Pricing Gets Personal
Businesses experiment with prices based on consumer demographics and behavior.
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Shoppers' chances of receiving the same deals as everyone else are disappearing. The need to boost profits has companies experimenting with more ways to personalize their offerings—including prices.

When logging into Safeway's "Just for U" loyalty program, for example, consumers receive offers based on past purchases. One might get a coupon that takes 15 percent off a certain brand of cereal, while another could receive 10 percent off the same brand or a different coupon altogether, said a representative at the supermarket chain. The difference depends on the consumers' shopping histories: the items and brands they buy, how often they buy them, etc.

By tracking its customers' shopping habits through its loyalty program, Safeway knows which brands consumers prefer and uses that information to create specific discounts for them, rewarding shoppers for their consistent purchases with better deals and possibly giving them an incentive to try other brands or product lines as well.

The Pleasanton, Calif.–based grocer made Just for U available to all of its U.S. divisions this summer. In July, Steve Burd, chairman and CEO, told analysts that households with a Just for U card were expected to account for about 35 percent of Safeway's business by the end of 2012, and could reach 70 percent in two or three years.

Businesses have long known that all customers are not equal. But now merchants and manufacturers have access to an array of software and analytics services that let them tailor their offers to customers' purchase habits.

"Businesses want to understand a customer's potential for future profits and provide him with the right offers," observes Brad Brodigan, president of merchant services at Rearden Commerce, a data analytics firm.

Brodigan points to a feature Rearden is exploring to enable clients to provide discounts based on a customer's proximity to the client's location. "If I'm traveling for business, I might be able to get fifteen percent off a sushi restaurant, but if my profile shows that I live within five blocks of that restaurant, the restaurant might be willing to provide a deeper upfront discount," Brodigan says. "Merchants are interested in tools that let them vary discount rates based on what they know about a customer."

Some retailers see personalized prices as a way to fight back against the price transparency that e-commerce sites like Amazon and eBay have made popular by giving consumers the option of accepting customized deals for items instead of slashing prices across the board.

In a survey of more than 280 retail and wholesale executives by the online publication RetailWire, retailers ranked personalized prices as the most effective tactic for combating price transparency.

When prices seem off, customers "will…let companies know by switching to an alternative, and they'll tell others," says Kevin Mitchell, president of the Professional Pricing Society, which offers courses to executives on price strategies.

Although some consumers will be unnerved by personalized pricing, companies are unlikely to back down, Mitchell adds.

"If you are a supplier or a provider of goods and services, you've probably gone as far as you can go in cutting costs, and so price analytics and price segmentation are getting more attention," Mitchell notes. "The first lesson of Business 101 is if you're leaving money on the table, you're doing your employer or yourself a disservice by giving things away for less than their value."

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