Dilemma: I was recently looking into buying a new pair of running shoes and comparing prices online between different Web sites. When I told a friend the prices that I found, he went to the sites and for the same exact pair of running shoes, his price was lower than the one I was looking at earlier that day. Do companies have the right to price discriminate? – Roger W.
Price discrimination occurs when a company sells a product or service at different prices that don’t reflect any differences in the costs of selling the products. Companies engage in this activity because it allows them to increase sales to more price-sensitive people and not to lose revenues to those who are willing to pay higher prices. It has been around for a long time and appears in different forms based on the customer (e.g. student and senior discounts), location (e.g. different prices for different seats in a theater for years) and time (e.g. matinees are cheaper than night movies).
Now that the internet has become so popular for online shopping, price discrimination has become popular online as well. Do many people realize this? You may initially believe that online price discrimination is unfair because customers are unaware that this is happening. This causes many consumers to question the reasons for companies’ discrimination against them. (How do you feel when the person next to you on a plane paid less than you did?)
Offline, people usually know that they are paying different prices. For example, when buying a car, people know that the “sticker” price on a car is negotiable. Car dealers will treat customers differently based on their perception of the customer. To elaborate, if you were to walk into a dealership wearing a suit and tie, most likely you will be shown the high-end cars. If you walked in there with ripped jeans, they’d present you with the lower-end cars. If this were to happen, you are more than welcome to leave and check out another dealer to look for a different price. Compared to the Internet, if you feel that you are being charged more than someone else for that same product, you are more than welcome to buy from a competing Web site.
In fact, the price may drop for those customers that shop around. Some companies use “cookies” on computers to track buying habits. If you are comparing bargain Web sites, companies want your business and might reward you by dropping prices. The same is done in order to retain loyal customers who frequently visit Web sites.
On the other hand, if you are one of those demanding customers who requires higher maintenance, and make repeated complaints, constant returns and demands for quick service, you may be offered longer warranties that fit your frequent service habits. However, having these habits will cost a pretty penny.
And the last reasoning for online price discrimination could honestly be random price drops in order for companies to find a price point that consumers are willing to pay.
Price discrimination not only happens with individual consumers but within geographical areas and different types of businesses. California customers are going to be charged more than another state, such as Kansas. Another report indicated that Dell Computer has offered the same model laptop at different prices to different customers: Small businesses, health care companies and state and local businesses were offered different deals.
The Bottom Line: Price discrimination is legal under most circumstances and has been accepted for years. Now that it is more common online, don’t be upset about it. Do your homework, find the price that you are willing to pay for it and either pay for it at that price or don’t.
Aliza Elbert and Jennette Ballas are both marketing concentrations with a knack for changing the world – one ethical dilemma at a time. This article is written on behalf of SIFE (Students in Free Enterprise) with a goal of teaching others about business ethics.