OPINION22 July 2019

AI-inspired personalised pricing

AI Leisure & Arts Opinion UK

Professor Steven Van Belleghem discusses how artificial intelligence can be used to tailor the price of a product to the individual – and the ethical implication of that.

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In a world of predictive AI platforms, businesses and society will soon have to face up to some huge ethical questions. With the wealth of data that is now available, the power of marketers will continue to grow until they are able to personalise everything about a product or service using the information they have about the customer – including their mood, financial position and social status.

Marketers will soon face a ‘temptation island’. They will have to make a choice about whether to take advantage of data and technology to drive profits in a way the consumer may never know about, or whether it sits uncomfortably with the ethics of their brand.

Within the next decade, this could become one of the key challenges marketers will face – deciding whether wholeheartedly embracing new technology to personalise all products in the pursuit of maximising profits for the company is really the right thing to do.

Personalised pricing in favour of the consumer

The most popular travel app in North America is Hopper. This app has already built its success on personalised pricing, but in favour of the consumer.

The company has been analysing data and studying the price fluctuations of airline tickets for 10 years, so it knows when the best time to purchase is. As a user, the app will notify you if you are buying a ticket at the wrong time and will then send you a message when it identifies the best possible moment to buy one. Results show that the average customer using the app effectively gets a 10-15% discount.

This is a great system. As an ordinary consumer, we all know airline prices fluctuate, and we all suspect we are sometimes overcharged as a result, but nobody is really sure why. Hopper is an example of personalised pricing, but because it leans in favour of the consumer nobody questions the ethics behind it.

Personalised pricing based on social status

There is an artificial intelligence company currently in collaboration with the oil industry, working to create a system whereby prices change based on the customer’s financial status. Apparently, the plan is to use the existing network of cameras to read the license plate of cars and link to their home address.

The system will then evaluate their address together with the brand of car to determine their financial situation and will then show a personalised price via an app on the customer’s smartphone. The idea is that certain customers can comfortably pay up to 10% more than others, without impacting their level of demand.

This is an example of personalised pricing that is profit driven, rather than in the interest of the customer. Some people love this idea, but most are not comfortable with a world where the prices they pay can be determined based on judgements organisation make about their status in life.

This is just one ‘temptation island’ example. Marketers can easily bump up the prices by 10%, and most customers will never find out. And as soon as one company decides to do this, the rest of them will inevitably follow to compete.

A shift to algorithm transparency

So how will businesses, consumers and wider society respond to this growing ethical dilemma? I believe it won’t be long until experts begin to demand transparency, and a shift away from the ‘black box’ of algorithms that has existed so far.

If people become less accepting of the decisions made for them by the ‘black box’, companies will have to start becoming more transparent to rebuild trust. Experts will have to begin checking that both large and small companies are choosing the ethical route so that consumers can be reassured that they are receiving ‘fair’ treatment.

Consumer trust is becoming one of the most valuable assets for brands today, so I believe we can expect this to become one of the biggest issues companies will face in the new world of AI platforms.

Prof. Steven Van Belleghem is author of Customers The Day After Tomorrow