Charging Different Prices to Different People: Why It’s Good for You

The Wall Street Journal ran a piece suggesting you can’t trust online shopping for airfare and for other goods, because sites may charge you more or less based on who you are.

A new study of top e-commerce websites found these practices—called discriminatory pricing or price steering—are much more widespread than was previously understood.

Here’s what the Journal reports regarding hotel price discrimination at some of the big online travel booking sites:

Among the study’s findings: Travel-booking sites Cheaptickets and Orbitz charged some users searching hotel rates an average $12 more per night if they weren’t logged into the sites, and Travelocity charged users of Apple Inc. ’s iOS mobile operating system $15 less for hotels than other users.

…And Expedia and Hotels.com steer users at random to pricier products, the study said.

These sites are operating with big data and crude models, but they’re testing theories of what different consumers want so they can provide consumers with the easiest and quickest buying experience.

The worst thing for an online booking site to do is present the wrong thing to a consumer, what the consumer doesn’t want, because the consumer will leave and buy somewhere else.

As I pointed out in the regulatory comment I filed with the DOT regarding their pending airfare price transparency rules, it’s not necessary to make every online booking site one-stop shopping for all information because consumers visit on average about ten sites per trip that they book.

When basic trips migrated from brick and mortar travel agencies to the web, inefficent costs were squeezed out of the system. Consumers got more control over their trips. But the craft advice an agent could provide was lost. Travel is complex and booking sites are pushing towards a next generation of online booking, mass customization, where the site learns what you’re most likely to want and guides you to the best fit.

One early attempt at this caused a stir two and a half years ago when it was revealed that Mac users were being presented with more expensive hotels by Orbitz. The idea here isn’t new. Their data suggested that Mac users tended to choose somewhat pricier accommodations on average than PC users. So Orbitz was trying to recommend hotels these consumers wold be more likely to choose, so they wouldn’t leave the site and book somewhere else.

Now, sometimes elite members of a program can be hoodwinked into not checking prices and will wind up paying more but that’s virtually a non-issue for OTAs. And on average consumers are checking a ton of sites, an OTA would be foolish to price uncompetitively.

They’re testing, and learning, and trying to get better. They’re not trying to squeeze an extra $12 out of a hotel hoping that consumers won’t notice. Nonetheless, it’s wise to follow the average consumer in this case and also comparison shop prior to booking.

(HT: Hack My Trip)


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. There’s a difference between having different prices for the products, and simply presenting the products in a different order.

  2. Your bolded premise is fundamentally wrong:

    >so they can provide consumers with the easiest and quickest buying experience.

    That’s not even remotely correct.

    They’re testing theories (a la “A/B testing” and other more sophisticated techniques) to provide consumers with data that will cause them to buy things that maximize profits for the company.

    You continue:

    >The worst thing for an online booking site to do is present the wrong thing to a consumer, what the consumer doesn’t want, because the consumer will leave and buy somewhere else.

    That assumes that the consumer will, in fact, leave and buy somewhere else. That may be true in some cases, but not in all cases. The point of A/B testing and other analysis is to determine the profit maximizing point – how far can you push before a consumer figures out they’re being pushed and leaves.

    Oh, BTW, this is what UA does every day with TOD upgrades, too…

  3. “Good for me” isn’t necessarily true because I happen to comparison shop. I don’t think we should make things cost more because people don’t have the knowledge to look. Should grocery stores in areas where people don’t have transportation to leave the area be able to charge more just because they can? Its definately not good for the market, as it would break any possibility of doing BRG’s, and being able to KNOW you are getting the lowest price.

  4. Did I miss the point of this article? Why is it good for you if different people are being charged different prices for travel purchases?

  5. If you missed the explanation, I did too. I saw zero evidence that price discrimination is good for anybody except unethical corporations. Busy people who don’t have time to check an average of 10 sites (!) before making one purchase will overpay. Ain’t nobody got time for that. There should be a place in federal prison for people who can’t think of anything better to do with their lives than to create new ways to discriminate for profit.

  6. @Ric Garrido what this mostly is about is (a) showing you the items you’re more likely to want, which for some people will be more rather than less expensive hotels, and (b) discounting for certain customers (which can be spun as charging others more).

  7. I was a little disappointed, since based on the title I thought you were going to talk about cross-subsidization (a compensating differential for charging price-insensitive consumers *more* is charging price-sensitive consumers *less* – this is a especially true in the airline mark!). Indeed most leisure consumers benefit enormously from cross-subsidization in the market for airfare due to price discrimination.

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