Everyone loves a bargain, but some people love them more than others. This simple fact has long allowed firms to charge lower prices to those who like rooting around for discounts and deals. Book a hotel room in New York City months before you travel and you might pay $150 a night. Book it a week before – revealing yourself as a business traveller whose company is footing the bill – and you could shell out four or five times as much.
Price discrimination is commonplace throughout the economy. Students and pensioners pay less for cinema tickets not because owners pity them, but because those groups tend to have shallower pockets. Without a discount, they might not buy tickets at all, and seats would go empty.
Often, customers reveal their willingness to pay through their actions. In the past, price-sensitive customers would cut a discount voucher out of a newspaper and take it to the shops. Today, no online checkout is complete without a chance for bargain-hunters to enter a discount code. Fill your basket up with goods and leave them there and the firm may send you a sweetener to close the deal. Technology seems to make it easier for firms to offer discounts when they need to.
But finding bargains has become easier too. Cashback sites offer rewards to consumers who “click through” their website to a retailer. Search on Google for MADE.com or Pottery Barn discounts before completing an order and you could save 10% on some new furniture. There is even a web-browser add-on, “Honey”, which promises to search for the best offer code at any retailer and plug it into your checkout for you.
If too many consumers take advantage of discounts, however, companies will start to fight back. When I was a student looking to eat out on the cheap, my friends and I would often print off online vouchers for restaurant chains. The best was “Orange Wednesday”, offered by a mobile-phone company. A code would get you two-for-one pizza and a free starter at a popular chain – plus two-for-one cinema tickets. But as more people realised – via adverts, word-of-mouth or money-saving websites – that it took just two minutes to save a big chunk of beer money, the offers gradually got worse. Half-price became a third off, then 25%. When Orange Wednesday was rebranded in 2015, the pizza offer disappeared (much to my disappointment).
When searching for discounts becomes too easy, firms will find themselves offering low prices not just to bargain-hunters, but to everyone. They need it to be difficult, but not impossible, to find their offers. Last year, “The Points Guy”, a website that advises millennials on how to milk credit-card offers and air miles, lamented that such schemes are becoming “less rewarding”.
If online discounting is an arms race between companies and consumers, then companies appear to have the ultimate weapon: big data. By using cookies to track your online moments, retailers can use algorithms to tailor prices just for you. This technology is not that new: Amazon tried selling DVDs with individualised prices in the early 2000s, but scrapped the idea after a consumer backlash. A Wall Street Journal investigation in 2012 found Staples, a stationery retailer, charging different prices based on the location of the visitor to its website. Few firms will discuss their pricing strategies, but it is received wisdom that one should delete one’s cookies to sabotage any tracking before buying, say, airline tickets.
Is this kind of price discrimination really that bad? In theory, markets where firms can charge everyone a different price are more efficient. A company can sell its surplus stock, which would otherwise go unused, for close to nothing, without the hit to profits that might come from reducing prices for everyone. But it also comes with a big cost: making consumers wary. The online high street could become a Wild West where if you let your guard down – say, by failing to check prices at different times of the day – you get ripped off. The uninformed pay a pretty penny; those in the know get juicy savings at their expense. A similar dynamic already operates in some offline markets. Those who lazily renew, say, their car insurance every year are likely to see their premiums rise. If more everyday transactions operated on similar principles, many people would end up paying more.
Fortunately, consumers will always have a weapon to match big data: competition. In some markets – say, for concert tickets – suppliers might have a monopoly and can vary prices with ease (there is only one Beyoncé, which gives her market power). But most of the time, firms offering similar products are vying for customers. That makes it hard for them to charge higher prices even to the deep-pocketed. Checking what is on offer at just one or two rivals may not lead to the best possible bargain, but it should be enough to avoid a rip-off. Still, you should probably clear your cookies, just to be on the safe side.