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Wednesday, December 26, 2012

Online Retailers Vary Pricing Based on Location

Would it bother you if you knew that online retailers priced their merchandise based on your location?

According to an article in the Wall Street Journal, some online retailers are basing their pricing on "geolocation" and browsing history. But is this any different than what retailers do now when they build stores in different locations? Most have been setting prices based on demographics such as average income, race and population for as long as these data have been available. The price of snow shovels might be different in Sioux Falls than in South Beach. And so online prices may vary based on similar characteristics. According to the WSJ:

The Journal identified several companies, including Staples, Discover Financial Services, Rosetta Stone Inc. and Home Depot Inc. that were consistently adjusting prices and displaying different product offers based on a range of characteristics that could be discovered about the user.

Staples was the merchant most cited in the article.

The Journal tested to see whether price was tied to different characteristics including population, local income, proximity to a Staples store, race and other demographic factors. Statistically speaking, by far the strongest correlation involved the distance to a rival's store from the center of a ZIP Code. That single factor appeared to explain upward of 90% of the pricing pattern.

So, what about if you were purchasing an item online if you just happened to be out of town? Would it bother you that you receveived a price for an item just because you had a business trip to LA but you lived in Austin? Again, according to the WSJ article:

Basing online prices on geography can make sense for various reasons, from shipping costs to local popularity of a particular item. Some retailers might naturally cluster in specific areas as well—a prosperous suburb, say—boosting the competitive pressure to discount. But using geography as a pricing tool can also reinforce patterns that e-commerce had promised to erase: prices that are higher in areas with less competition, including rural or poor areas. It diminishes the Internet's role as an equalizer.

So the next time you buy online, you may want to think about how your location plays a part in the pricing your favority online merchant shows you.

by Joe Francica on 12/26 at 05:59 AM | Comments | Bookmark and Share

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