I feel like there’s a book about this…
Remember to vote with your wallet!
This month, we are plugging KidSmart! To learn how to donate time, money, or resources, please visit https://kidsmartstl.org/.
SOURCES
https://link.springer.com/content/pdf/10.1057/s41272-025-00537-6.pdf
http://link.springer.com/10.1057/s41272-024-00509-2
https://education.ti.com/en/purchase/where-to-buy?category=ti-84-plus-ce
The Marketing Gateway is a weekly podcast hosted by Sean in St. Louis (Sean J. Jordan, President of https://www.researchplan.com/) and featuring guests from the St. Louis area and beyond.
Every week, Sean shares insights about the world of marketing and speaks to people who are working in various marketing roles – creative agencies, brand managers, MarCom professionals, PR pros, business owners, academics, entrepreneurs, researchers and more!
The goal of The Marketing Gateway is simple – we want to build a connection between all of our marketing mentors in the Midwest and learn from one another! And the best way to learn is to listen.
And the next best way is to share!
For more episodes: https://www.themarketinggateway.com
Copyright 2025, The Research & Planning Group, Inc.
TRANSCRIPT:
So I’m a little shocked, folks, because I believe today marks the first time I’ve ever agreed with something said by Senator Josh Hawley, who started off a Senate Judiciary Committee meeting this week titled “Your Data, Their Profit: the Consumer Cost of AI Surveillance Pricing.”
Hawley’s of course a senator from Missouri who represents St. Louis, and I could spend the rest of the day giving you a long list of the things I disagree with him on. But he’s upset about the rise of dynamic pricing powered by AI, or, as the committee calls it, “surveillance pricing,” and I am on his side.
Dynamic pricing, which is also known as personalized pricing, creates a problem where we didn’t have one before, and far from being fair, equitable or even right, it’s something that pretty much everyone loathes but which retailers are insisting they need to utilize to maintain profitability.
Now, even though I’ve invoked the name of a Senator, I don’t want to wade into the political side of this, because these meetings are often about grandstanding anyway. But what I do want to talk about is something that came up in this meeting, and that’s the difference between collecting data on customers through scanners, payment systems, loyalty programs, metadata and so forth versus using that data to behave in a manner that’s trying to get the consumer to pay the highest price they’ll bear.
Pricing is an important topic in marketing, one of those sacred 4 P’s and something we really have to think about in terms of strategy. But the truth is that modern day, mass market pricing rests on this fairly recent idea that pricing is supposed to be fair.
And that’s just not the way it’s always worked, and it’s actually going to be government, not capitalism, that’s going to ensure pricing isn’t being managed by AI systems armed with deep individual customer data.
So let’s take a look at what’s happening and where we’re heading with pricing, and whether or not we even ought to be worried.
I’m Sean in St. Louis, and this is the Marketing Gateway.
Prior to the 19th and 20th centuries, a lot of commerce was conducted on very personal terms in most parts of the world, and what I mean by that is that merchants would set up stalls or drive in their wagons and open up for sale and then people would come to them, look at what they had and inquire about price.
Merchants would size the people up based on what they thought they could pay and name a price. If the person didn’t like it, they might try to haggle with the merchant to get the price down or to get more for what they were spending.
In situations without common currency, the price would be a swap of valuables for other valuables. The problem is that the value of individual items was more of a feeling than a concrete number. As coins came into use, they represented a valuable object that could be mapped to the value of an object a little bit more precisely.
Even so, haggling was still a way of life for many cultures, as was charging foreigners or visitors more than the savvier locals. Even today, and especially in touristy areas in poorer countries, you can find situations where the merchants will raise their prices for outsiders or expect to haggle with them with an upper range final price in mind.
I’m not sure exactly when and where standardized pricing became a common practice, but I found a 2025 paper from the Journal of Revenue and Pricing Management that provides a brief overview of the history of pricing and suggests that local authorities would enforce pricing laws to keep things fair and that the Industrial Revolution furthered this by standardizing goods, driving costs down and encouraging manufacturers and sellers to instead make sales based on anticipated profit margins.
In the 20th century, economic theory and practice let to more refined pricing practices, but so did mass media and published resources like the Consumer Price Index. Somewhere along the way, we got from the expectation of haggling to a point of view that “the price is the price,” and the decision to buy was contingent on whether or not that price was worth it to the purchaser.
Or… well, let’s just say that this is a neat and tidy abstraction for what’s actually been happening with pricing over the decades, because the truth is that pricing has always been murky due to the presence of discounts.
