This essay is about pricing, a core area of marketing. More specifically, it is about personalised pricing, which must not be confused with dynamic pricing.
Personalised pricing describes adjusting the price for every single customer individually, while dynamic pricing describes adjusting the price for all customers subject to external factors like the current demand as of this moment, for example. If an airline company for instance lifts prices on weekends because demand is stronger on weekends in general, this is dynamic pricing. If the airline company however increases the price only for one particular customer, because they find out, for instance, that the customer uses a certain computer type which makes him likely to be wealthier than other customers, this is personalised pricing. The underlying motivation of this essay is to critically assess how personalised pricing is carried out and whether it should be adopted.
Therefore, this essay takes the following approach and structure. Firstly, it is examined whether personalised pricing is legally permitted. Only if it is legally permitted to personalise prices it is worthwhile to further investigate this topic. Secondly, the customer’s willingness to pay is analysed. In order to personalise prices, it is necessary to know a customer’s exact willingness to pay. Thirdly, the topic of price elasticity is elaborated. It is necessary to assess whether profit is increased via increasing prices or decreasing prices and therefore higher demand. Fourthly, resulting retaliation as a consequence is explored. It is critically examined whether personalised pricing should be adopted, and empirical evidence is gathered to determine a retribution effect of personalised pricing which might end up making this practice unprofitable.
Table of Contents
1 Introduction
2 Personalised Pricing
2.1 Is it possible?
2.2 What’s the customer’s willingness to pay?
2.3 To increase or decrease the price?
2.4 Is it worth to adopt it?
3 Conclusion
Objectives and Topics
This paper provides a critical examination of personalised pricing, differentiating it from dynamic pricing and investigating its legal, economic, and behavioural implications for companies.
- Legal feasibility and regulatory challenges of personalised pricing
- Economic strategies for maximising profit through willingness-to-pay analysis
- The role of price elasticity in adjusting consumer prices
- Retaliation risks and the psychological impact of price discrimination on customers
Excerpt from the Book
2.4 Is it worth to adopt it?
Given all previous findings it is very assumable, and not very surprising, that customers will not like a company discriminating prices, because it can lead to the customer’s disadvantage. This constitutes the necessity of this chapter. It will examine whether there is such an aversion, explain why, and conclude whether it is worthwhile, after all, to personalise prices considering this effect. Besides, other examinable perspectives where further research could follow include a philosophical-ethical examination, taking a teleological, hence utilitarian (e.g. Mill & Piest, 1957) and deontological (e.g. Bowie, 1999) perspective about the morality of personalising prices. However, this is beyond scope of this essay. This chapter will exclusively focus on empirical evidence of a retribution effect.
Perhaps most famously, Amazon made negative press in 2000 when a customer publicly revealed that he could buy a DVD for four dollars less by deleting his cookies. Amazon’s CEO, Jeff Bezos, alleged its website just tested random prices, but still apologised and paid refunds related to that issue (Wallheimer, 2018). This is indicative for the negative impact personalised pricing can have on customers. People appear not to like the idea of being treated differently, with the idea in mind of being treated worse by paying more.
Summary of Chapters
1 Introduction: This chapter defines personalised pricing, distinguishes it from dynamic pricing, and outlines the essay's critical assessment approach.
2 Personalised Pricing: This section evaluates the feasibility, economic mechanisms, and consumer reactions associated with individualised pricing strategies.
3 Conclusion: The conclusion synthesizes the findings, confirming that while personalised pricing can increase profits, it requires careful balancing against potential customer retribution.
Keywords
Personalised pricing, first-degree price discrimination, willingness to pay, price elasticity, revenue maximisation, consumer surplus, data privacy, GDPR, customer retaliation, price fairness, behavioural economics, market regulation, competitive advantage, CRM systems, customer loyalty.
Frequently Asked Questions
What is the fundamental focus of this research?
The research focuses on a comprehensive and critical examination of personalised pricing, which refers to the practice of adjusting prices for every single customer individually.
What are the central thematic areas covered?
The study covers the legal feasibility of personalised pricing, economic modeling for profit maximization, the role of price elasticity, and the behavioral consequences of price discrimination, such as customer retaliation.
What is the primary research goal?
The primary goal is to critically assess how personalised pricing is implemented in practice and to determine whether it is a strategy that companies should adopt.
Which scientific methods are employed?
The author employs a literature-based analytical approach, including the derivation of a mathematical model for segment-based profit maximization and an analysis of existing empirical studies regarding consumer behavior and market regulation.
What does the main body address?
The main body examines the legal landscape, demonstrates profit maximization through willingness-to-pay variables, analyzes price elasticity, and investigates the risks of customer backlash.
Which keywords best characterize this work?
Key terms include personalised pricing, first-degree price discrimination, price elasticity, customer retaliation, and consumer surplus.
How does personalised pricing differ from dynamic pricing according to the text?
Personalised pricing adjusts the price for individuals based on specific customer data, whereas dynamic pricing adjusts prices for all customers based on external factors like general demand fluctuations.
What is the "love becomes hate" effect mentioned in the context of price discrimination?
It is a phenomenon where retaliation from customers becomes even stronger if there was a strong, loyal relationship between the customer and the company before they were subjected to unfavorable price discrimination.
- Quote paper
- Anonym (Author), 2020, Personalised Pricing. A comprehensive and critical examination of first-degree price discrimination, Munich, GRIN Verlag, https://www.grin.com/document/1022855
