The Federal Trade Commission said last week that it’s seeking public input on a proposed policy statement outlining its legal concerns with the use of personalized pricing.
Personalized pricing has drawn the ire of legislators and consumers in recent months, resulting in a slew of state laws and investigations from consumer rights organizations on the practice.
But CX leaders need to understand how personalized pricing differs from other pricing practices, how each is received by consumers — and where each is likely to lose trust.
Personalized pricing is the practice of a business using a customer’s personal data to set prices, which can lead to drastically different prices for an identical item depending on who is buying it. Organizations can use browsing and purchase history, location data, demographics, inferred income and more to determine the amount a customer may be willing to pay.
Instacart’s pricing experiments, for example, presented one individual trying to buy a package of protein bars the price of $19.43 and another individual buying the identical package the price of $21.99, a Consumer Reports Investigation found. Both individuals had used Instacart to shop at a Safeway in Seattle.
Jon Picoult, founder and principal of Watermark Consulting, sees personalized and surveillance pricing as one in the same thing.
“If there’s any difference between the two terms, it’s from a public relations standpoint: ‘Personalized pricing’ sounds more friendly — but, of course, it’s only possible because you’re being surveilled,” he said in an email.
Jeannie Walters, founder of Experience Investigators, differentiates personalized pricing from surveillance pricing, comparing one as the product and the other the mechanism.
“Surveillance pricing is the mechanism that scrapes your browsing history, location, device and past purchases to build a profile,” Walters said in an email. “Personalized pricing is the output of that intelligence. It's the price assigned to you because of your profile.”
Either way, consumers generally view personalized or surveillance pricing as unfair. A 2024 Consumer Reports survey found two-thirds of U.S. consumers oppose personalized pricing.
That’s not to say there’s no place for personalized pricing, Picoult said. Auto insurers have long adjusted their coverage quotes based on personal information, such as where a consumer lives, age and even their driving habits.
“I think that’s an example of personalized pricing that consumers understand and accept, because it’s a risk-based product, and the risk legitimately changes based on each individual’s personal characteristics,” Picoult said.
How dynamic pricing differs
Dynamic pricing — which involves changing prices for all customers in real time based on market demand or some other environmental factors — is generally the more accepted practice among consumers.
Consumers accept that airline fares will go up as fuel costs soar. They understand surge pricing among rideshare services even if they don’t like it; when it’s raining, demand increases, and everyone expects to pay more for their rideshare.
Industries from electric utilities, mass transit, airlines, rideshare and entertainment events have all utilized dynamic pricing.
Dynamic pricing is generally lawful and is not lawmakers’ primary target, as the pricing responds to market conditions — not the individual, according to the law firm Holland & Knight.
However, it’s not without its risks.
“It can turn exploitive, though, if a business takes advantage of people based on the circumstances — like price gouging at a gas station as a major hurricane approaches,” Picoult said.
There are also some industries in which consumers are anathema to dynamic pricing.
When Wendy’s floated the idea of dynamic pricing on an earnings call, it was met with swift backlash. The idea that a burger could cost less in the morning than during a busy period like lunch did not sit well with many customers. Within days, the chain clarified its plans.
Restaurants may not want to try dynamic pricing anytime soon. A 2024 Hunger Rush survey found nearly two-thirds of consumers had a negative reaction to dynamic pricing in restaurants.
Where pricing practices overlap
Of course, businesses can partake in both dynamic pricing and personalized or surveillance pricing.
The two overlap regularly, especially among travel, hotels, ride-share, grocery delivery, and in some cases, e-commerce brands, according to Walters.
“The overlap happens when a company starts with traditional dynamic pricing, meaning prices change based on demand, timing, inventory or capacity, and then layers in customer-specific data to decide what a particular person sees,” Walters said.
Once a brand starts layering in consumers’ browsing history, location, device type, loyalty status, past purchases, or other behavioral signals, it is no longer market-based pricing.
“It starts to look much more like surveillance pricing,” Walters said.
That overlap is where trust starts to erode. Customers generally accept demand-based price changes, especially when those shifts are visible.
“Most understand when leaving a concert that rideshare pricing is high because there is so much demand in that area,” Walters said. “What feels unfair is when the pricing becomes opaque and individualized, and customers have no idea why they are seeing a different number from someone else.”
