By adaptive - March 28th, 2012

[I]n January, The Daily Mail published a piece about behavioural pricing and social media. The article was triggered by comments by Alex Gannett, a ‘web entrepreneur’, who was quoted as saying ...

In January, The Daily Mail published a piece about behavioural pricing and social media. The article was triggered by comments by Alex Gannett, a ‘web entrepreneur’, who was quoted as saying that 2012 will be “the year of behavioural pricing”.

According to the article, this is “a new type of e-commerce, where prices will be tweaked to include what customers are willing to pay.” Within days the article was being quoted and reproduced on hundreds of websites, rapidly taking on the character of an urban myth. This is hardly surprising, given the rather lurid claims that the article made: behavioural pricing involves “harvesting information from sources such as Facebook and Twitter” and “if you've 'Liked' something, prepare to pay for it”.

A consumer’s worst nightmare and a merchant’s dream?

Gannett was quoted as fuelling the flames by saying that behavioural pricing is a “consumer’s worst nightmare, a merchant’s dream”. However, when contacted to find out if he has evidence that behavioural pricing is actually being used, or if he just thinks it is likely to happen, his response was a rather enigmatic, “Nope, something that is about to happen.”

Well, up to a point, your honour. The fact is that behavioural pricing – a much better description is differential pricing - is nothing new. One very simple example is the price of flowers before Valentine’s Day or Mother’s Day: the cost goes up, reflecting the behaviour of people who buy flowers at that time. In this sense, it’s just another way of stating the law of supply and demand.

And it is a fact that, if the social marketplace has done nothing else, it has provided the opportunity for businesses to learn more about consumers, what they think  - and how they behave. On Facebook and Google+ pages, in tweets and blogs, consumers are constantly saying what they like and dislike. All that’s needed, according to the behavioural pricing “theory”, are applications that can leverage this information so that businesses can frame their pricing policies accordingly.

Martin Petts, Social Media Marketing Specialist, Social Stamp Martin Petts of social media marketing specialist Social Stamp [] says: “There are currently consumer intelligence companies that work with brands to understand what you are buying and using that intelligence to offer you something to buy next. The data about you is out there...” So, if businesses or site owners were able to analyse and react to blog comments, tweets, Likes and other social-media expressions of preference are they likely to raise prices on a consumer-by-consumer basis?


The elephant in the room

The short answer is probably not, or at least not successfully. For one thing, there is the elephant – or rather elephants – in the room that are the price comparison sites. Other than for impulse purchases, most savvy buyers now check available prices on a range of sites such as Kelkoo, Amazon, GoCompare, Pricerunner etc. Indeed, in the same Daily Mail article that started this discussion, Chris Simpson of Kelkoo is quoted as saying that “price comparison sites … offer customers price transparency. In essence, customer data does not influence the prices that are displayed on our website.”

Equally important is the fact that social media is a two-way street, and just as consumers discuss their preferences on Facebook, they are probably also going to discuss how much they pay: and if they find they are being cheated, they will tell everyone. It wouldn’t take much trending on Twitter to start social media boycott that could destroy a hard-won reputation overnight.

That’s a thought echoed by the digital marketing manager of an online retailer, who preferred not to be named. She confirmed that data gathered through social media was a vital element in consumer research, but went on to say that using the information to increase prices for individual customers would be commercial suicide: “Buyers are not stupid, and in the online environment they share information like never before. Any business that rips off customers as part of its marketing plan is not going to stay in business for long.”

Tom McLoughlin, SEO TravelTom Mcloughlin at SEO Travel is a specialist SEO and social media consultant to the travel industry. He says he cannot see any advantage is charging a customer a higher price based on their social-media behaviour:

“For travel companies… isn't worth the risk of losing a customer who may book many future holidays in years to come.”

He also notes that privacy is also a huge issue, and suggests: “If consumers discover they are being charged more based on their online activity on different websites, they are likely to withdraw into their shell and share less.” He goes on to point out that “the new cookie law comes into play in May, when websites will have to overtly ask if they can plant cookies on a user’s machine … and consumers are even more likely to reject cookies if they know that their data will be used against them in pricing.”

Rewarding brand advocates

On the other hand, social media preferences could be used to benefit social media fans. As Martin Petts of Social Stamp says, this kind of marketing is already being used to some extent, “to give better prices to brand advocates” usually by awarding vouchers or discount codes. He goes on to say that live price-changing is the logical next step: “Being able to reward customers (by giving lower prices) for spreading the word … could be extremely beneficial to start-up companies trying to build a social media following.”

He adds: “We are talking right now to a client about adjusting pricing for customers if they click on the ‘like button' for a certain product on their sale site.” Tom Mcloughlin of SEO Travel agrees, noting: “Setting prices based on loyalty schemes has been happening for a while, so there's no reason to think they won't take it a step further.”

And perhaps this is the key point. Using market intelligence to target customers, or groups of customers, has a long and (largely) honourable tradition. But using the wider intelligence to be gained from social media to penalise customers is simply a non-starter. Differential pricing to reward fans, to garner trust and confidence, and to drive consumer traffic to a website is already happening: behavioural pricing to increase prices on a customer-by-customer basis is, and will remain, an urban myth.

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