What’s in a Price?

JEDDAH, 28 January 2007 — Consider this scenario: You’re thrilled with your new plasma television set and the price you paid. Then you gloat over it until your consumer-satisfaction bubble bursts after learning that your neighbor has the same television hanging on his wall for which he paid 1,000 riyals less.

“Where did you buy it?” you ask, with curiosity and desperation in your voice.

“Online at XYZ Tech-mart,” he says, proudly. But wait a minute. You bought your TV from there, too!

If this scenario sounds familiar, then you’ve just been a participant in a new marketing technique called Dynamic (or Customized) Pricing. This technique has become popular in these days of Internet commerce, when even brick-and-mortar stores get a considerable amount of their profits from web-based sales.

Dynamic pricing works like this: Information, such as purchase history, income, or virtually anything you enter as information for making online purchases, is processed and used to display a customized price based on this information.

This means that the next time you buy books, airline tickets or your favorite cologne online you could be paying a higher or lower price than someone else purchasing the very same item from the very same place. Still many consumers, displeased about this scheme, say “Customized Pricing” is just a euphemism for price gouging. Defenders of the pricing strategy say it’s actually beneficial.

Said Baaghil, marketing strategist for Logic Holding, a marketing company in Jeddah, said that the strategy is more about building customer loyalty online by, for example, rewarding customers who make repeat purchases.

“In my opinion, I see dynamic or customization pricing as an incredible marketing strategy that can benefit both the dot-com company as well as the customer,” said the marketing strategist.

“When online shopping sites use customer information to customize pricing it can be an incentive to consumers and shows these customers, who, when they repeatedly buy from a particular site they will be rewarded for their loyalty with a cheaper price than other first time shoppers.”

But how legal is customization pricing. Is it acceptable for businesses to change prices and use customer information without the consent of the customer? Who is responsible for regulating and setting laws for such behavior?

Arab News spoke to Jonathan Behan, associate creative director at Intermarkets Advertising in Jeddah about the impact and likelihood of dynamic pricing on Saudi consumers.

“Online shopping in the Kingdom is still pretty much in its infancy with many Kingdom-based companies yet to have an online shopping presence,” he said, adding that he agreed with Baaghil that the pricing scheme is legitimate if used correctly. “I feel it is an acceptable practice for companies to change prices, but only as a reward system for customers who frequently shop from the same site,” he said.

Recently, the Kingdom has allowed consumers who wish to shop online to do so through special Internet credit cards. The cards can be applied for at most of the local banks across the country. Customers may choose to use either Visa or Mastercard, which allows for purchases anywhere worldwide.