Why the FTC is asking companies like Bloomreach about ‘surveillance pricing’

An FTC spokesperson told Modern Retail the orders aim to help the agency understand how surveillance pricing is affecting consumers. “We wanted to get an industry-wide look on what’s happening in this space and to understand how surveillance pricing happens across the marketplace,” the statement said. “We’re looking at intermediaries — the middlemen companies that may be working with consumer-facing firms to help determine prices for people.”

The orders were sent to Mastercard, Revionics, Bloomreach, JPMorgan Chase, Task Software, Pros, Accenture, and McKinsey & Co. These companies include firms that sell price optimization software, as well as financial institutions and technology service providers.

“We believe the targets highlight a broad cross-section of industries (e.g. retailers, hospitality, travel, finance, dollar-store chains, home goods, quick service restaurants, etc.) better understand practices across the economy,” the FTC spokesperson said in an email. “Also, these companies have publicly touted their use of AI and machine learning to engage in data-driven targeting.”

The companies will have 45 days to respond to the request, which was filed under the FTC’s 6(b) authority. That means the FTC can conduct inquiries for research purposes without a specific enforcement aim. The FTC specifically asked for information on the firms’ types of products or services, data collection and input methods, customer and sales information and the potential impacts that the firm’s products and services can have on pricing.

Cobun Zweifel-Keegan, manager director at the International Association of Privacy Professionals, said the FTC has frequently paid attention to consumer privacy concerns. However, the framing of the FTC’s inquiry is unique because the advancement of AI and data collection tactics makes individualized targeting more possible. “This is a targeted study to help the agency better understand what the current state of affairs is,” he said. Once the information is received, Zweifel-Keegan said it remains confidential to the FTC, with a report potentially published further down the road.

Emily Pfeiffer, principal analyst at Forrester who specializes in commerce technology, said dynamic pricing strategies are a decades-old practice for companies. This can involve setting prices in comparison to what competitors charge, which can change over time. But the modern services used by e-commerce companies today are scraping the online world for information that, in turn, can be used to help retailers compare pricing — or advertise different prices to the same consumer across different channels. “What’s so interesting about what the FTC is doing this moment is that they’re looking at tech companies enabling this technology, not the [brands or retailers] using it,” she said.

The overarching concern with these tools is that they could be used for discriminatory pricing practices, Pfeiffer said, like unfair competition or bait and switching. Typically, they’re used to help brands and retailers gauge pricing based on demand, elasticity, buyer behavior and other factors. “We know there are retailers who use dynamic pricing to serve different prices to the same consumer under different circumstances,” she said.

The FTC voted unanimously to issue the orders. FTC Commissioner Melissa Holyoak wrote in a concurring opinion that while she supported finding out more about the behind-the-scenes work of data brokers, she was concerned about the “surveillance pricing” framing. “This term’s negative connotations may suggest that personalized pricing is necessarily a nefarious practice,” she wrote. “In my view, we should be careful to use neutral terminology that does not suggest any prejudgment of difficult issues.”

Commissioner Andrew N. Ferguson, who also supported the order, said in a concurring opinion that the 6(b) orders will allow the FTC to better examine how merchants use data to personalize prices that shoppers would not typically expect to vary from person to person. He said that Congress and the public should be made aware of how their data is being used to affect pricing. “Even if this practice does not violate any existing law, consumers may well see personalized pricing as unfair or even manipulative, and it may undermine their trust in the digital marketplace,” he wrote.

Modern Retail reached out to all the companies to ask how they’re responding to the inquiries. Revionics, a price optimization provider, said through a spokesperson that its services don’t include recommending pricing targeted to specific individuals. Further, its services do not use individual consumer data.

The statement also said: “Revionics’ AI price optimization software considers numerous, market-level factors when recommending optimal prices to retailers. These factors can include competitive prices and historical sales data. Our software ingests data from various sources, most often directly from our retail partners. Revionics does not, in any way, conduct operations related to the surveillance of consumers.”

Bloomreach’s press team confirmed in an email that it received the inquiry, adding that it welcomed the opportunity to assist in the inquiry. “We believe in fair competition and the protection and education of consumers, and are committed to that pursuit while providing the consumer with a better, more personalized experience,” the statement said.

Beyond the start of a new fact-finding mission, Tuesday’s inquiry also represents the latest swing at the tech world from FTC Chair Lina Khan. Her tenure has included significant actions in the e-commerce sphere like the recent lawsuit against Amazon and regulations around fake reviews.

“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now, firms could be exploiting this vast trove of personal information to charge people higher prices,” Khan said in a statement. “Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen.”