Concerns are growing that personalized pricing, which uses artificial intelligence (AI) to offer different prices to individual consumers, could become widespread. This means a future could arrive where the price of the exact same product varies depending on personal information such as the consumer’s place of residence, income, and purchase history.
According to recent reports from CBS News, companies are moving beyond traditional “dynamic pricing” to test AI-powered individual pricing technologies.
Dynamic pricing is a method of adjusting prices based on market conditions such as supply and demand, time of day, and weather. However, as AI technology advances, analysis suggests that companies can now analyze individual consumer characteristics to offer tailored prices.
Companies can use AI to analyze vast amounts of data, including online search history, residential areas, income levels, family composition, and purchase history, to estimate the maximum amount a consumer is willing to pay for a specific product.
In fact, grocery delivery platform Instacart was found to have conducted experiments using AI to show different prices for the exact same product at the same store to different customers.
According to investigations by Groundwork and Consumer Reports, grocery cart prices consisting of identical products showed a difference of up to 23% depending on the consumer.
Instacart countered that these amounts were calculated based on abnormal cases where price differences across all products were at their maximum. The company also stated that it does not use personal information such as race or gender in price determinations.
Experts worry that the proliferation of AI-based personalized pricing could make it difficult for consumers to judge the fair price of a product.
Jay Zagorsky, a senior lecturer at Boston University’s Questrom School of Business, pointed out that companies are unlikely to publicly disclose such pricing policies out of fear of consumer backlash.
