Could personalised pricing mean you pay more for essential services?

The rise in ‘big data’ could drive up prices for the most vulnerable.

When we go online, our experience of shopping changes. You can’t see if you’re paying the same price as the person in front of you, and you can’t tell if the price changes based on who you are.

‘Big data’ — the information collected through browsing ‘cookies’, online shopping accounts, and even our web browser — tells companies a lot about us and this information is growing.

How could companies use this data?

Big data combined with algorithms can be used to introduce fluctuations to the prices of services by telling providers how likely we are to seek out the best deal.

There’s been a lot of discussion of the role of big data and pricing personalisation when it comes to luxury items like flights and holidays. We wanted to know what it could mean for people when it comes to the essential services they rely on every day and today we’ve published our findings.

So what did we find?

1. Personalised pricing would be easier in some markets than others. In industries like telecoms and energy — where prices are flexible and data is widely available — firms can adjust prices according to personal circumstances.
2. Personalised pricing isn’t necessarily bad. If regulators meet the challenge, personalised pricing could provide opportunities for markets to work better — increasing competition on the best deals and ensuring services better suit people’s needs.
3. Essential service markets are falling short — so personalised pricing could pose a risk to consumers. People who don’t switch are paying a loyalty penalty of nearly £1000 per year. These are often the people who can least afford it — those on lower incomes, older people, and people with mental health conditions — and personalised pricing could make this worse. Big data is likely to make it easier for providers to identify who is most likely to switch, which could see prices for people on a low income rise even higher.

But it’s not happening yet

Our research didn’t uncover widespread personalised pricing in essential markets. Partly, this is because companies in essential service markets don’t yet have the ability to collect and analyse big data on the scale necessary for personalised pricing. For now, investing in new IT systems and algorithms to correct this is a risky investment for most firms.

But personalised pricing may not be far off as the use of ‘smart’ products, such as a smartphone, increases the data available to companies, making personalised pricing an increasingly attractive profit-making opportunity.

Here’s why:

• People don’t like personalised pricing. 75% of people who shop online said they wouldn’t trust their provider if they used personalised pricing. At the moment, providers say this is a major reason for not rolling this pricing strategy out.
• There are legal barriers in place. Existing legislation and regulations place limits on the forms that undisclosed personalised pricing might take. But — as yet — it’s not clear how these limits will work.

More work needs to be done to establish if personalised pricing — where consumers haven’t explicitly consented — could be illegal.

In the meantime, we’re calling on regulators to be on ‘high alert’ to the risks of personalised pricing in essential markets. They need to closely monitor how prices are set and make sure existing price protections are fit for purpose.