The FTC’s Crackdown on Surveillance Pricing: What You Need to Know

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In recent months, surveillance pricing, a practice in which companies use consumer data to tailor prices for individual shoppers, has taken the retail and data industry by storm.

But as more companies adopt this hyper-personalized approach, it’s sparking concerns among consumers and drawing scrutiny from the Federal Trade Commission (FTC).

What exactly is surveillance pricing? How does it work, and why is it causing such a stir? This blog dives into the complexities of this practice, examining its implications for fairness, competition, and consumer trust.

What Exactly is Surveillance Pricing?

In short, surveillance pricing, sometimes called personalized pricing, is the practice of pricing products based on consumer demographics. 

More specifically, surveillance pricing is when companies leverage first-party data to determine whether a consumer will be willing to spend more or less than the ticketed price of a particular item and then charge accordingly. 

This means two people will be charged different prices for the same product based on who their consumer data says they are. 

And, since these two people are purchasing items on a digital device versus standing next to each other in the same aisle, it’s easier for companies to get away with and harder for consumers to identify the disparity. 

If this makes you uneasy, you’re not alone.

Surveillance Pricing’s Sordid Past

The origin of surveillance pricing dates back over two decades. 

In 2002, Amazon pioneered this system with an experiment in which they charged different consumers different prices for the same DVDs. However, Amazon claims they did so randomly—and not based on individual consumer data.

But as soon as consumers noticed the disparity in prices, there was public outrage – forcing Amazon to release the following statement:

“In retrospect, this random testing was a mistake, and we regret it because it created uncertainty and complexity for our customers, and our job is to simplify shopping for customers. That is why, more than two weeks ago, in response to customer feedback, we changed our policy to protect customers.”

“We’ve never tested and we never will test prices based on customer demographics,” said Jeff Bezos founder and CEO of Amazon in a statement. “What we did was a random price test, and even that was a mistake because it created uncertainty for customers rather than simplifying their lives.”

While Amazon claims to uphold this sentiment over 20 years later, the Fortune 500 company is seeing backlash in other areas like dynamic pricing – the practice of dynamically increasing and decreasing pricing based on market demand.

Life Isn’t Fair, but Competition Should Be…

That’s why, on July 23rd, 2024, the Federal Trade Commission announced that it ordered eight companies (Mastercard, Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture, and McKinsey & Co.) to comply with their investigation into surveillance pricing. 

Understandably, the FTC is concerned about surveillance pricing’s potential to undermine fair competition and lead to price discrimination based on personal characteristics such as income, location, or even the type of device being used.

But what exactly is “fair competition?” It depends on who you ask. While the FTC doesn’t clearly define it on its website, its vision is for “a vibrant economy fueled by fair competition and an empowered, informed public.” 

And, one of their strategic goals is to “protect the public from unfair or deceptive acts or practices in the marketplace.”

It’s safe to say that the practice of surveillance pricing would likely score poorly in the FTC’s investigation.

If surveillance pricing becomes the norm, competitive pricing will be a thing of the past. True item value will become murkier and murkier, and consumers will lose the ability to price match between retailers.

Weighing the Pros with the Cons

While many raise red flags about this practice, others try to weigh the pros with the cons. 

Professor Misra, a marketing professor at the University of Chicago Booth School of Business, highlights the need for a balanced approach when considering the impact of “personalized pricing.” 

He argues that while such pricing can lead to privacy concerns and potential unfair business practices, it can also provide significant benefits, particularly for economically disadvantaged individuals willing to trade some privacy for better deals.

Not all experts are convinced, though. Even if some could benefit from more affordable goods, how could others be protected from price gauging?

Bartering with Your Consumer Data

Is surveillance pricing a new practice? Not entirely. 

Some experts equate surveillance pricing to the not-so-distant practice of bartering for goods, a practice still common worldwide. It isn’t a novel idea that two people might pay different prices for the same product due to negotiation, haggling, and bartering. 

However, we can’t help but notice the error in this comparison. In a traditional bartering system, the consumer is actively involved in price negotiations, whereas in surveillance pricing, brands dictate the price of goods and services to consumers based on who they are. 

It is a one-way demand as opposed to a two-way conversation. 

And even if a consumer does provide their consent to their consumer data being used for surveillance pricing, the conversation ends there. There is no guarantee that they will receive cheaper pricing for the goods they need.

Invasion of Privacy – What’s in Your Bank Account?

Let’s take a look back at the eight companies the FTC is investigating: Mastercard, Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture, and McKinsey & Co.

You may have noticed that two major financial firms, Mastercard and JPMorgan Chase, are listed. Why is that? Well, for Mastercard, the reason remains to be seen. 

But just this year, JPMorgan Chase announced that they are taking a leap into the financial media network (FMN) space. 

And, while their initial model is to sell ad space within their own properties; ie, using transactional data to advertise cash back or bonus points for shopping with specific retailers, some experts note that these FMNs could extend beyond their own properties. 

If FMNs decide to extend beyond their own properties, it could mean selling consumer data to advertisers and retailers, an action that would raise many questions…

Wouldn’t this then infringe on client privacy? Would retailers be able to use this transactional consumer data for surveillance pricing? How granular would this pricing be? Could retailers get a feel for when consumers’ paydays are and raise prices accordingly?

The list of questions could go on and on, but hopefully, we will have answers in the coming months as these eight companies cooperate with the FTC investigation.

Retailers Have a Choice

Not all retailers have or plan to adopt the practice of personalized pricing or surveillance pricing. 

But if you are a retailer who is considering this practice, make sure to consider how this will effect your customers. 

Will it tarnish customer trust in your brand? How do you plan to communicate this practice with your customers? 

In a recent consumer report, when Americans were asked how the feel about personalized pricing based on algorithms, almost half of respondents (47%) were firmly against personalized pricing. An additional 19% expressed some opposition, while 26% were neutral on the matter. Just 7% were in favor of personalized pricing.

Remember to do a temperature check before deciding if the risk is worth taking for your brand.

Informed Consent Meets Always-Relevant Marketing

In the year of 2024, consumers are aware that their data is used to personalize advertisements to them. And for many younger consumers who grew up in this digital age, this practice is as innate to them as the air they breathe. 

But even though most consumers are aware that this is happening, not all consumers are okay with it—hence the ever-evolving data privacy laws and regulations that policymakers continue to push to protect consumer data. 

That’s why we have a dedicated team of data scientists like Audrey Barszcz to help our clients navigate a privacy-first landscape.

Currently, surveillance pricing is at odds with informed consent, and only time will tell what regulations will be put in place to protect consumers and their choice in the matter.  

We strive for always-relevant marketing. From special edition Beyoncé vinyls to shifting career paths, targeted ads have the power to change consumers’ lives for the better, no matter how big or small.

But, this vision is not at the expense of informed consent. Wherever and whenever possible, we advocate for a user-centric approach to data privacy. 

Do you want to partner with us in a world where informed consent meets always-relevant marketing? Reach out to us today.

Eden Pierson

Eden is a content manager with a wide range of experience in the marketing space. From B2B advertising, branding, and retail marketing, she is passionate about curating content that resonates with target audiences.