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Customer Discrimination

By Philipp in MLP
Wed Oct 25, 2000 at 10:10:06 PM EST
Tags: Freedom (all tags)

The Dismal Scientist touches on an interesting topic in an article today: The use of personal information to adjust services or prices for customers (remember Amazon?).

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For instance, Charles Schwab lets you wait on the phone longer, if they deem your business less important. Amazon charged higher prices to established customers to make them pay for their foolish brand loyalty. The notoriously opaque Priceline.com also sets different prices based on customer information.

The trouble is that these things happen without your knowledge and you are judged by some information the company has on you. Besides these privacy issues, I am deeply concerned about the effects of the widespread creation of second-class customers. Of course, the above business-friendly article thinks this is the best thing since union-busting. What do you think?


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A company should have the right to have information about me,
o without my consent 4%
o when I agree 34%
o but has to provide it to me on my request 18%
o only if I personally submit it to them for a limited time 30%
o never ever 12%

Votes: 83
Results | Other Polls

Related Links
o Dismal Scientist
o article
o Amazon
o Also by Philipp

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Customer Discrimination | 8 comments (6 topical, 2 editorial, 0 hidden)
The operative word is "secrecy" (4.16 / 6) (#2)
by loner on Wed Oct 25, 2000 at 06:04:58 PM EST

Like the article says:
Secrecy and the prevalent use of discrimination, particularly with online vendors, has many feeling the cold stare of Big Brother on the other side of their computer screens...
In a capitalist society, I don't think many reasonable people will object to open favouritism towards the more valued customers. It happens all the time: frequent-flyer programs, supermarket discount cards, etc. Basically any program that openly rewards more profitable customers.

The objections arise when this is done secretly, especially in the reverse direction.

Amazon pissed people off not just because they were charging regular customers higher prices, but because they were doing it secretly in a way that smelled too much of trying to fool a few suckers. If Amazon had simply displayed the higher price as the "regular" price and justified the lower price to new customers as an "introductory" offer, not many people would have objected. Of course the way they keep trying to use their precious cookies was making any attempt doomed to begin with.

Ironically, the same medium, the internet, that's making it easier for marketroids to gather data is also making it easier for the public to catch the maketroids. IIRC in Amazon's case, it took one person to voice their suspicion in a web-based discussion group, others verified it quickly and spread the news throughout the 'net even faster.

Where is the problem here... (2.33 / 6) (#4)
by scottli on Wed Oct 25, 2000 at 06:39:08 PM EST

A company can only discrimanate if you choose to use that company. You are not required to purchase books from amazon, or use Schwab as your broker. If they are not giving you the services you require, choose another. Discrimination is not a bad thing. I discriminate everyday. I discriminate against things I don't like in favor of things I do. I personally think this is a good thing. The only problem here is if they begin discriminating using irrelevent information (Age, sex, preference, whatever).

Sigh, this again (3.37 / 8) (#5)
by skim123 on Wed Oct 25, 2000 at 06:51:02 PM EST

You are likely guilty of the same offenses you claim these companies to be guilty of. I have aquaintances who I find a little overbearing... using that knowledge I try to limit my time with them, or kind of act busy if I see them coming by.

Second, no one is forcing you to shop at these companies. If enough people say, "Hey, privacy is important to us, and we'll spend our dollars accordingly," then either companies that don't respect policy will fail OR there will emerge niche companies who attract business by stressing their privacy policies.

Money is in some respects like fire; it is a very excellent servant but a terrible master.
PT Barnum

The customer is always right? (3.50 / 2) (#6)
by gawi on Wed Oct 25, 2000 at 10:43:00 PM EST

It is true that we provide a great deal of information to many companies, especially when you join those "club" (do you have you supermarket member card?). And why are they collecting all this information? Well... it must be for our own good! Isn't it? Humph!

However, regarding pricing, they can charge me the price they want as I long as I agree and they are not doing it because of my age, sex, race, etc... As a consumer, I have the responsibility to do my own shopping. This has always been the case for the past centuries. There are used-car salesmen everywhere, even on the net: there is no such thing as pricing equity.

Also, it is not always such a big deal. When I order a pizza, they use my phone number to suggest me the same pizza I got last time. Personally, I'm not annoyed by this practice. It might be a great worth for them and it doesn't affect me at all... (until I order anchovies on an hawaiian pizza!). OK. This wasn't really an example of discriminating service. However, if I were to be discriminated by a given company based on my buying record with that company, which one of my fundamental rights would be violated?

What I fear the most is information sharing between different companies and cross-referencing of databases. Basically, I don't want anybody but me to have a complete file on me. Also, I don't want them to reveal any portion of this information without my consent. It's between the company and me. Period.

As somebody pointed out, nobody is telling you what they do with all this information. This is an issue. How can you select a company if you are not aware of how they handle customer information? Must we rely on volunteer spies? Must we pass laws to limit abusive utilization? Of course, this debate isn't limited to the Internet scope.

I think the author of the story should realize that customers are just another parameter to be optimized in the big profit equation. Companies now have tools to do it more easily. "Second-class customers? What a brilliant idea!" they might say.

-- Are you in denial?

Economists never consider market failure (4.66 / 3) (#7)
by driptray on Thu Oct 26, 2000 at 12:26:27 AM EST

My concern with this is where the product being sold is essential (like banking, government benefits etc) and is not operating in a competitive market where it can be assumed that some organisation would want the little person's business.

I'm thinking primarily of banking (in Australia), where the four major banks have made it quite clear that the majority of their customers are not profitable, and sometimes cost more than they bring in in revenue. This scenario is contemplated in the article:

Also, it is the "less desirable customer" that generally gets skimpy service, so the threat of such a consumer taking his/her business elsewhere is mild and possibly beneficial for the vendor.

But in the non-competitive Australian banking market there is nowhere for the "less desirable customer" to go.

Banks have all the data they need to institute differential service. They know your account balance, how often you make withdrawals, how often you use "expensive" (for them) face-to-face services rather than inexpensive ATM or internet services. They don't need the internet to gather data.

Next time you have to ring your bank's large call centre to sort out a problem with your account, and you sit listening to music, ads, and other recoded messages for an hour, you might start wondering whether this is the bank's way of telling you they don't want your business.

We brought the disasters. The alcohol. We committed the murders. - Paul Keating
Business Week article... (none / 0) (#8)
by driptray on Sun Oct 29, 2000 at 09:50:28 PM EST

Sorry to follow up to my own post, but this Business Week article is directly relevant, and very informative.

An example from it:

First Union, meanwhile, codes its credit-card customers with tiny colored squares that flash when service reps call up an account on their computer screens. Green means the person is a profitable customer and should be granted waivers or otherwise given white-glove treatment. Reds are the money losers who have almost no negotiating power, and yellow is a more discretionary category in between. "The information helps our people make decisions on fees and rates," explains First Union spokeswoman Mary Eshet.

Banks are especially motivated to take such steps because they have one of the widest gaps in profitability. Market Line Associates, an Atlanta financial consultancy, estimates that the top 20% of customers at a typical commercial bank generate up to six times as much revenue as they cost, while the bottom fifth cost three to four times more than they make for the company. Gartner Group Inc. recently found that, among banks with deposits of more than $4 billion, 68% are segmenting customers into profitability tranches while many more have plans to do so.

We brought the disasters. The alcohol. We committed the murders. - Paul Keating
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Customer Discrimination | 8 comments (6 topical, 2 editorial, 0 hidden)
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