Organisations increasingly have access to data about customers’ behaviour, interests and preferences. This data can be combined and analysed in sophisticated ways and give service providers the ability to set different prices for different customers based on individual characteristics and a prediction of how much somebody is willing to pay.
Ofcom has issued a discussion paper about personalised pricing in the communication sector. It says that it is considering personalised pricing as part of its wider programme of work in the context of securing fairness for customers. Its thinking on personalised pricing is also part of a broader programme to explore how data and innovation could benefit customers in the communications sector. Another aspect of this is an open communications initiative for the retail telecoms and pay TV markets. This would allow individuals and small businesses to tell their communications provider to share information about their services with third parties so that they could receive recommendations about the best products for their needs.
Data such as service usage, device preferences, monthly spend and payment history can be used to derive insights on customer preferences which can in turn inform algorithms that personalise and target services, including potentially personalising the price. Ofcom points out that personalised pricing does not imply that every individual must be offered a different price. Based on their individual characteristics, people can be categorised into different groups with each group offered a different price.
According to Ofcom and European Commission research, consumers are generally concerned about personalised pricing and see more problems than benefits. Particular concerns include fairness, no rewards for loyalty and worries about how data is used. Ofcom points out that it is crucial that disadvantaged consumers in vulnerable situations are not adversely affected and that organisations comply with equality legislation as algorithms can embed inbuilt bias.
Various laws affect personalised pricing, including the GDPR and Data Protection Act 2018, the Consumer Rights Act 2015, the Consumer Protection from Unfair Trading Regulations 2008, the Competition Act 1998 and the Equality Act 2018, as well as the advertising codes. A range of other organisations such as the Centre for Data Ethics and Innovation, the ICO and the FCA are also considering the implications of using data and algorithms to personalise aspects of the consumer experience. In addition, the CMA has carried out an investigation of the so-called “loyalty penalty” which could be intensified if personalised pricing works against existing customers.
Ofcom says that it will continue to monitor how personalised pricing develops in the future as technology evolves. Its initial thinking suggests a focus on outcomes will be particularly important and it will track the level and distribution of prices across the communications sector. Its aim with the discussion paper is to help it understand further the implications of personalised pricing for the sector it regulates, including issues of fairness for customers.
personalised pricing does not imply that every individual must be offered a different price