As inflation continues to spiral out of control across the world, it’s safe to say we’re in a global cost of living crisis. Now, more than ever, consumers are watching what they spend online and trying to save a few bucks to get by.
That’s why – in recent months – there has been increased attention and criticism surrounding the techniques online businesses use to convince consumers to pay more. One of the shadiest yet most effective approaches is the infamous pricing algorithm.
What is a Pricing Algorithm? How are they used to convince you to spend more online? What steps can you take to avoid automatic price hikes while shopping online?
In this article, we’ll discuss all you’ll need to know about pricing algorithms and how to avoid them.
What are Pricing Algorithms? How do they work?
Have you ever been searching for a product online and found that the price has miraculously increased seemingly within minutes? That’s likely the job of a pricing algorithm.
A pricing algorithm is a system that many online businesses use to adjust the price of goods and services in real-time based on a variety of factors.
These factors can include:
- The current level of demand (i.e. number of users looking at the product, the volume of searches for the product on Google, number of mentions on social media, or indeed, how many times you have searched for the product or something similar).
- The current level of supply (e.g. inventory, number of available alternative products etc.)
- Time of day – For example, some businesses tend to hike prices late at night to capture impulse buyers. The idea is that buyers tend to act more rationally when they’re busy or not tired.
- Weather or Season – A classic example is hiking the price of sun cream during summer.
Indeed, pricing algorithms can be good for consumers. Price match algorithms scan the prices of competitors and aim to match (or even undercut) competing products – leading to lower prices for the consumer.
But, too often, these pricing algorithms are used for profiteering off increased demand – and this can quickly go wrong. In 2020, Uber came under fire for their price algorithm hiking fares by up to 500% during the Seattle mass shooting. Similar situations occurred in 2017 in the London Bridge terror attack and a 2016 bombing in New York.
Given the nature of machine learning, it isn’t easy to know exactly how these algorithms work. We know they use AI to examine variables such as supply and demand, but the machine figures out how they affect pricing, not humans.
The scary truth is that we can only guess what affects these algorithms – and not even the companies who designed them know.
How can you avoid price hiking via algorithms?
How can we circumvent these algorithms? Given that we have no way of knowing exactly what variables change prices, we will need to focus on reducing your digital footprint and limiting the data these companies have on you.
Here are a few tips:
- Browse in Incognito/Private Mode: These modes delete the cookies and tracking data of your session once you close your tabs. We recommend searching for your products, finding what you want, saving the URL and closing your tabs. Re-open them and make your purchase.
- Clear your cookies before a purchase: In the same vein, clearing your cookies and tracking data before you head to the checkout can circumvent pricing algorithms.
- Use a VPN: Some algorithms work on IP addresses or location data to judge demand. Using a VPN can mask your IP address and even change your observed location.
- Use a privacy browser extension: Using anti-tracking tools like Privacy Badger or Ghostery can reduce the data footprint available for online businesses. Instead of Google, why not try DuckDuckGo?
Pricing algorithms – through machine learning – will only ever get more sophisticated. These workarounds can help you avoid them for now, but there’s no guarantee they will work in the future.
It will take strong legislative action from the US, Canada or the EU to convince online businesses to abandon these practices. Unfortunately, the chance of this happening is currently slim – and we don’t currently know what the future has in store for anti-consumer eCommerce practices.
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