CFOs should carefully consider the risks of using technology-driven personalized pricing, Michael Keeley, partner and chair of the antitrust group at Washington D.C.-based law firm Axinn, Veltrop & Harkrider, said in an interview after the Federal Trade Commission demanded information on pricing strategies from eight companies earlier this week.
Finance chiefs using data tools to determine what they charge their customers ought to be mindful of three practices that could draw regulatory scrutiny, Keeley said. These include the perception that they’re deceiving customers who may not be aware of the ways in which their data is being used to set prices for goods they’re considering buying; any connection between dynamic pricing and higher prices; and the use of sensitive, non-public data in a company’s pricing system or algorithm, according to Keeley.
The Federal Trade Commission this week issued orders to firms it calls third-party intermediaries, including payments firm Mastercard, software firm Revionics, e-commerce services company Bloomreach, JPMorgan Chase Bank, Task Software, pricing optimization firm PROS, and consulting firms Accenture and McKinsey. The companies are to explain how they use customer data to determine how much they will then charge for products, an activity the agency called "surveillance pricing." The FTC is also looking at how the use of algorithms, artificial intelligence and other technologies come into play alongside personal information inside of the practice.
Clients of the targeted firms include retail, hospitality, travel, finance, dollar-store chains, home goods, and quick-service restaurants, according to a commission spokesperson.
The request for information brings dynamic pricing — fully or partially automated pricing changes based on shifts in demand, customer behavior patterns or other factors — into focus as retailers increasingly turn to software to help determine what they charge consumers.
The scope of the FTC request for information is broad, and could cover any use of data that may influence how companies determine the price of goods, Kelley said. The orders seek information on the types of surveillance pricing products and services being offered; data collection and inputs; customer and sales information; and impacts on consumers and prices, according to an FTC press release.
CFOs should be mindful of the three practices Keeley outlined; for example, the use of sensitive, third-party data could include instances where companies collude to set prices using non-public information, or if they’re consulting an intermediary that is collecting non-public information to inform pricing strategies. These risks aren’t likely to include the use of price crawlers, tools that aggregate publicly available pricing information from retailers’ websites, he noted.
There isn’t a huge body of law that covers data-driven pricing; however, the Robinson-Patman Act addresses price discrimination in certain circumstances, so any company selling goods online should be paying attention, Keeley said. The Robinson-Patman Act has “for many decades been out of favor, but the FTC and the Department of Justice are trying to bring it back,” he said.
Going by recent FTC statements and speeches by Jonathan Kanter, the Justice Department's assistant attorney general for antitrust, Keeley said “this is a new flavor [of the Robinson-Patman Act] that CFOs and others should be watching out for around potential enforcement activity around individualized price setting based on data that is fed into an algorithm.”
Asked why these eight firms were selected to provide information to the FTC, a spokesperson for the agency told CFO Dive it aims to get an industry-wide view on how surveillance pricing works across the marketplace, including how middlemen work with consumer-facing arms to help determine prices.
“We believe the targets highlight a broad cross-section of industries…to better understand practices across the economy,” the spokesperson said in a statement. “Also, these companies have publicly touted their use of AI and machine learning to engage in data-driven targeting.”
Citing an FTC official, Industry Dive sister publication Payments Dive reported that these types of orders are fairly routine in allowing the agency to better understand an evolving practice, and that the commission hasn’t yet formed an opinion about whether surveillance pricing is good or bad.
