For what it’s worth – the future of personalised pricing
While not as widely known as you might expect, personalised pricing in the world of e-commerce is well established. Airlines, hotels and digital retailers such as Amazon have for many years used price discrimination to maximise the revenue they can generate from individual customers. What’s changing now is the prospect that personalised pricing will extend to the bricks and mortar retail environment, as mobile and connected store environments enable retailers to identify and value customers in store.
Personalised pricing is as old as commerce itself. A market trader would size up a prospective customer based on a range of signals (how they speak, dress or carry themselves), determine the potential value of the sale and then deliver the killer line: “For you, £5.”
The digital revolution and online shopping gave retailers a new set of signals to play with in understanding how much a prospective customer would pay. Device type, IP address and previous interest are all data sets that help set a price at a level to maximise revenue.
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Now, we’re starting to see the information asymmetry of the online world tip into offline retail, where 85% of sales still take place. The smartphone and its interaction with the connected store environment, through Bluetooth beacons, in-store wireless or some other means of identification, is the catalyst for this new level of personalisation. By identifying the customer on arrival, the retailer is able to offer both a more personalised experience and pricing designed to maximise the chances of a sale.
In many retail sectors, the platform for delivering this personalisation will be the smart shelf. This is likely to incorporate sophisticated sensors enabling it to react to the consumer to provide reviews, suggestions and, of course, pricing and offers, in a way that is natural, comfortable and useful. These shelves will not only know what products they have loaded on them, but also understand and interact intelligently with the consumer.
At the very least, in the more commoditised sectors, smart shelves will allow retailers to implement dynamic pricing, reacting to competitors’ pricing changes or costs in real time. But the potential is there for prices to change dependent on the individual customer profile in a way that maximises the chances of a sale. B&Q are already testing electronic price tags that change price based upon the profile of the customer.
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In high-end categories, such as fashion or electronics, the identification of the customer is likely to be used in a more discreet way to help sales assistants tailor their approach. Knowing what the customer has bought before or whether they have responded to promotions could enable the sales assistant to ascertain whether a discount or a bundled offer would be most appropriate.
The technical challenges of surfacing the right price, for the right person, for the right product, in store, in real time, are not insignificant. What’s more challenging is managing the consumer perception of personalised pricing. How consumers and the media will react when it becomes well known that some individuals end up paying more for the same item in store remains to be seen. As the Competition & Markets authority has said: “Businesses need to be clear if they are using personalised pricing. If they are using it and it’s not clear, that could erode trust.”
Retailers will need to be transparent and on the front foot about the practice, in order for it be perceived as personalised discounts for loyalty and not another example of “rip-off Britain.” Either way, as the blurring of the online and offline worlds continues, the rise of personalised pricing seems assured.
Jeremy Pounder is client director at Mindshare
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