So for example, my son needs a TI-84 Plus CE color graphing calculator for his math class this year. The list price is presently $129.99, down from the $149.99 it was a few years ago when my daughter needed one. Texas Instruments doesn’t sell the calculator direct to consumers, so they have a link on their website to all of the major merchants who do.
It’s back to school season, so it’s no surprise that there are different prices out there due to sales and promotions. But I’m surprised just how much they vary. OfficeDepot and OfficeMax are offering the calculator for list price. Best Buy is offering it for $140.92, about $11 above list price. Staples is offering is for $122.99, a few dollars below. Walmart has it for $100 even. And Target and Amazon are both offering it for $94.99.
So, what is the fair market price for the calculator? I don’t actually know! If we’re not in back to school season, the price is going to be closer to that list price because nobody’s expecting to sell that many of them.
But during the month of August, they’re being sold for 25% off or more by three major retailers.
So I’m tempted to say that the fair market price is $94.99 and everyone else is overcharging for the rest of the year. Yet it’s probably more complicated than that. The calculators may be sold as loss leaders by the retailers to encourage other school supply shopping, or Texas Instruments may be subsidizing pricing with a promotion since this is their busy time of year for selling calculators.
The premise could also be that the sales reward people who shop early – wait till September when more people are scrambling to get school supplies and you may pay more.
My point is, pricing often follows this sort of logic. At my local grocery store, a bag of Utz potato chips is something like $5 a bag. But they frequently have sales where you buy 2, get 2 free. So is the real price of a bag of Utz potato chips $2.50 if I just buy in bulk?
I should note, I’ve heard that in places where Utz chips are a more dominant brand or more of a specialty brand, they don’t offer those sorts of deals. It’s probably promotional pricing intended to stimulate demand in my market.
But it does raise the question of what I should expect to pay for a bag of chips, especially when the competing national brands aren’t offering that same low price.
Store brands, by contrast, probably are in that price range for individual bags of chips, and the sneaky secret is that a lot of times, those store brands are made by the same regional manufacturers who produce the national brands.
This is one of the reasons why any attempt to discuss pricing is difficult, because what’s “fair” is very contingent on where you live and what the market in your area is like for any particular good.
And this has led to all sorts of cottage businesses over time where people buy things cheaper in one part of the country and then head to markets where the price expectations are higher and resell them for a profit.
The internet has made that sort of resale of both new and secondhand goods particularly viable, and Amazon, Walmart and Target are three of the many businesses who allow resellers to help pad out their available listings for online products.
Even so, there is a sort of unwritten rule about pricing, and it’s that the prices are posted and don’t change while people are browsing them, and if they’re advertised, they’re kept firm. “Fair” pricing is transparent in the sense that people can see it posted and know for how long it’s valid.
So, for example, if I head into Target expecting to pay $94.99 for a graphing calculator because that’s the price they listed online or in an ad for that particular location, that’s the price they’re supposed to charge me, and that’s before any promotional offers or discounts or whatever else I can use to possibly bring that price down further.
Failing to honor that pricing can get them in trouble with government agencies like the FTC.
But let’s more away from retail for a moment and think about situations where the pricing is a little bit shakier. There’s a model known as dynamic pricing that’s used by industries such as airlines, hospitality and rental cars where prices are tied to some sort of calculation of demand.
So for the airlines, even though the planes fly in predictable routes, what I pay for a specific flight is going to depend upon how quickly the flight books up and how close I am to the date of travel.
Peak travel seasons, either in general or just for that route, are going to make prices go up.
During times of low demand or when weather around the country causes cancellations and reroutes, I might be able to get a super low price.
That’s how dynamic pricing works, and critically, it’s not dependent on the airline or hotel or car rental company making calculations about me, as the traveler – it’s about supply and demand. Or, at least, so we’re told.
And consumers do have some tools for understanding what they think the price should be, such as past experience, comparable bookings or even just looking online and seeing what the average price is.
Likewise, gas stations use a dynamic pricing model ostensibly built on the notion of inelastic demand due to the variable price of crude oil and the refining process.
Of course, recent news has suggested that energy companies have perhaps been using dynamic pricing to skim the market during a volatile time and charge above market value, and that’s pretty bad, especially when you read that eight of the biggest oil companies made around $93 billion in profits in the last three months largely by raising consumer prices on oil and gas.
The source for that, by the way, is an article from earlier this week in the Guardian, and it’s in the show notes. Don’t read it while you’re eating or drinking, or you may do a spit take.
But dynamic pricing, like fixed pricing in retail stores, is still at least considered fair because consumers can decide before the point of purchase whether or not they want to pay that price, and they generally have the opportunity to look at their alternatives.
