Is That Price Personalized? The FTC Says Companies Should Have to Tell You.

Personalized pricing is when a company tailors a price for a product or service—say, a hotel reservation, airline ticket, or grocery delivery order—to individual shoppers or (more commonly), small groups of shoppers, using a mix of data sources. 

Those sources can include things like your shopping history, billing ZIP code, geolocation data, and information provided when signing up for loyalty programs. Sorting consumers into broad groups that retailers have historically targeted for promotions, such as seniors and college students, is generally not considered personalization.

Many companies say they don’t personalize base prices while acknowledging that they personalize promotions and discounts. 

But researchers and consumer advocates say that distinction has lost much of its meaning in a digital economy driven by algorithms, smartphone apps, e-commerce, and a dizzying array of rewards, offers, and coupons. Consider a $4.30 gallon of milk, for which one shopper pays the full price while two others get personalized discounts of 15 and 25 percent and pay $3.66 and $3.22, respectively. The result: three shoppers, three different prices.

“Surveillance pricing” is a term used by consumer advocates, academics, and some regulators to describe a particularly pernicious form of price personalization, where companies covertly collect and use customers’ personal data to help set prices. 

According to the FTC, the kind of data companies use for surveillance pricing includes browsing and purchase history, device type, demographics, and behavioral data, such as how you interact with a retailer’s app on your phone. 

Yes, but not always. Researchers have found that personalized pricing increases prices for some shoppers but not necessarily for others. Who wins and who loses, however, is extremely difficult to determine and is almost never clear to the customers themselves.

Consumer Reports has spent the past year investigating personalized pricing in retail. We found Instacart running price experiments on unsuspecting shoppers at major grocery chains; Kroger, the nation’s second largest grocer, using its free loyalty program to personalize promotions and discounts; and Uber and Lyft using complex algorithms to offer different prices for the same ride at about the same time. 

The clearest example we found is from Kroger’s loyalty program. Kroger collects data on its customers, uses that data to make educated guesses about their interests, needs, and habits, and then tailors promotions and discounts accordingly. We found Kroger grouped loyalty members into categories such as “loyal” and “non-loyal,” and by whether they purchase lower-priced items, value convenience, or seek variety. (In response, Kroger said it doesn’t personalize base prices but does personalize discounts for its loyalty members. The grocery chain said purchase history is the chief factor it relies on for personalized discounts but the company also uses demographics and online behavioral data to filter such offers.)

Companies in industries dominated by a few major players—like rideshare, where Uber and Lyft combined serve roughly 95 percent of the U.S. market—tend to benefit more from personalization than companies in more competitive industries, experts say. The reason, according to a paper co-authored by Ginger Jhe Zin, a former FTC official and economics professor at Boston University, is that those companies can pass more costs onto customers without fear of losing their business.

For businesses, the financial benefit of personalizing prices is clear. Regulators have found that personalized pricing tools lower costs and boost sales, revenue, margins, and profits. Multiple companies have told the FTC that these tools have increased revenue by between 2 percent and 5 percent, and profit margins by 1 percent to 4 percent. 

No. The FTC says it lacks the legal authority to ban personalized pricing outright. But, citing “growing public concern,” the agency said in a statement that the “undisclosed collection or use of personal data for the purpose of personalized pricing” could violate the FTC Act, which prohibits unfair or deceptive practices.

The FTC said businesses should “clearly and conspicuously” disclose that a price is personalized, the “basis for that personalization,” and the types of data used to determine it. 

In practice, food delivery apps, grocery chains, rideshare companies, airlines, and hotels will likely provide more detailed disclosures when customers buy things online. (And the final FTC policy could change between now and when it’s published.)

Whether those disclosures would prove meaningful and useful to consumers is an open question. The FTC gave a hypothetical example of a disclosure in its statement: “a consumer’s estimated willingness to pay" was "derived from data about that consumer’s previous purchases from the same retailer.” In other words, if a company used purchase history to estimate the highest amount a customer is willing to pay for a particular product, it would be expected to disclose that. 

Consumer law experts are skeptical that companies will in fact disclose that much.

“The FTC has reams of evidence that disclosure is rarely an effective form of consumer protection,” says Lauren E. Willis, a law professor at Loyola Marymount University in Los Angeles. Among other reasons, she says: “Companies know how to use language that is technically accurate but not informative.”

Retailers and tech industry groups are already raising concerns about the proposed policy’s impact on loyalty and discount programs and the added disclosure requirements. 

David French, the executive vice president of government relations for the National Retail Federation, the industry’s chief trade group, representing nearly 4 million retail locations, said the group would “aggressively advocate to protect these programs that deliver timely savings and personalized offers that are relevant to each shopper’s interests.”

