Imagine walking into a retail outlet and asking how much a certain item costs and instead of an answer you get a question: How much do you have?
Online merchants however don't have to engage in such an overt shakedown, because they already have a pretty good idea how much you have, thanks to data surrendered to online tracking techniques.
The latest example of this comes from travel website Orbitz, which has been presenting Mac users with more expensive travel options than Windows users. According to the Wall Street Journal, Orbitz has found that Mac users are willing to pay as much 30% more than Windows users on hotels and has begun presenting them with different and sometimes pricier options through its website.
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A 2009 study by research firm NPD explains Orbitz's finding that Mac users will pay more. It found that 36% of Apple computer owners reported incomes above $100,000, compared to 21% of consumers in general, and the average Apple household has twice as many consumer electronics devices compared to other households.
Orbitz did not immediately respond to a request for comment but a company tweet endorses a Fortune article that characterizes the company's actions as merely an attempt to please a group that is seeking higher-end lodging than other Orbitz visitors.
Michael Belch, professor of marketing at San Diego State University, said in a phone interview that while dynamic pricing of this sort may not be illegal, he believes it's unethical. He describes a scenario in which a Mac user and a Windows user visit Orbitz to book a room. "We both go to Orbitz to help us find the best price, but they're not doing that," he said.
Orbitz might respond by noting that it still presents the cheapest rates elsewhere on its website, Belch suggests. "They're going to say all you have to do is scroll down," he said. "But that's not full disclosure."
Dynamic pricing, or price discrimination, as economist Paul Krugman has referred to it, is not new. It has been practiced for years in the airline industry and can be seen in movie ticket pricing, in which youths and seniors pay less than adults. But it becomes controversial when the factors used to discriminate are unexpected, undisclosed, or unlawful.
Orbitz is not so much engaged in dynamic pricing as dynamic presentation: It's not pricing the same room differently for different people; rather it's showing different, sometimes higher priced rooms to Mac users on the assumption they're more interested in these options.
Twelve years ago, the Wall Street Journal ran a similar story, "Amazon.com Varies Prices of Identical Items for Test," about how the online retailer offered DVDs to customers at prices that varied by as much as 40%. The ensuing outcry prompted Amazon to offer refunds to almost 7,000 customers.
Ironically, Amazon prompted a related outcry from merchants late last year when it introduced its Price Check app, which allows customers to scan merchandise bar codes on their mobile phones and determine whether items can be purchased for less on Amazon. Merchants like having data about customers, but they're not so keen when customers have data about their operations.
But the absence of data privacy no longer scandalizes in the Facebook era. Companies are awash in customer data and plenty of them are trying to find ways to use it, with only muted grumbling from consumers. Expect to see more efforts to link pricing to customer data.
The Federal Trade Commission did not immediately respond to a query about its views on dynamic pricing, but it has in the past supported the dynamic pricing as practiced by energy utilities.
Nonetheless, a 2001 article from the Virginia Journal of Law and Technology, "Online Dynamic Pricing: Efficiency, Equity and the Future of E-commerce," suggests that the FTC may have to become more active in determining where to draw the line between lawful and unlawful price discrimination.
"The current legal regime seems to permit some previous forms of price discrimination," the article states. "But the question remains whether new information technology has unleashed a new form of price discrimination and, in the process, ushered in a completely new era of online pricing practices. How we deal with this new era--whether we leave it to the information flows of self-regulation and the market forces of competition, or whether we use the more traditional powers of the state--may well determine the future fate of e-commerce."
Given the silence of the state on this issue, it would appear that businesses are free to continue exploring different prices for different customers, at least until something more egregious than pitching rich Mac users on more expensive rooms comes along.
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