highly accurate demand curves for every individual product.”
FTC seeks public commentary for new surveillance pricing rules
On Wednesday, August 19, the FTC announced that it is currently seeking public comment on an enforcement policy statement that would govern personalized pricing as part of its efforts to combat businesses “that mislead consumers with hidden fees and surprise charges.”
The enforcement would be against retailers that pretend their prices are static when they actually change depending on the available data of the person potentially making the purchase.
“When consumers see a listed price, they expect it to be the same price that everyone else sees, not the retailer’s estimate of how much they are willing to pay based on their personal data,” said FTC Chairman Andrew Ferguson.
But even the FTC acknowledges that it does not have the power to ban all personalized pricing practices, but it can make the process more transparent.
“The FTC does not have the legal authority to ban personalized pricing in all circumstances, but businesses that fail to tell consumers how their personal data is being used to set a price may be in violation of the FTC Act and other laws we enforce,” Ferguson said.
What happens next?
The FTC says that retailers that utilize the undisclosed collection of personal data for the purpose of personalized pricing could be violating the FTC Act, which “prohibits unfair or deceptive practices in the marketplace.”
Now that the FTC is soliciting public comment, they have 30 days to submit their comments electronically at this website.
So far, there is only one comment; it reads, “Absolutely ban personalized pricing without qualification. Allowing it would be bad for society and a nightmare for consumers. It’s bad enough that companies have so much unauthorized personal, private data about people, which is already being abused in countless ways. Personalized pricing would weaponize it even more. Naive young people, uneducated and poor people with limited access to information, and trusting seniors would be especially vulnerable to being misled and abused by personalized pricing.”
The FTC says retailers hiding their surveillance pricing activities from consumers are violating Section 5 of the FTC Act, and businesses that do utilize personalized pricing should “clearly and conspicuously” disclose not only the fact that they are doing it, but also the basis for that personalization and the types of data on which the personalization is based.
“Consumers expect prices for products and services to change based upon supply and demand, not their web surfing habits or buying history, the FTC says. “Retailers who represent or imply that a price is static when it in fact varies by individual are at risk of misleading customers.”
Related: Another state just banned a controversial retail pricing practice