Online Price Discrimination: Neither Nefarious nor Unethical

Another day, another incendiary article up in arms about the fact that two people may see different prices at the same website.

The truth of the matter, as usual, is much less exciting as it sounds.  We’ve worked with retailers and their pricing strategies as both practitioners and consultants, but we’re continually surprised that no one cares that actual shelf prices at different physical stores can be very different, but the minute that they are different online, it makes the Wall Street Journal.

The short answer is that most retailers with physical stores and online storefronts simply try to match their online prices to their physical store shelf prices.  Why?  Those we’ve spoken with simply expressed that they wanted to present each customer the same experience online as they’d see in their home store.  The easiest way to do that is simply by using IP lookups to guess locations, which are getting more and more precise.

Online retailers have indeed been adding to their arsenal of price discriminating data- whether the browser type, location, history, etc.  But one of the great things about competitive markets is that they erase the “ethical price” debate: if Orbitz happens to think that you’ll pay an extra $10 for a hotel room and you’re not, simply move over to Priceline.  Or if they happen to be right, go ahead and book on Orbitz- there has been no coercion or misinformation, and no ethical breaches.

But in the end it’s a tempest in a teapot, because we’ve yet to see any online price discrimination tactics that change price by more than 5-10%, and most often it simply reflects the price you’d get if you actually entered the nearest local store.