Internet retailers are starting to run afoul of the Federal Trade Commission with their deceptive use of list prices and virtually fictional suggested retail prices in order to entice buyers into thinking that they are getting a good deal when they buy online. Dynamic pricing, as the practice has come to be known, according to the Data Privacy Monitor: “Dynamic pricing is the practice of offering different prices to consumers based on various factors designed to maximize sales and profits, which may include the retailer’s perception of the willingness of a particular consumer to pay at a given price point, often in connection with other factors such as a given point in time.”
Dynamic pricing has been used by the airlines ever since they were deregulated in the late 1970s. They use tactics such as segmented pricing, where they can charge based on a customer’s willingness to pay, peak user strategy, which places a premium on peak travel times, and time of purchase, where a customer might be charged a different price based on when they buy. Dynamic pricing has been used by online retailers as more and more consumers opt for the convenience of shopping online, but they also like the idea that they can get a better deal when they shop online. Online retailers are, of course, aware of this, so they can manipulate the base price of a product – the list price, suggested retail price, manufacturer’s suggested retail price – in order to make consumers think that they are getting a good deal while others are paying a higher price.
Internet retailers can tell a lot about you from the moment you land on their website. Your IP address reveals your geographic location down to your zip code, so they know the socio-economic status of your neighborhood. If you have shopped on their site before, then they also have a wealth of information about you, your buying habits and preferences. They can use all of this data to determine exactly how much you might be willing to pay.
In a NY Times article, “It’s Discounted, but Is It a Deal?” the author quotes Clarkson University Professor, Larry Compeau, “Everyone expects a deal on the web. Nobody wants to pay retail. Some sellers are now willing to deceive consumers to make the sale.”
In a California court of appeal, the popular retailer Overstock.com is appealing the ruling of a lower court that found them liable for using misleading reference prices to make potential savings seem greater. They were fined $6.8 million, which is twice the amount of the next largest penalty for false advertising in California history.
In 2014, two customers sued Amazon, claiming that its list prices violated false advertising laws. The case was dismissed. In February 2016, a class-action lawsuit was filed against Wayfair in California claiming that the retailer advertised discounts for items that it never sold at the higher price. The plaintiffs claimed that the retail prices were fabricated.
Even Disneyland is now employing dynamic pricing. Visitors to the theme park can expect to pay anywhere from a discount of 4 percent off regular price on lower demand days, to as much as a 20 percent increase on peak days.
Popular ride-sharing apps such as Uber and Lyft also employ dynamic pricing when they charge higher prices during peak, high traffic times.
Tips for consumers to help you find the best prices when you shop online:
The website Consumersunion has some tips to help consumers test pricing online and find the best price, some of which include:
- Comparing prices with rival sites
- Comparing prices using different browsers or different computers to see if the rate goes up or down
- Deleting all of the “cookies” in your browser to erase previous shopping history
If you see something, say something. Complain if you experience or suspect discrimination in pricing. Notify the Better Business Bureau and the Federal Trade Commission.