Study: Researchers Find Online Price Discrimination Exists. Some Discrimination Methods May Surprise You

We all use the Internet to find things: products, services, travel deals, air fare, hotel tickets, and more. Are you getting the best price? Several sites, like Trivago, claim to help provide the best prices. How are consumers to tell? Do the search terms you use affect the prices you find?

Researchers at Northeastern University in Boston announced the results of a study about personalization by websites and the prices displayed to consumers. The study included two types of e-commerce sites:

1. General retail sites: Best Buy, Home Depot, Sears, Walmart, etc.
2. Travel sites to find air, cars, and hotels: CheapTickets, Expedia, Hotels.com, Orbitz, Priceline, Travelocity

E-commerce sites currently collect a wide variety of data about online users, including your Internet history, (cookie files saved to your web browser, pages and products viewed, products purchased, products rated), search terms, device (brand, operating system, screen size, etc.), IP address, geo-location data, and more. Sites and marketers usually justify the data collection as necessary to display relevant content and advertisements. Readers of the blog are familiar with historical privacy abuses where marketers and advertisers used a variety of technologies to track consumers online: browser cookies, supercookies, Flash cookies, zombie e-tags, and zombie cookies, and zombie databases.

The Northeastern University researchers analyzed the prices displayed and the factors that affected those displays. They found:

"... that several e-commerce sites implement price discrimination and steering. Closer examination reveals that a small fraction of users receive personalized results across many sites, indicating that these users are being specifically targeted."

The researchers compared results between users with and without Internet histories by using the same search terms. The researchers found that users with an Internet history could see higher prices online, and presented the example below with two images showing a higher price for a user with an Internet history compared to a user without:

In this example, the price difference for a hotel in Paris is $68 per night, a substantial difference. Also, the researchers found that e-commerce sites implement different types of personalization:

Cheaptickets and Orbitz implement price discrimination by offering reduced prices on hotels to "members." Expedia and Orbitz engage in A/B testing that steers a subset of users towards more expensive hotel rooms. Home Depot and Travelocity both personalize search results for users on Android and iOS devices. Priceline personalizes search results based on a user's history of clicks and purchases on the site.

About "price steering" and A/B testing:

"Hotels.com and Expedia are also owned by a single company, and our analysis reveals that they both implement the same personalization strategy: randomized A/B tests on users. A/B testing is a common practice among large websites, and is used to test specific features of a site (for example: do people click a blue button more often than a red button?). In this case, Hotels.com and Expedia appear to be randomly dividing users among three "buckets" based on their [browser] cookie. The graph below shows that users in different buckets see different hotel rooms in a different order... users in two of the buckets are shown higher priced hotels towards the top of the page, which is an example of price steering."

About personalization by device type:

"For Travelocity, we discovered that they alter hotel search results for users who browse from [Apple] iOS devices. The graphs below show that users browsing with Safari on iOS receive slightly different hotels, and in a much different order, than users browsing from Chrome on Android, Safari on OS X, or other desktop browsers. The takeaway from the grpahs below is that we observe evidence consistent with price discrimination in favor of iOS users on Travelocity. Unlike Cheaptickets and Orbitz, which clearly mark sale price “Members Only” deals, there is no visual cue on Travelocity’s results that indicates prices have been changed for iOS users."

There is more:

"Similar to our findings on Travelocity, Home Depot personalizes results for users with mobile browsers... Strangely, Home Depot serves 24 search results per page to desktop browsers and Android, but serves 48 products per page to iOS users. We discovered the pool of results served to mobile browsers contains more expensive products overall... Thus, Home Depot is effectively steering users on mobile devices towards more expensive products. In addition to steering, Home Depot also discriminates against Android users. We discovered that Android users consistently see differences on about 6% of prices..."

Overall, the researchers concluded:

"... we find evidence for price steering and price discrimination on four general retailers and six travel sites. Overall, travel sites show price inconsistencies in a higher percentage of cases... users experience personalization across multiple sites... we are able to isolate specific user attributes that trigger personalization on seven e-commerce sites. This includes logging-in to an account on Cheaptickets and Orbitz, using a mobile device with Travelocity and Home Depot, purchase history on Priceline, and A/B testing on Expedia and Hotels.com."

Read the full study titled, "Measuring Price Discrimination and Steering on E-Commerce Web Sites."

What can consumers do about this? The researchers didn't provide firm recommendations because e-commerce sites can change their personalization methods at any time. One suggestion is for consumers to become members at sites that show lower prices for members. However,, there is no guarantee that this preference will remain so.

Another suggestion is for consumers to try using different devices, including a desktop without any saved browser cookies. You might find lower prices with a specific device. This seems a huge pain, as it defeats the whole purpose of convenience with mobile devices.

I can understand lower prices displayed to members. That encourages repeat business. It's a standard marketing technique.

As a usability professional, I understand and have performed A/B testing with websites; specifically, a portion of a site where users were invited to a separate test session, paid for their time, and asked several questions. A test plan was written to clearly state the test objectives and testing program. The testing had a defined beginning and end; and was separate from the live site. Then, the live site was adjusted based upon the test findings. This approach avoids ethical issues.

When sites perform A/B testing contiuously with the live site, and without notice to users, then ethical issues arise. It becomes impossible to tell of the "test" prices are indeed new prices applied arbitrarily to users. That helps nobody and erodes consumers' trust. These ethical issues were highlighted recently with with the OKCupid dating site. Marketers often claim that "everyone is doing it," but that does not make it right.

Did you expect sites to display higher prices to users with certain device types? I didn't, and I bet you didn't either. Now you know that can and does happen. Is it right? Should there be warnings on sites that do this? What do you think of the study? Share your opinions below.