 Personalizedpricing has spread across many industries. Here? how consumers can avoid it |
Source |
American Shipper |
Post Date |
08/11/2025 |
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Recently, Delta Air Lines announced it would expand its use of artificial intelligence to provide individualized prices to customers.
This move sparked concern among flyers and politicians. But Delta isnt the only business interested in using AI this way.
Personalized pricing has already spread acrossa range of industries, from finance to online gaming.
Customized pricing ?here each customer receives a different price for the same product ?is a holy grail for businesses because it boosts profits. With customized pricing, free-sping people pay more while the price-sensitive pay less. Just as clothes can be tailored to each person, custom pricing fits each person? ability and desire to pay.
I am a professor who teaches business school students how to set prices. My latest book, The Power of Cash: Why Using Paper Money is Good for You and Society, highlights problems with custom pricing. Specifically, I? worried that AI pricing models lack transparency and could unfairly take advantage of financially unsophisticated people.
The history of custom pricing
For much of history, customized pricing was the normal way things happened. In the past, business owners sized up each customer and thenbargained face-to-face. The price paid deped on the buyer? and seller bargaining ss and desperation.
An old joke illustrates this process. Once, a very rich man was riding in his carriage at breakfast time. Hungry, he told his driver to stop at the next restaurant. He went inside, ordered some eggs and asked for the bill. When the owner handed him the check, the rich man was shocked at theprice. ?re eggs rare in this neighborhood??he asked. ?o,?the owner said.?ggs are plentiful, but very rich men are quite rare.?
Custompricing through bargaining still exists in some industries. For example, cardealerships often negotiate a different price for each vehicle they sell.Economists refer to this as ?irst-degree?or ?erfect?pricediscrimination, which is ?erfect?from the seller? perspectivebecause it allows them to ge each customer the maximum amount they?ewilling to pay.
Currently,most American shoppers don? bargain but instead see set prices. Many scholarstrace the rise of set prices to John Wanamaker? Philadelphiadepartment store, which ed in 1876. In his store, each item hada nonnegotiable price tag. These set prices made it simpler forcustomers to shop and became very popular.
Why uniform pricing caught on
Set prices have several advantages for businesses. For onething, they allow stores to hire low-paid retail workers instead of employeeswho are experts in negotiation.
Historically,they also made it easier for stores to decide how much to ge. Before theadvent of AI pricing, many companies determined prices using a?ost-plus?rule. Cost-plus means a business adds a fixed percentageor markup to an item? cost. The markup isthe percentage added to a product? cost that covers a company? profits andoverhead.
Thebig-box retailer Costco still uses this rule. It determines prices by adding a roughly 15%maximum markup to each item on the warehouse floor. Ifsomething costs Costco $100, they sell it for about $115.
Theproblem with cost-plus is that it treats all items the same. For example, Costco sells wine inmany stores. People buying expensive Champagne typically are willing to pay a much higher markup thancustomers purchasing inexpensive boxed wine. Using AI gets around this problemby letting a computer determine the optimal markup item by item.
What personalized pricing means for shoppers
AIneeds a lot of data to operate effectively. The shift from cash to electronicpayments has enabled businesses to collect what? been called a?old mine?of information. For example, Mastercard says its datalets companies ?etermine optimal pricing strategies.?
Somuch information is collected when you pay electronically that in 2024the Federal Trade Commissionissued civil subpoenas to Mastercard, JPMorgan Chase and otherfinancial companies demanding to know ?ow artificial intelligence and othertechnological tools may allow companies to vary prices using data they collectabout individual consumers?finances and shopping habits.?Experiments at the FTC showthat AI programs can even collude among themselves to raise prices withouthuman intervention.
Toprevent customized pricing, some states have lawsrequiring retailers to display a single price for each productfor sale. Even with these laws, it? simple to do custom pricing by usingtargeted digital coupons, which vary each shopper?discount.
How you can outsmart AI pricing
Thereare ways to get around customizedpricing. All dep on denying AI programs data on past purchasesand knowledge of who you are. First, when shopping in brick-and-mortarstores, use paper money.Yes, good old-fashioned cash is private and leaves no data trail that followsyou online.
Second,once online, clear your cache. Your search history and cookies providealgorithms with extensive amounts of information.
Manyarticles say the protective powerof clearing your cache is an urban myth. However, this informationwas based on how airlines used to pricetickets. Recent analysis by the FTC shows the newest AI algorithmsare changing prices based on this cached information.
Third,many computer pricingalgorithms look at your location, since location is a good proxy forincome. I was once in Botswana and needed to buy a plane ticket. The price onmy computer was about $200. Unfortunately, before booking I was called away todinner. After dinner my computer showed the cost was $1,000 − five timeshigher. It turned out after dinner I used my university? VPN, which told theairline I was located in a rich American neighborhood. Before dinner I waslocated in a poor African town.
Shuttingoff the VPN reduced the price.
Last,often to get a better price in face-to-face negotiations, you need to walk away.To do this online, put something in your basket and then wait before hittingpurchase. I recently bought eyeglasses online. As a cash payer, I didn? havemy credit card handy. It took five minutes to find it, and the delay caused thesite to offer a large discount to complete the purchase.
The computer revolution has d the ability to custom products cheaply. The cashless society combined with AI is setting us upfor customized prices. In a custom-pricing situation, seeing a high pricedoesn? mean something is higher quality. Instead, a high price simply means abusiness views the customer as willing to part with more money.
Using cash more often can help defeat custom pricing. In myview, however, rapid advances in AI mean we need to start talking now about howprices are determined, before customized pricing takes over completely.
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