Drew Ambrogi, policy manager of the tech industry group the Chamber of Progress, said the FTC “shouldn’t treat a personalized discount like a personalized markup.”

“Sweeping loyalty offers and personalized coupons into the same proposed disclosure regime would bury shoppers in fine print without protecting them from higher prices,” Ambrogi said. “The FTC should focus on data-driven price hikes, not the discounts that save consumers money."

Yes, many companies have lengthy privacy policies and terms of service explaining what customer data they collect and how they may use it. Lyft, for example, discloses in its privacy policy that it can infer you’re a frequent traveler if you often travel to and from airports, and that it can use a customer’s first name to guess their gender. 

Last year, New York state passed a first-in-the-nation law requiring companies to disclose when they use algorithms to help set prices. To comply, many companies now disclose their pricing tactics with the sentence: “This price was set by an algorithm using your personal data." Retailers challenged the law in federal court, but the case was dismissed and the law went into effect in November.

The FTC’s new requirement goes further, requiring companies to disclose the “basis” for a personalized price, which could mean explaining which factor or combination of factors led to the price or discount a customer sees. 

The FTC would also require companies to disclose the types of data used. As with several state privacy laws, those descriptions may be vague, but they can include categories such as browsing history and “sensitive personal information” such as Social Security numbers and biometric info.

This is a big subject of debate. Disclosures themselves tend not to change how companies do business, many experts say. More often, companies comply with the requirements and move on. Many consumer advocates say disclosure alone is an inadequate policy solution.

Grace Gedye, a policy analyst at Consumer Reports, says that while it is “encouraging” to see the FTC take action on personalized pricing, it’s simply too much to ask consumers to repeatedly sift through detailed disclosures when shopping online. “Instead, the FTC, Congress, and states should take action to prohibit companies from using consumers’ individual data to personalize prices in the first place,” she says.

Other consumer advocates agreed and doubted that such pricing disclosures would achieve much.

“The FTC is squandering its authority to stop this practice and instead places the burden on consumers to protect themselves,” said Lee Hepner, a California-based antitrust lawyer and senior legal counsel for the nonprofit American Economic Liberties Project. “It’s good the FTC recognizes that surveillance pricing inflates profits at consumer expense and all the more baffling that their solution is to require new labels.”

Still, experts say disclosures do help with one thing: revealing which companies are actually personalizing prices. The FTC says failing to make personalized pricing disclosures would likely “constitute an unfair or deceptive act or practice in violation” of the FTC Act, and that the agency would “deploy enforcement resources in a manner consistent with this conclusion.”

Laura Smith, legal director of Truth in Advertising, called the FTC’s disclosure proposal a “notable and welcome step” that puts companies on notice that they can no longer hide their pricing practices from their customers.

“Personalized pricing has operated almost entirely in the shadows—consumers have had no way of knowing whether the price they’re being shown is the same one everyone else sees, or one calculated specifically to extract the most they’re willing to pay,” Smith said.

Three U.S. states have passed laws this year banning certain types of personalized pricing. Maryland signed the nation’s first ban in April, followed by Connecticut and New Jersey in June and July. 

New York passed similar legislation this spring, which is awaiting Gov. Kathy Hochul’s decision on amendments. She has until the end of the year to make any changes and either sign or veto it.

A similar measure in Colorado, which would have applied to all retailers, passed the legislature but was vetoed by Gov. Jared Polis, who said it was overly broad. California and New York City, Seattle, and Portland, Oregon, are considering their own bans. Surveillance pricing bills in Illinois, Michigan, Pennsylvania, and elsewhere are either in legislative committees or are being developed.

It’s unclear. The FTC’s policy statement does include a footnote that says the agency has yet to take a position on whether some personalized prices are inherently unfair. But it acknowledged that personalization leading to higher prices may result in “substantial injury” to customers.

“When consumers see a listed price, they expect it to be the same price that everyone else sees, not the retailer’s estimate of how much they are willing to pay based on their personal data,” FTC Chairman Andrew Ferguson, a Republican appointee of President Trump, said in a statement. 

The FTC appears to be leaving open the possibility of an “unfairness claim” when a disclosure isn’t enough, said Luke Herrine, a visiting professor at Brooklyn Law School whose research focuses on consumer protection.

“That’s not an outright prohibition on personalized pricing,” Herrine said, “but it’s not laissez-faire or ‘Let’s see how this goes.’”

How far it goes will likely depend on the White House’s appetite for taking a position that many big U.S. retailers don’t like, and that could be bad for business, Herrine said. 

Probably sometime in 2027.

The FTC’s statement has been published in the Federal Register, and the public has 30 days to submit comments, until Sept. 18. The commission will then review those comments, make any changes, vote on the final policy statement, and officially publish it. FTC policies typically go into effect a few months after they are published.