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Personalised Pricing - A Step Too Far?

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It's no surprise that marketers analyse and use customer data. Most of us are aware of it happening in our everyday lives, particularly those of us with supermarket loyalty cards who receive personalised offers every month for our favourite food and household items. Data analysis certainly isn't a new phenomenon - Tesco has led the way in the retail sector since 1995, when it first introduced its Clubcard. Now the practice is commonplace in the industry; the majority of high street retailers have some sort of customer loyalty scheme that collects your personal information in order to provide you with better products and services.

However with the advent of online, the retail environment has become much more complex. Consumers are finding new ways - for example mobile devices and social media platforms - to interact with their favourite brands. In today's 'big data' era, retailers are scrambling to decipher the growing wealth of information being generated by these new customer touchpoints and are looking to use the data they glean in new ways. For some retailers, this has led to a new level of personalisation - personalised pricing.

At the end of 2012, the Office of Fair Trading (OFT) launched an investigation into the use of online data for personalised pricing. From the investigation the OFT wanted to discover how aware consumers are about brands' use of online personal data to target them with different price promotions and whether they found this off-putting.

Naturally brands want to build engagement and create relationships with customers and using customer data effectively to target each individual with the right offer at the right time is key to this. Personalised pricing is no different to other forms of personalisation, such as an offer received on your birthday or a nod to your favourite skincare brand in an email. These types of personalised promotion can be used to reward regular and loyal customers according to their individual profiles. However, the question is whether the data being used for personalised pricing is in breach of any data protection or consumer regulations and how transparent retailers are being about its use.

Personalised pricing already happens in the offline world. Two good examples of this are in the car industry and at UK universities. Often a car dealer will assess all the information he has on a potential buyer, including how they dress, where they live, what car they arrive in or how much they say they are willing to spend. Other factors such as the current stock situation and bartering between the dealer and the potential customer will mean that the final agreed price is often somewhere between what is on the windscreen and the actual cost price. At which point, it is up to the potential buyer if they want to accept or walk away. In the case of universities, it is common practice to charge different rates for UK and non-UK students for exactly the same courses and tuition.

Such instances of personalised pricing are now becoming increasingly possible in the online world. It has been suggested that brands can now access information on a customer's browsing history and what kind of computer is being used to assess if it's appropriate to make a special offer. As in the offline world, the potential customer can either accept or shop elsewhere. The practice is essentially the same. For those that get it right, both customer and brand walk away happy. Brands that don't get it right run the risk of losing a potential sale and even worse, the customer's loyalty altogether.

In light of the demise of many of our high street favourites, in today's digital world successful retailers will be the ones that are smart and transparent about how they are using data. The premise of collecting online customer data has always raised privacy issues and is understandably considered by many as a bit 'big brother-ish'. But as marketing priorities shift towards a more 'relationship first' stance, we will see more data being used by marketers to create experiences and offers for consumers that are highly targeted to each individual. Personalised pricing could fit into this strategy, but if used incorrectly it could become a quick way of destroying trust and alienating a once loyal customer. At the end of the day, the customer comes first. Retailers need to ensure that any personalisation strategy they do use to target consumers is fair and when they get this right, the result is beneficial for both parties.