When Customers Are — and Aren’t — OK with Personalized Prices | Harvard Business Review

There’s a lot of buzz around price differentiation these days, especially with the spotlight on AI and big data.  Machine learning makes it much easier to customize the marketing of products and services – and that includes the price.

Let’s be clear: price differentiation is not a new phenomenon. We encounter it regularly and, as consumers, often profit from it. Market-goers can sometimes get bargain prices on fruit and vegetables if they come at the end of the day as the stallholders are packing up.  Frequent customers get discounts through loyalty programs.  And there’s no objection to these kinds of price discrimination.

Despite that, people do have issues with the general idea of price differentiation. We exposed a representative sample of consumers to different types of differentiated pricing in a large-scale experiment and found that they did not like the idea in principle regardless of whether or not they benefited from the initiative.

Why? To begin with consumers feared that differentiated pricing would bring long-term disadvantages. Although they might gain from lower prices at certain times, they felt they might lose out more often.

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When Customers Are — and Aren’t — OK with Personalized Prices.