FTC seeks to shed light on 'surveillance pricing'
The Federal Trade Commission's study of surveillance pricing might lead to defining what kind of consumer data can be used to affect prices of products and services.
The Federal Trade Commission ordered eight companies to provide information on how they're using consumer data such as browsing history, location and credit history to individualize prices.
The FTC targeted Accenture, McKinsey & Co., JPMorgan Chase, Mastercard, marketing automation company Bloomreach, transaction management platform Task Software, revenue optimization provider Pros, and optimization software provider Revionics in its inquiry of surveillance pricing, or the use of consumer data to set individualized prices for products and services.
These eight companies have large client bases and affect multiple companies' pricing practices, which is why they're in the FTC crosshairs, said Forrester Research analyst Stephanie Liu. While not an official investigation, the FTC hopes to assess how surveillance pricing affects the consumer experience, data privacy and competition.
Consumers deserve to know whether businesses are using such data to deploy surveillance pricing tactics, FTC Chair Lina Khan said in a press release. She said the FTC's inquiry "will shed light on this shadowy ecosystem of pricing middlemen."
"Firms that harvest Americans' personal data can put people's privacy at risk," Khan said. "Now firms could be exploiting this vast trove of personal information to charge people higher prices."
Although the effect on competition remains unclear, the issue does raise consumer protection concerns as some are being deceived into believing "they are paying the correct market price," said Alan Pelz-Sharpe, founder of market research firm Deep Analysis.
"The truth is nobody knows how common this practice is, as it's a secret practice," he said. "But the suspicion is that it's far more common than many previously thought."
A step beyond dynamic pricing
Consumers often see price fluctuations when booking flights or using apps such as Uber and Lyft to connect with drivers. Ride-hailing companies commonly employ surge pricing or dynamic pricing where the price for services fluctuate based on the supply of drivers and the demand for rides.
Surveillance pricing takes the idea of dynamic pricing a step further, beyond supply and demand, Forrester's Liu said. It also uses customer context data, such as location and phone information. For example, a Belgian newspaper conducted a small study in 2023 using Uber's app that suggested the company charged more for users with less battery remaining. Uber denied that it changed prices based on battery life.
The FTC's inquiry indicates the agency wants to know if companies are using such personal information to set different prices for different consumers, which Liu said, "opens a whole can of worms." While its primary concern will likely be whether companies are setting prices based on sensitive consumer data such as race, age and sex, which violates the FTC Act, the FTC will also be looking more broadly at the types of data being fed into dynamic pricing algorithms, Liu said.
Bloomreach, one of the eight companies named in the FTC's study, offers e-commerce personalization tools to businesses that tailor online shopping experiences to each consumer. The Bloomreach tools "collect data on user behavior such as browsing history, past purchases and demographics," which is then analyzed by algorithms to "understand customers' preferences and buying habits," according to a Bloomreach blog post.
"The FTC's remit is to go after unfair and deceptive business practices," Liu said. "I think this will be the FTC trying to define what is unfair when it comes to dynamic pricing."
Liu said while dynamic pricing based on supply and demand likely won't go away, the FTC's study might affect companies using individual consumer data to determine pricing. Down the line, companies might need to assess whether their use of such data risks FTC enforcement or consumer backlash.
FTC study turns spotlight on tech industry
If sensitive consumer data isn't being used, it might be difficult for the FTC to stop surveillance pricing under existing law, Pelz-Sharpe said. However, the agency could take steps to change or outlaw the practice if it believes it's harming consumers and affecting consumer privacy.
"It's up to the FTC to decide whether it's illegal," Pelz-Sharpe said. "At best, it's a highly unethical practice."
Pelz-Sharpe said the inquiry sheds light on the inability for companies to police themselves when it comes to potentially harmful business practices, which might support the FTC's efforts in other areas of enforcement related to consumer data and AI.
"Exposing this practice will further question the tech sector's unwillingness to self-regulate effectively and erode even further the public's trust in them," he said.
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
