Websites vary prices, deals based on location

The idea of an unbiased, impersonal Internet is fast giving way to an online world that, in reality, is increasingly tailored and targeted.

By MSN Money Partner Jan 4, 2013 5:52PM
Woman shopping online (© John Lamb/Getty Images)By Jennifer Valentino-Devries, Jeremy Singer-Vine and Ashkan Soltani, The Wall Street Journal Wall Street Journal on MSN Money

It was the same Swingline stapler, on the same website. But for Kim Wamble, the price was $15.79, while the price on Trude Frizzell's screen, just a few miles away, was $14.29.

A key difference: where Staples seemed to think they were located.

A Wall Street Journal investigation found that the Staples website displays different prices to people after estimating their locations. More than that, Staples (SPLS) appeared to consider the person's distance from a rival brick-and-mortar store, either OfficeMax (OMX) or Office Depot (ODP). If rival stores were within 20 miles or so, usually showed a discounted price.

"How can they get away with that?" said Frizzell, who works in Bergheim, Texas.

In what appears to be an unintended side effect of Staples' pricing method -- likely a function of retail competition with its rivals -- the Journal's testing also showed that areas that tended to see the discounted prices had a higher average income than areas that tended to see higher prices.

Presented with the Journal's findings, Staples acknowledged that it varies its online and in-store prices by geography because of "a variety of factors" including "costs of doing business."

For years, the Internet, with its promise of quick comparison shopping, has granted people a certain power over retailers. At the click of a button, shoppers could find a better deal elsewhere, no travel required.

But the idea of an unbiased, impersonal Internet is fast giving way to an online world that, in reality, is increasingly tailored and targeted. Websites are adopting techniques to glean information about visitors to their sites, in real time, and then deliver different versions of the Web to different people. Prices change, products get swapped out, wording is modified, and there is little way for the typical website user to spot it when it happens.

Not popular with shoppers

The Journal identified several companies, including Discover Financial (DFS), Rosetta Stone (RST) and Home Depot (HD), that were consistently adjusting prices and displaying different product offers based on a range of characteristics that could be discovered about the user. Office Depot, for example, said it uses "customers' browsing history and geolocation" to vary the offers and products it displays on its site.

Offering different prices to different people is legal, with a few exceptions for race-based discrimination and other sensitive situations. Several companies pointed out that their online price-tweaking simply mirrors the real world. Regular shops routinely adjust their prices to account for local demand, competition, store location and so on. Nobody is surprised if, say, a gallon of gas is cheaper at the same chain, one town over.

But price-changing online isn't popular among shoppers. Some 76% of American adults have said it would bother them to find out that other people paid a lower price for the same product, according to the Annenberg Public Policy Center at the University of Pennsylvania.

"I think it's very discriminatory," said Wamble, an insurance account manager who recently priced the Swingline stapler for the Journal. She was just 10 miles or so down the road from Frizzell, but she saw higher prices on the Staples website than Frizzell did for all five products tested. Items tested included a pack of Bic pens, a case of orange masking tape, a set of crimped-end mailing tubes and a big safe.

Distance to a rival's store

It remains unclear precisely what formula Staples used to set online prices. Staples declined to answer detailed questions about the findings. It told the Journal that "in-store and online prices do vary by geography due to a variety of factors, including rent, labor, distribution and other costs of doing business."

It is possible that Staples' online-pricing formula uses other factors that the Journal didn't identify. The Journal tested to see whether price was tied to different characteristics including population, local income, proximity to a Staples store, race and other demographic factors. Statistically speaking, by far the strongest correlation involved the distance to a rival's store from the center of a ZIP Code. That single factor appeared to explain upward of 90% of the pricing pattern.

What economists call price discrimination -- when companies offer different prices to different people based on their perceived willingness to pay -- is commonplace and can be beneficial. Movie theaters give senior-citizen discounts. One traveler's willingness to pay top dollar for an airplane seat might mean other people will pay less.

In other cases, though, shoppers can be the loser. That same airline might easily just pocket the big spender's extra money and leave other prices unchanged.

Reinforcing patterns e-commerce promised to erase

Of course, not all price differences are instances of price discrimination. Prices driven down by competition wouldn't generally be considered discriminatory, for example.

Basing online prices on geography can make sense for various reasons, from shipping costs to local popularity of a particular item. Some retailers might naturally cluster in specific areas as well -- a prosperous suburb, say -- boosting the competitive pressure to discount.

But using geography as a pricing tool can also reinforce patterns that e-commerce had promised to erase: prices that are higher in areas with less competition, including rural or poor areas. It diminishes the Internet's role as an equalizer.

It is difficult for online shoppers to know why, or even if, they are being offered different deals from other people. Many sites switch prices at lightning speed in response to competitors' offerings and other factors, a practice known as "dynamic pricing." Other sites test different prices but do so without regard to the buyer's characteristics.

The Journal's tests, which were conducted in phases between August and December, indicated that some big-name retailers are experimenting with offering different prices and products to different users.

Some sites, for example, gave discounts based on whether or not a person was using a mobile device. A person searching for hotels from the Web browser of an iPhone or Android phone on travel sites Orbitz and CheapTickets would see discounts of as much as 50% off the list price, Orbitz said.

Both sites are run by Orbitz Worldwide (OWW), which in fact markets the differences as "mobile steals." Orbitz says the deals are also available on the iPad if a person installs the Orbitz app.

"Many hotels have proven willing to provide discounts for mobile sites," said Chris Chiames, Orbitz's vice president of corporate affairs. Hotels on Orbitz mobile sites also offer discounts "that might target shoppers in a specific geographic region," as determined by the physical location of the user, as well as "other factors."

At home-improvement site Lowe's (LOW), prices depend on location. For example, a refrigerator in the Journal's tests cost $449 in Chicago, Los Angeles and Ashburn, Va., but $499 in seven other test cities. Lowe's said online shoppers receive the lower of the online store price or the price at their local Lowe's store as indicated by their ZIP Code.

Home Depot's website offered price variations that appeared to be based on the nearest brick-and-mortar store as well.

More from The Wall Street Journal

Jan 5, 2013 9:53AM
While shopping online I have noticed while browsing through "Customer Feedback" or Customer Rating" fields that is usually part of an item description some folks put in the price they paid.  I noticed an approximate $2.00 (on a $50.00 item less than a day after comment was posted) difference on the price I was shown.  Perhaps online shppers can start entering the date and price we got in the feedback sections?
Jan 14, 2013 4:22PM
I have experienced that when I received an email discount coupon it only applies when using a special url to the retailer's website and the price after using the coupon was higher than going directly to their site. When I went directly to their site the coupon would not work.

Moral of the story is that I will never buy from that retail store again. Let them find some other fool. I just do not understand why companies think they can get away with this.
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