FTC warns 'personalized pricing' based on consumer data may break the law

The Federal Trade Commission (FTC) has issued a strong warning to companies that use personal consumer data to set variable prices, stating such practices may violate federal law. The agency's proposed enforcement policy statement, released Wednesday, emphasizes that consumers generally expect prices to be the same for everyone, regardless of their online activity or perceived willingness to pay.

"When consumers walk into a retail store, for example, they reasonably expect the price on the shelf to be the same price offered to any other consumer shopping at the same store at the same time," the FTC explained. Similarly, online shoppers expect the price listed for a product to be consistent for all users, not dynamically adjusted based on an analysis of their personal data.

The FTC argues that businesses adjusting prices for individual shoppers without clear disclosure engage in deceptive practices. While the agency cannot outright ban "personalized pricing" in all instances, it has the authority to penalize companies that fail to be transparent about how consumer data influences pricing. FTC Chairman Andrew Ferguson stated that the FTC Act prohibits unfair or deceptive marketplace practices.

The commission highlighted that less-informed consumers may not know how to prevent companies from collecting their shopping data, potentially leading them to pay more than others. The FTC is advocating for disclosures that clearly inform shoppers when prices are determined by their estimated willingness to pay, based on their past behavior. Examples of potentially unlawful personalized pricing practices include a grocery store charging a delivery customer more for milk due to knowing they have children, or a hotel charging a higher rate for a trip deemed essential, such as attending a funeral.

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When consumers walk into a retail store, for example, they reasonably expect the price on the shelf to be the same price offered to any other consumer shopping at the same store at the same time. Likewise, when they browse to a product listing on a retailer's website, they reasonably expect the price to be the same price that anyone else browsing to that listing would see, not a price set based on the retailer's analysis of their personal data and conclusion as to how much they would be willing to pay for that product as compared to some other consumer.