"Dynamic/Surveillance" AI Pricing Draws Backlash From Consumers, Congress

Delta Airlines has attracted a lot of attention from its announcement that it is experimenting with AI in order to create what it calls 'dynamic pricing.' This means using a trove of personal data to build a profile about individual consumers, then targets the price offered to them. The clear implication is not that this will increased prices for those the AI model determines can afford to pay more based on their socio-economic profile. 

While many businesses and their advisors appear to believe this is a wondrous new monetizing opportunity, Delta - and much of the rest of the commercial world - appear to have been startled by the angry reaction from consumers and from their elected representatives, who are calling this 'surveillance pricing" that takes advantage of people and reflects further abuse of their privacy. Forward-thinking enterprises, while experimenting with this opportunity, will need to be prudent about how this is rolled out and study how it affects their customers in real terms, rather than simply assuming they will be allowed to gouge customers without any pushback, which could include restrictions on the use of customer data. JL

Marketplace and Yahoo News report:

Companies have long targeted advertising to reach consumers. What is likely to come next is targeted pricing. "Dynamic" AI pricing, to many retailers is just pricing. (But) as surveillance pricing, it has prompted a backlash from members of Congress. “Surveillance pricing is targeting an individual for an individual price based on sensitive data that you know about them.  AI pricing would be set based in part on individual characteristics of you as a consumer." New legislation mandates that companies price their products based on supply and demand and on how expensive it is to create or provide a service or product. "They shouldn’t be using AI to try to squeeze every last penny out of you.” 

Delta Airlines has been in the news the last couple of weeks after the company announced on an earnings call it planned to use AI to set a larger share of its ticket prices moving forward.

This prompted backlash from members of Congress with one member of the House even introducing legislation to ban what many are calling “Surveillance Pricing.”

Just how common is this type of thing? And what opponents are trying to do about it?

Companies these days have access to a ton of data on us, and companies seem to have no qualms about using it.

“Surveillance pricing is the practice of targeting an individual for an individual price based on sensitive data that you know about them,” said Pat Garofalo with the American Economic Liberties Project.

But what some call surveillance pricing, to many retailers is just pricing, and it’s everywhere.

“It is basically an automated way of doing things that retailers have been doing for decades, if not longer,” said Stephanie Martz, general counsel for the National Retail Federation. “Which is gathering information about what customers are willing to pay what their competitors are charging, and figuring out the best price to set for various items.”

From coupons and discounts attached to loyalty programs to surge pricing for rideshare.

“The use of, you know, prices that are not constant, some form of dynamic pricing is known to be relatively common,” said Trevor Wagener of the Computer and Communications Industry Association. “But in most instances, it's not controversial.”

But what’s different now is just how much data is floating around out there about us. And how good and fast the A-I tools are getting at connecting it.

Which is why several states are working on legislation to limit the practice or make retailers disclose when they do it.

“Because of corporate concentration and more and more of this data sharing, these companies are able to target us in new ways because this data is so intimate,” said Ida Eskamani, who runs legislative affairs at the State Innovation Exchange.

She’s worried companies might use that data not just for discounts, but to charge consumers more when they are in a bind. Or when they really need to book that flight. 

 

U.S. Rep. Greg Casar (D-Austin) introduced legislation Wednesday to ban companies from using AI price tools to raise prices on customers.

This legislation comes soon after news broke of Delta Air Lines reportedly planning to expand its use of an AI-powered pricing tool to 20% of its domestic routes by the end of 2025.

“Now that AI is developing so quickly, we need the law also to develop,” said Casar, who introduced the legislation along with U.S. Rep. Rashida Tlaib (D-Michigan). “It should be banned for an airline to know that you have been Googling a family obituary, and then they jack up your airline ticket prices because they know you’re desperate to get to a funeral,” Casar told KXAN.

 

According to NBC reporting, Delta president Glen Hauenstein indicated the company’s goal was to have 20% of its Domestic fares set by the AI tool. In a statement, the company indicated the tool was not using personal information to adjust prices.

“There is no fair product Delta has ever used, is testing, or plans to use that targets customers with individualized offers based on personal information or otherwise. Delta always complies with regulations around pricing and disclosures,” the statement read.

Casar said his legislation would block any company from utilizing the practice.

“Companies should have to price their products based on supply and demand. Companies should have to price their products based on how expensive it is to create a service or provide a service or product. They shouldn’t be using AI to try to squeeze every last penny out of you,” he said.

How it works

Commerce companies have long used targeted advertising to reach consumers. Experts say what is likely to come next is targeted pricing.

 

Companies already utilize what is called dynamic pricing.

“Dynamic Pricing tends to focus on shifts in supply and demand. So as there are fewer seats on the plane, the price goes up,”  said Lindsay Owens, Ph.D., Executive Director of the Groundwork Collaborative, a Washington, D.C.-based economic think tank.

 

“Personalized pricing would take it to a new level. The pricing would be set based in part on individual characteristics of you as a consumer,” she continued.

Owens said AI models could eventually incorporate personal data – like the device you’re using, the zipcode you live in, or where you chose to travel  – to adjust prices.“What zip code are you logging on from? Is it a more affluent zip code? Maybe I can charge you a little more,” she said. “Are you logging on from a PC or a Mac? If it’s the latter, maybe I can charge you a bit more.”

“This is the worry about where Delta could be headed with their new AI pricing partnerships,” she continued.