Personalised pricing, the future of dynamic pricing

Future or today’s reality?  Personalised pricing is the ultimate goal for digital shoppers.  It’s not just us who say this, current trends and new consumer habits also point directly at personalised pricing.  In general, it seems that for potential clients personalised prices is right up front on their list of needs.  Brands, however, are complicated when it comes to implementing the technologies that allow the implementation of this type of pricing strategy.

From a historical point of view, it seems that personalised prices would be almost a natural ideal.  After all, it's all about the pure negotiation between seller and buyer and this is fixed to the universal idea that a product is not worth its asking price, but rather to what a shopper is willing to pay for it.

In the digital arena, price personalisation goes a step further and focuses on the interests of the potential buyer, their interactions with the product, the page, etc.  The maxim is to ensure that price variations, which are necessary to meet the user's expectations, can make use of the dynamic pricing tools available in the market.

Evolution dictates that this technology not only uses seasonality or competitor price monitoring, but also take into account the user's history.  For this, it will be essential to analyse their digital fingerprint: what they buy, how they buy, through what device, and even from what point on the globe.

Of course, other fields of technology such as big data will be key.  At first, especially the most modest online stores, it is difficult to recognise how to apply this type of technology in an online store; so, to start with personalised pricing are a good example of it.

Additionally, personalised prices can become an innovative way for manufacturers to sell directly to the end customer.  In this way you can analyse, using your own experience, what the buyer’s perception is regarding your products price point.

As is pointed out in this article from BBVA Research regarding personalised pricing, the possibility of pricing freedom will make certain products more accessible to those who have lower purchasing power or value the product less, this is something which will generate a clear opening of the markets.

On the other hand, offering prices adapted to the level of each user can pose two challenges:

1. Dealing with the disappointment (and annoyance) of those customers who will pay more for the product.

2. Balance the possible losses and gains derived from the different prices.

One of the proposed solutions which some experts agree on, is to include extra elements at the most expensive price point; that is, a kind of premium service.  In the same way that loyalty actions are established for customers, why not benefit from a unique user experience when paying more for a product?  Here you could consider shipping times and methods to the proposal of certain additional elements such as upselling.

In either case, it is necessary that both retailers and manufacturers analyse the impact of this type of pricing strategy on their brand image.

Consumer history and privacy issues

A priori, it seems that personalised pricing can generate considerable controversy for a mere economic issue.  However, the subject of user privacy is not left behind in the various reports and analyses regarding this trend.

Now more than ever, with the new GDPR (General Data Protection Regulation), the information gathered about the users must be safeguarded.  This poses serious difficulties to access all the necessary data required to efficiently offer personalised pricing.

Also, while it is clear that data processing will be able to collect information, how will brands justify its storage for offering discriminatory prices?  The regulation will be key in this aspect to avoid the control and abuse by manufacturers of the will and capacity of the users.  Thus, until controls and good-practice guidelines for these types of strategies are developed, for the moment one should tread with utmost caution.