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Swiss supermarket chain tests limits of pricing
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In Switzerland, one of the country鈥檚 largest grocery retailers has recently rolled out personalized discounts based on shopping data collected from customer reward cards. The move has been met with a strong backlash from shoppers and has faced criticism from the Swiss consumer protection foundation.
I think there are two main issues here: one is related to privacy and the fact that all my purchases are monitored. The second one is price discrimination.
A number of studies on price fairness confirm that most people feel it鈥檚 unfair for other customers to receive different discounts when they can鈥檛 benefit from that price reduction themselves.
As I have argued before, it鈥檚 smart, and even fair, to let customers segment themselves when all customers receive the same coupon, even if we know that some will not use them. Each customer can decide on their own if it is worth redeeming. But if some customers in Group A receive different coupons from customers in Group B, meaning that customers in Group B are 鈥減enalized,鈥 so to speak, because they always buy the same product and therefore they have to pay a higher price 鈥 well, that鈥檚 not fair.
The CEO of Migros Herbert Bolliger says that his company has not in fact introduced personalized pricing. He is right about one thing: the coupons proposed using customer data are not equally relevant for all customers.
A recent headline in one of the country鈥檚 top papers Neue Z眉rcher Zeitung read 鈥淭he rich pay more at Migros.鈥 While the headline is sensationalist 鈥 鈥渨ealth鈥 is not measured with Migros鈥 cards 鈥 the bias is there. Customers with a higher willingness to pay do end up paying more and buying more expensive products.
While it seems that Migros could have miscalculated the situation, it鈥檚 more probable that the company is just being pragmatic and is testing the waters to see how its customers react.
But the move is surprising. Migros and Coop have so much customer data that it鈥檚 certainly not necessary for them to rankle people with personalized discounts.
They could simply give all customers the same discounts, because they know exactly which customer has used which discount on which day, and which customer has not. When a discount is linked to a specific condition, then it鈥檚 fair. When it鈥檚 linked to a specific person, then it鈥檚 unfair. Migros shouldn鈥檛 have personalized discounts 鈥 it would have been better to operate in such a way as to ensure that the discount would be redeemed by some customers but not others.
There are good and bad discounts. A bad discount, for example, would discriminate against a good customer because he鈥檚 nice 鈥 in other words, he isn鈥檛 pushy and doesn鈥檛 complain like other customers, but he鈥檚 just a decent guy. If I, as a Migros customer, have to pay more for my biscuits than the next person, because I have been classified as having particularly high purchasing power based on the data stored on my Migros card, then that鈥檚 unfair.
The challenge from the Swiss consumer protection foundation is about data protection, but not about unfair pricing. Imagine that two customers buy a pineapple, but one pays less than the other. The consumer protection foundation is calling for a declaration for the lower price saying why the person has to pay less. But that鈥檚 no use to anyone! The one receiving the discount and paying less has no reason to be annoyed. The angry customer is the one paying more 鈥 but nothing has to be declared for this purchase.
Smart pricing yes, personalized pricing no.
Stefan Michel is professor of marketing at IMD and directs IMD鈥檚 EMBA program.
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