Copyright 2005 The
The
June 19, 2005 Sunday
Final Edition
SECTION: Outlook; B01
LENGTH: 1807 words
HEADLINE: Have They Got a Deal For You;
It's Suspiciously Cozy In the Cybermarket
BYLINE: Joseph Turow
BODY:
A couple of years ago, in an undergraduate seminar I taught called "Spam
and Society," discussion veered a bit off topic. One of the students
asserted confidently that airline Web sites give first-time users lower prices
than returning customers. Most of the others immediately agreed. They said the
motive was to suck in potential buyers; then, when they returned, the airline
could quietly raise prices.
I hear this kind of claim fairly often among heavy computer users. It seems to
have become an article of faith that the unseen moguls behind all sorts of Web
sites are cherry-picking consumers, customizing ads, manipulating prices and
changing product offers based on what they've learned about individual users
without the users' knowledge.
In my research on Internet marketing, I talk to lots of Web workers and
consultants, and read the trade press, and it's pretty clear that this is going
on. But it's extraordinarily hard to verify when it occurs, why any particular
offer is made, or how a vendor is evaluating any given customer. Online
merchants don't have to tell anyone how they operate, so generally they don't.
Lighten up, you might say. Nobody's forcing anyone to buy airline tickets or anything
else. But I'm disturbed by what this reflects about our general retail
environment -- the evolution of what I would call a culture of suspicion. From
airlines to supermarkets, from banks to Web sites, American consumers
increasingly believe they are being spied on and manipulated. But they continue
to trade in the marketplace because they feel powerless to do anything about
it.
This is a profound change. Broadly speaking, the past 150 years saw what you
might call the democratization of shopping in the
This reliance on evenhanded, fair dealing lies at the heart of American
capitalism, or at least the way we'd like to think of it. It's not always
practiced, by any means, as antitrust suits and many consumer complaints
attest. But it's a worthy goal, and such institutions as the Securities and
Exchange Commission and the Federal Trade Commission were established, in part,
to aim for it.
The scaffolding of this system is shaken if a retailer changes its offerings to
individual consumers based on information about the consumers that the
consumers don't know, or that they suspect but can't verify. Take airline
tickets. The Consumer Union's WebWatch investigators
visited airline sites many hundreds of times, finding a bewildering array of
prices that seemed weirdly random and virtually unpredictable (some prices
changed between logon and checkout). The airlines say it's the result of a
necessarily complex pricing structure, but how can we tell that's all that's
going on?
In September 2000, Amazon.com got headlines when customers found that the same
DVDs were being offered to different buyers at discounts of 30, 35 or 40
percent. Amazon insisted the discounts were part of a random "price
test," but critics suggested they were based on customer profiling. After
weeks of bad press, the firm offered to refund the difference to buyers who had
paid the higher prices. The company vowed it wouldn't happen again.
Frequent computer users I've talked to -- like my fairly hip students -- don't
really believe such assurances. Frankly, it's hard for any dispassionate
observer to believe there's no "price customization" when associates
from the influential McKinsey consulting firm write in a 2004 Harvard Business
Review article that online companies are missing out on a "big
opportunity" if they are not tracking customers and adjusting prices accordingly
-- either to attract new buyers or get more of their money.
Meanwhile, this sort of thing goes on quite openly in brick-and-mortar retail
stores. In a hyper-competitive environment, where trying to beat Wal-Mart and
Costco on price is all but impossible, department stores and supermarkets
compete with them by trying to hook the right customers. Operating on the
financial industry's premise that about 20 percent of the customers bring in 80
percent of profits, they try to identify who belongs in that 20 percent -- who
will spend money and come back to spend more. And they're happy to get rid of
those who hold out for bargains or return too many purchases.
Note that this is subtly different from the 20th-century model, in which
storekeepers stocked certain brands of soap or pasta or disposable diapers
because they sold well, thus pleasing customers and making money at the same
time. While that certainly continues, the new goal is to make money by
identifying individuals who fit "best customer" profiles and then reinforce
their purchases for reasons and in ways that are hidden from them.
It happens everywhere. Many banks give customers scores based on their deposits
and financial backgrounds; their phone representatives use friendlier scripts
for high scorers. Supermarket cash registers spit out customized coupons at
checkouts, tailored to the previous purchases recorded on "preferred
customer" cards. If you buy Coke, you might get a coupon for Pepsi -- or
perhaps one for Coke, to make sure you return; if you buy coffee, they'll offer
you a discount latte. Some grocery chains are already testing "shopping
buddies," small computers that you actually carry around the store,
getting personally tailored recommendations and discounts from the moment you
enter.
The idea used to be that you, the consumer, could shop around, compare goods
and prices, and make a smart choice. But now the reverse is also true: The
vendor looks at its consumer base, gathers information, and decides whether you
are worth pleasing, or whether it can profit from your loyalty and habits. You
may try to jump from site to site to hunt for the best buy, but that's
time-consuming. And there are comparative shopping sites such as Bizrate or Nextag, but these can
be tough to navigate, and companies are learning quickly how to game the
system.
This all might make sense for retailers. But for the rest of us, it can feel
like our simple corner store is turning into a Marrakech bazaar -- except that
the merchant has been reading our diary, while we're negotiating blindfolded,
behind a curtain, through a translator.
Considering the manic nature of retail and media competition and technological
developments, this kind of marketing is likely to grow, and become more
sophisticated. I've spoken to telemarketing executives who claim they can
target TV commercials to specific households. It is even possible, they say, to
digitally place different products or dialogue into the scene of a show. Sure,
there are financial and technical roadblocks to implementing these customized
commercials -- not to mention some charmingly old-fashioned concerns about
privacy -- but I'll bet they're coming.
Certainly, being targeted by marketers has its benefits. I like getting coupons
for my favorite breakfast cereal. I like Amazon.com suggesting films I might
enjoy. And I like being treated well on the phone by a company that thinks I'm
valuable. But I also like feeling that I'm in control of buying the product,
not that the seller is choosing me.
In the early 20th century, "keeping up with the Joneses" was a real
ideal, and it spurred consumption. But the mysteries surrounding database
marketing will increasingly make us not so much competitive as wary: Are our
neighbors getting a better deal not because they shopped harder or bargained
smarter, but because of some database demographic we don't know about and can't
fight?
Lack of knowledge breeds suspicion. A survey I directed this year for the
Annenberg Public Policy Center found a startling degree of high-tech ignorance
among Americans who use the Internet. Eighty percent of those interviewed knew
that companies can track their activities across the Web. Yet a substantial majority believe, too, that it is illegal for
merchants and charities to sell information about them, even though it's legal
and goes on all the time. Sixty-four percent believe incorrectly that "a
site such as Expedia or Orbitz that compares prices
on different airlines must include the lowest airline prices." And only 25
percent knew that the following statement was false: "When a website has a
privacy policy, it means the site will not share my information with other
websites and companies." Our report calls for changing the Orwellian label
"Privacy policy" to the more honest "Using your
information."
We also call for merchants to be more open about their database activities. A
friend of mine phoned Citibank about his credit card and got a representative
from
We used to say, "My money's as good as anyone else's." But in the
21st century, that may no longer be true. My students can hardly remember a
time before Internet cookies and frequent flying and preferred shopping. They
and their kids will try to beat the system to get the best deals, all the while
assuming that they don't know all the rules of the marketplace. They'll be
automatically mistrustful. It's a new world out there.
Author's e-mail: jturow@asc.upenn.edu
Joseph Turow is a professor at the