Retailers use consumer behavior to tailor individualized prices, FTC study shows

WASHINGTON (CN) — Retailers use consumer behavior, such as what customers leave in their virtual shopping carts or how they move their mouses on a webpage, to custom-tailor prices, according to a Federal Trade Commission study released Friday.

“Initial staff findings show that retailers frequently use people’s personal information to set targeted, tailored prices for goods and services — from a person’s location and demographics, down to their mouse movements on a webpage,” FTC Chair Lina M. Khan said in a press release. “Americans deserve to know how their private data is being used to set the prices they pay and whether firms are charging different people different prices for the same good or service.”

The FTC’s findings detail how third-party intermediaries use artificial intelligence and advanced algorithms — as well as consumer information like location, demographics, credit history, and browsing or shopping history — to categorize individuals and set targeted prices for products or services.

The findings stem from a July 2024 order requiring intermediaries Mastercard, Revionics, Bloomreach, JPMorgan Chase, Task Software, PROS, Accenture, and McKinsey & Co. to release documents to help the FTC understand how retailers use surveillance pricing tools.

“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices,” Khan said in a July press release. “Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen.”

Examples of such pricing practices abound. An investigation by KARE 11, a Minneapolis NBC affiliate, found that Target charged $100 more on its app for a television when the consumer was in the store’s parking lot.

The Wall Street Journal foundStaples.com charged more for a stapler if they knew a person had fewer options. Meanwhile, ProPublica found that test prep company Princeton Review charged customers more money when they were shopping online from zip codes that contained a higher number of Asians.

The FTC study included hypothetical ways retailers use surveillance pricing tools. For example, a pharmacy could exclude routine, regular customers from a special promotion for over-the-counter medications or weight-loss supplements because the pharmacy infers that those customers are likely to buy those products anyway.

The FTC also outlined how a company could segment consumers as service veterans seeking jobs and target those consumers with promotional codes for career services, financial products or job development certifications.

Companies also use consumer data to prioritize certain products for specific consumers. The FTC gave an example of an e-commerce website intentionally showing higher-priced baby thermometers on the first page of their in-app search results for consumers identified as new parents.

Along the same lines, the FTC detailed a hypothetical where a company could use surveillance tools to forecast a customer’s state of mind, like using a shopper’s selection of “fast-delivery” shipping on an order of infant formula, to infer that shopper could be a rushed parent who was less price-sensitive.

The findings reveal that the intermediaries worked with at least 250 clients selling goods or services, ranging from grocery stores to apparel retailers.

The five-member FTC voted 3-2 along party lines to allow staff to issue the report. Republican commissioners Andrew Ferguson and Melissa Holyoak released a dissenting statement arguing the Democratic majority rushed to release the findings before President-elect Donald Trump’s inauguration on January 20.

“It does so in order to issue another press release just before President Trump takes office,” Ferguson said. “Slowly dripping out information … rather than carefully studying the material produced and issuing a comprehensive final report, does not serve the public interest.”

Ferguson has criticized the Democratic-controlled commission for continuing to work after the country voted for Trump in November.

“The Democratic majority’s four-year regulatory assault on American businesses has hindered economic growth and increased costs to the American consumer,” Ferguson wrotein a dissenting opinion concerning junk fees for hotels and concert venues. “The American people resoundingly rejected this approach at the ballot box in November.”

The study is ongoing, and the FTC has asked the public to share their experiences with surveillance pricing.