Every dollar counts for American families today when budgets are stretched thin. But innovators are stepping up with new tech tools to provide smarter ways to save. From e-commerce marketplaces to local grocery apps, businesses increasingly use data-driven pricing tools to offer lower prices and better deals. However, a wave of well-intentioned but misguided legislative proposals across America threatens to dismantle these tools, ultimately hurting the very consumers policymakers want to protect.
Data-driven pricing should be thought of as the digital evolution of traditional coupons. Originally, these were offered in the local newspaper for price-conscious shoppers to clip. But as retailers tried to make coupons more useful to customers – and as fewer people were getting the local paper – stores began to attach coupons at the end of receipts generated at the register, often making offers based on what the customer had purchased. Just bought the store brand of chocolate ice cream? Here’s a coupon for your next visit that brings down the price of a premium version you might like to try.
By analyzing customer data like purchase history, shopping habits and product preferences, businesses can generate targeted promotions and discounts tailored to individual shoppers. A family that regularly buys diapers gets a discount on baby formula, or a customer who hasn’t shopped in months receives an incentive to return. This is data-driven pricing working as intended: using data to make goods and services more affordable for Americans.
The Real Threat Isn’t Targeted Pricing; It’s the Abuse of Personal Data
Lawmakers are racing to respond to sensational headlines of so-called “surveillance pricing”: breathless warnings of shadowy software exploiting consumers at their most vulnerable. For example, an airline supposedly detects, through behavioral data, that a traveler is desperate to get on a flight and quietly jacks up the price just for her. It’s a compelling hypothetical – no one has provided an example of this actually occurring – but it distracts from the real issue.
The real concern is not the businesses using technology to compete; it is the misuse of personal data to charge individual consumers more than they should pay. What America doesn’t need is a new, rigid legal framework that sweeps up legitimate data practices alongside harmful ones, risks becoming obsolete as technology evolves, and ultimately punishes businesses for using what they know about their customers to offer them better deals. What we need is a comprehensive federal data privacy law: one that sets clear rules for how personal data can be collected, used and shared. NetChoice has been advocating for such a law for nearly a decade.
Regulatory Uncertainty Chills Competition
Given the clear benefits of data-driven pricing tools, overly broad restrictions on the use of personal data would have serious unintended consequences. A blanket prohibition on using customer data for pricing purposes would mean businesses could no longer use what they know about their customers’ preferences and shopping habits to offer personalized promotions and discounts. Today, the family that always buys coffee gets a coupon; the customer who hasn’t visited in months receives a reason to come back. Overbroad regulation would eliminate these benefits entirely, leaving consumers with fewer deals and less savings.
Small Businesses Face a Particularly Heavy Burden
For small businesses, data-driven pricing tools are less about navigating complex pricing strategies and more about smart, efficient market segmentation. These tools help small businesses do something that was once possible only for large retailers with massive marketing budgets: connect with new customers and retain existing ones through personalized promotions and discounts.
Consider the difference between a small business sending a targeted digital coupon to customers who regularly buy a specific product, versus stuffing a flyer into every mailbox on the street. The first approach is smarter, cheaper and more likely to result in a sale. The second is costly and inefficient. Pricing tools powered by data make small businesses more nimble, more efficient and better equipped to compete with retail giants, and consumers benefit directly through more relevant deals and savings.
Broad restrictions on using customer data for pricing and promotions would strip small businesses of this competitive edge entirely. Unlike large corporations with dedicated teams to absorb compliance costs and develop workarounds, small businesses would simply be left behind, forced back into one-size-fits-all marketing approaches that cost more and deliver less. The ultimate losers will be consumers, who would see fewer personalized deals and less competition from the small businesses that depend on these tools to survive.
Let’s Stop Bad Actors and Empower Businesses to Innovate
Data-driven pricing is a tool that businesses of all sizes are using to assess the market, stay competitive and make life more affordable for Americans. Policymakers should resist the urge to defame these tools. Instead of layering on new, burdensome red tape that will stifle innovation and raise prices, they should rely on the flexible, effects-based competition laws that already exist and have served our economy for over a century. Additionally, America needs a federal data privacy standard that sets clear rules for how personal data can be collected, used and shared. Let’s use the tools that are helping Americans save, make sure existing laws to stop the bad actors exploiting them are being properly enforced and embrace comprehensive data privacy rules at the national level.
Image via Unsplash.