Dynamic pricing: Internet retailers are treating us like foreign tourists in Egypt

Fewer things frustrate tourists in Egypt more than skin-dependent pricing. Have Irish freckles? Expect to pay double in a Cairo taxi. An Italian tan? The price of that basalt model of the Sphinx just shot up 200 percent. Have glowing blue eyes? Some restaurants suddenly have no menus and prices are delivered orally. I’ve been overcharged by more merchants in this country than I can tally in Excel.

Overcharging people based on their features makes them mad. Indeed, there’s some evidence that Egypt’s relentless retail harassment costs the country big, as some beleaguered tourists are reluctant to return. Turkey, a country roughly the same size as Egypt but one that is a bit more forthright with sightseers, hosts nearly twice as many visitors as Egypt every year.

It’s a lesson that online businesses would be wise to heed. In a bid to boost profits, more online merchants are launching “dynamic pricing” schemes (euphemistic for “pricing based on how much we think we can bleed you”), which adjust prices for online goods and services based on perceived willingness to pay.

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“Online customers are more fickle than their brick and mortar brethren, more likely to window shop…and much less loyal to any particular store,” said Brooke Gladstone on NPR’s “On the Media.” “Retailers have tried to level the playing field with some digital tricks, among them ‘dynamic pricing’…changing the price of a good based on what they think a consumer is willing to pay.”

Gazing at that BMW is going to cost you

If, for example, you’ve recently searched for and purchased first class airfare to Paris, completed online customization of a new BMW, and surfed for a new Bose Wave Radio, you could later get a somewhat pricier quote for a new sofa.

But if your cousin Ralph doesn’t have the Tiffany & Co. search history on his browser that you have, he might get a fire-sale quote if he goes after the same sofa. Or if he considers splurging on the same Bose radio, the audio giant might offer him five percent off and free shipping.

Dynamic pricing has long existed online for a number of goods and services, such as airfare, credit cards, car rentals, and hotel rooms, Slate reporter Annie Lowrey said on NPR. “What we’re looking at now,” however, “is how dynamic pricing is influencing the sales numbers and purchase prices for goods that aren’t time-sensitive and that there isn’t any logical explanation for why one person should pay a set price for a DVD and another person should pay a different price.”

Dynamic pricing, or peddling goods online through the eyes of a used Chevy salesman, may work for merchants if it encourages stingier customers to spend and squeezes more out of wealthy ones. But many customers – like tourists in Egypt – might not be so fond of it.

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And they’ll know. In the past, were you and Ralph to go the same Chevy dealer at different times, he in sweatpants and you in tailored conference-room digs, you’d probably get two different quotes for the same car. But the pettifogger’s dishonesty might not be falsifiable; the dealer could claim that demand had changed in the time between your visit and Ralph’s, or that the dealership had two of the same model and the one Ralph test-drove was more weathered.

Consumer backlash

Online, though, this shyster is laid bare. If Best Buy adopts a dynamic pricing scheme, you need only to e-mail Ralph the link to the iPod docking station you’re searching for and ask him to run a test search. Or you could download a new browser to your computer and do a search from that unadulterated portal. An Egyptian merchant might insist to your face that a basalt mini-Sphinx cost $150, but if he starts offering quotes online, the jig is up.

Online shoppers seem to have made peace with some forms of dynamic pricing. If AmericanExpress.com believes I’m broke and a flight risk, it’s going to charge me more to borrow. Fine. But consumers don’t like being pitched for manufactured goods based on what they look like, whether in person or based on cookie patterns. If there’s one thing that web mobs unite against it is the sin of digital retailers. Just ask Dell and Comcast, two giants brought to their knees by a handful of noisy webizens to whom they gave the shaft. Mark my pixels: If many online retailers embrace dynamic pricing, their sales could go static.

Justin D. Martin is a journalism professor at The American University in Cairo. Follow him on Twitter or e-mail him.