FILE: The FTC is seeking to crack down on so-called personalized pricing. (Photo Illustration by Matt Cardy/Getty Images)
Companies that engage in a practice known as personalized pricing could face federal charges under a new rule proposed by the Federal Trade Commission.
The new policy was released Wednesday. Here’s what to know:
What is personalized pricing?
The backstory:
Personalized pricing is the practice of secretly varying prices based on how much companies think individual customers will pay. In a preliminary report filed last year, the FTC found that grocers, clothing companies and others were using third-party companies to help them individualize online prices based on shoppers’ locations, browsing histories and other factors, including how long they left items in their virtual shopping carts.
In one hypothetical example, the FTC said a consumer profiled as a new parent might be shown higher-priced baby thermometers on the first page of their search results.
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Why does the FTC want it banned?
Big picture view:
The FTC has been eyeing personalized pricing for several years.
What they're saying:
"When consumers see a listed price, they expect it to be (the) same price that everyone else sees, not the retailer’s estimate of how much they are willing to pay based on their personal data," FTC Chairman Andrew Ferguson said in a statement to The Associated Press.
Several states, including Maryland, Connecticut and New Jersey, have already passed laws prohibiting personalized pricing at grocery stores. California and New York are also considering legislation that would ban personalized pricing, and New Jersey placed a one-year moratorium on new electronic shelf labels.
What does the new policy say?
Dig deeper:
Under the proposed FTC policy, businesses would have to "clearly and conspicuously disclose" if they are using personalized pricing and share the types of data they’re using to set those prices.
Companies using personalized pricing without disclosing it and the data behind it could violate the FTC Act, which prohibits unfair or deceptive practices in the marketplace.
The other side:
The National Retail Federation, which represents big companies like Walmart, Target and Macy’s as well as smaller stores, said retailers want to continue to offer incentives like loyalty and rewards programs, which collect personal data and provide offers tailored to individuals.
"NRF has and will continue to aggressively advocate to protect these programs that deliver timely savings and personalized offers that are relevant to each shopper’s interests," said David French, NRF’s executive vice president of government relations.
FMI, a trade group for the U.S. grocery industry, sent a letter to U.S. senators this month saying it, too, hoped to preserve shopper loyalty programs.
In the letter, FMI also noted that electronic shelf labels, which are becoming increasingly common at grocers and retailers like Walmart, don’t automatically change prices based on individual shoppers.
What's next:
The FTC is seeking comment on the policy for 30 days.
The Source: This report includes information from The Associated Press.