Websites using behavioral data to set customized pricing are to be scrutinized by Britain’s competition watchdog, as part of a probe into misleading advertising and pricing.
The Office of Fair Trading (OFT) is concerned that consumers could suffer if information about their personal web usage is used to set the price they are offered for a particular service or product – especially if people are not aware it is happening.
Photograph: Stephen Hird/Reuters
The move is part of a wider investigation announced this morning into misleading pricing tactics used by both online and high-street retailers. This could lead to new pricing guidelines to protect consumers.
The OFT said today it will hold two market studies. One, into sales practices on the internet, would cover “behavioral advertising and customized pricing, where prices are individually tailored using information collected about a consumer’s internet use”.
The investigation could be further bad news for Phorm. Shares in the internet tracking technology company slipped by over 4% this morning.
Price comparison sites, and those allowing consumers to switch to another service provider, will also come under scrutiny through a separate inquiry into “advertising of prices”.
This second study will examine practices such as “drip pricing”, where the cost of an item increases through the buying process, and “baiting sales”, where only some products are available at discount prices. This includes “reference prices”, where retailers use a high reference price compared to the sale price, for example “was £50, now £20″, or “50% off’; time-limited offers, such as one-day sales; and complex pricing, which makes it hard for consumers to assess prices, for example “three-for-two” offers.
Today’s announcement follows a consultation process into how the OFT should carry out its inquiry.
Heather Clayton, OFT senior director, explained: “These studies will ensure that we keep up to date with the latest developments and, in particular, on how new pricing and advertising practices are emerging and evolving online.
“It is very important that the OFT’s approach to potentially misleading practices remains well informed by a sound evidence base, so we effectively protect consumers while allowing firms to compete freely.”
An OFT spokeswoman added that: “We’re not looking at individual retailers, but there could be some recommendations around pricing tactics as a result of this.” She also pointed out that the pricing practices under scrutiny are not illegal.
The OFT hopes to finish its investigation into online advertising and pricing by spring 2010, while the study into the advertising of prices is due to be completed by next summer.
The OFT listed a range of possible outcomes of the market studies on its website, from giving retailers a clean bill of health to encouraging firms to take voluntary action or introduce an industry code of practice, and making recommendations to the government. Another possibility is a full-blown market investigation and sanctions against companies suspected of breaching consumer or competition law.
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