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Price Discrimination Online

Posted by Michael Bloch in ecommerce (Thursday January 24, 2013 )

People living in different areas visiting some online stores are seeing different pricing – and it’s not just about tax or currency exchange.

If you live in an affluent area; there’s a possibility you could be paying more for goods on some sites compared to someone from a less well-to-do region.

The Brisbane Times reports some Australian web-based retailers charge higher prices to customers from wealthier suburbs.

It also states Amazon has experimented with charging its regular customers more (I seem to remember a story about this a couple of years ago). I’m sure that would impress Amazon customers.

Apple user? It seems you’re in the cross-hairs of pricing discrimination too. After all, if you own anything Apple, you must have cash to burn(?).

So how is this done? – it’s pretty simple; particularly if you’ve opened some sort of account with the store previously – all they need is your postcode; a bit of coding and some fancy cookies.

Another way it can be done is through IP address – the unique identifier you are issued with each time you log onto the Internet. An IP often traces back to a local server.

However, it’s a brave retailer that uses this without having a really, really, accurate IP database service – and using it on wireless broadband users in Australia may be useless.

For example, I have wireless broadband and an IP trace will often show me in Melbourne, Perth or Sydney all in the same day – and I’m nowhere near those places; I’m actually in a different state.

Targeting Apple users is relatively easy; the platform just bases pricing on the HTTP referer information that accompanies every request for an element on a page and includes the operating system used by the visitor requesting it.

Price discrimination doesn’t have to involve big figures to be of benefit to a retailer if you have a high number of sales.

Imagine there are 50 orders a day you can whack an extra dollar on. Over a year, that’s 9 grand clear profit (assuming the development work has already paid for itself). When you’re talking about huge online retailers; the amount that could be made is a sizable chunk of change.

While the technology may seem a little nasty, I can see useful application for it where nobody is really genuinely disadvantaged.

If a store offers free shipping (in reality, meaning shipping is included in the price); getting a parcel to a customer just down the road is going to be a lot cheaper than one living across the other side of the country and in a remote area.

The extra cost can be distributed across all customers during the process of pricing a product, which is usually the case; or using price discrimination, just impacting those where the cost to ship is higher.

Whatever the motivation and application; given the fact there are certainly ways and means to fool these systems in order to detect if a retailer is engaged in price discrimination; retailers need to seriously consider if it is worth the bad publicity that may result from the practice being exposed.

Amazon doesn’t appear to have gone broke though!


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