As consumers, we are subjected to it every hour, every day and, in some ways, we have already accepted this as inevitable and positive part of our online experience. For instance, beauty and luxury car companies almost entirely withhold their ads from my laptop screen. Instead I’m the prey of food and beverage companies, and thanks to my girlfriend, female fashion. But I’m ok with this; it means I see adverts that are likely to be of interest. It wouldn’t be possible without brands being able to access data to enable programmatic advertising which in 20151 grew in the US and UK by $5.91 billion to $17.5 billion.
Targeted advertising is just the start. The evolution of brands involves using social data and online behavior to help them set prices based on the individual, otherwise known as price discrimination. The word “discrimination” carries a stigma, but in the world of digital media, it’s a good thing.
Price discrimination is not a new concept in the Financial Services industry. Banks charge interest rates based on how likely a customer is to be unable to repay – this seems fair, people with good credit ratings don’t pay for those without. Car insurance companies charge premiums based on a number of characteristics such as experience and claim history.
In November 2016, Admiral intended to launch their tool, firstcarquote, to use individuals’ Facebook activity to help determine a suitable premium. However, on the day of the planned launch, Facebook made the decision to prevent Admiral from using Facebook post data in order to protect the privacy of its users2.
Despite the setback for Admiral, other companies have had more success in using personal data to inform price. Vitality, a health and life insurance provider, enables members to factor in consumer activity levels into the price of an Apple Watch. People pay a small upfront cost ($57)3 and then 24 monthly payments between $0 and $13 depending on how active they have been. In other words, Vitality price discriminates based on the activity level of each customer.
So why did Admiral get shut down and Vitality pass muster?In both cases, the customer has to agree to their data being used. In the case of Vitality, however, the rules are transparent: the wearer gets points for different types of activity, and points mean prizes. For Admiral, the rules were less clear, in fact the principal data scientist, Yossi Borenstein said “Our algorithm for calculating what ‘safe’ looks like is constantly learning,”4 In other words, it will constantly change.
There are also concerns regarding how peoples’ behavior on social media will change if they are aware that it is being used by companies to set prices. How might you change your posts, what you like and the groups you join if it impacted the price you pay? One of the core concepts of social media is for people to have the freedom to share their lives and interests with the world.
Personal data is no longer limited to just targeted advertising (e.g. programmatic display and video) – it is now also used for price determination and perhaps in the future this may extend to product eligibility.
To quote the epitome of advanced technology (the Borg – Star Trek) “Resistance is futile,” and it may even result in harming the consumer through higher prices and less choice. Better instead to direct the flow of innovation by participating in the conversation. Digital discrimination can create win-win situations; Christmas shopping for my girlfriend was made easy this year by positive discrimination being applied to me by women’s fashion through retargeting. Rather than going hunting for gifts my girlfriend might like, gifts my girlfriend had already viewed came hunting me.
1 E-Marketer, 2016
2 BBC, 2016. http://www.bbc.co.uk/news/business-37847647. Accessed on 12 Dec 2016.
3 Vitality, 2016
4 Guardian, 2016. Admiral to price car insurance based on Facebook posts. Accessed on 12 Dec 2016.