They have tools they can use to search for similar prices or to see if they’re being ripped off, and there are also government agencies that regulate the practice.
For example, a gas station cannot arbitrarily decide to charge you more while you’re pumping gas, and a hotel can’t hand you a bill for more than you agreed to pay without explaining in clear language why they’re charging you extra.
Maybe because you decided to order some movies and break into that minibar.
Anyhow, these practices are all pretty standard. But this newer idea of personalized pricing, what the US Senate Judiciary Committee referred to as “surveillance pricing,” is not standard, and it’s also extremely unpopular among consumers because it’s considered unfair and predatory.
In a landmark 2024 paper for the Journal of Revenue and Pricing Management called “All is (not) fair in personalized pricing: antecedents and outcomes of consumer fairness perceptions,” authors Kimia Heidary and Helen Pluut found that personalized pricing is so unpopular that it triggers strong negative fairness perceptions among consumers and that consumers tend to only favor personalized pricing when they view it as beneficial – getting a deal on a more expensive item – than when they view it as gouging.
The paper also discusses how consumers are also particularly worried about dynamic pricing being applied in manners that single out specific segments and they may even attempt to come up with explanations for why pricing is different.
The paper does say that geography is more acceptable than other criteria like purchase history, demographics or time of day, but personalized pricing is so closely aligned with deceptive marketing practices and distrust for retailers that it tends to engender cynicism and even limit purchase intent.
In other words, you’re probably better off offering targeted coupons, discounts or perks than you are employing a dynamic pricing system, because consumers are very, very worried about being overcharged for goods and services, but far more trusting of situations where the seller seems to have good intentions.
Because what consumers ultimately worry about is this. Large chains such as Kroger, Walmart and Target have been switching to digital price tags on store shelves and those tags can be changed instantly by connected computer systems.
So let’s say that there’s a run on toilet paper because of people getting sick from a parasitic outbreak, and the normal price, which was maybe 2 bucks for a few rolls, starts going up as more people begin putting the toilet paper in the carts.
By the time they reach the checkout area, the price has gone up to $4, and they have no recourse, because the price that was shown on the shelf isn’t there to reference anymore. Demand has skyrocketed, the price has doubled to account for it, the reference price is just a memory, and the customer has to decide whether they’ll take it or leave it.
Now, this might sound far-fetched, but it’s exactly the situation consumers fear because they perceive it’s already happening with these tags. When you’re shopping for a family, you might not pay attention to the prices of every item going into the cart, and unless you write them down or take pictures with your phone, you really have no idea if the prices at the register are correct.
Customers will remember specific deals or prices for items that seemed like they were cheaper than usual, and believe me, as a former cashier myself – they will fight you for them and stand there and be a huge nuisance just to save a buck or two if they feel like a promotion isn’t being applied properly.
But let’s say the store gets busier and every item goes up in price a little bit. Consumers can’t possibly keep track of all of that, and they don’t want to. They want to make the decision at the shelf, not the point of sale.
And then there’s another problem. Let’s say the consumer data a retailer owns shows that the customer is higher-income and can afford to pay more, or perhaps it judges that person to be a higher threat for shoplifting or notices that they’re in from out of town where they already pay more. Or maybe it recognizes that they have a greater need for these products.
There is very little protection in place to stop shelf tags from updating to a higher price point when that consumer enters a store or to prevent a point of sale terminal from raising prices for that consumer and forcing them to challenge it before they pay.
That’s exactly what the Senate inquiry was about – are these systems actually fair? And the answer is, probably not as much as they should be, because they’re not being regulated with sufficient oversight.
Personally, I’m very much against the whole notion of personalized pricing. Even under the best of intentions when you’re just using dynamic pricing to lower prices for customers and never go above the list price, the potential for abuse is there, and consumers do not trust these systems to be looking out for their best interests. You have to go out of your way to convince them you’re being fair.
I think employing personalized pricing systems is a great way to decrease loyalty and damage your reputation, and I’d recommend retailers find other ways to deliver value to their customers than to utilize systems that have so much potential for harm. Just use coupons, or discounts, or loyalty programs and track how they’re being used. Don’t put people in a position where they’re feeling like they paid more than they wanted to.
Because if there’s one thing few consumers want in modern society, it’s returning to a time where you have to challenge merchants to give you the best possible price or else be willing to walk away from the transaction. Whatever short term gains you realize from wearing people down are offset by the massive issue of them not wanting to deal with you again.
I’m Sean in St. Louis, and this has been The Marketing Gateway. See ya next time!
Leave a Reply