Personalized prices: From wanting to be the same. Exceptionally.

In September, the Swiss retailer Migros launched a trial project to test personalized discounts. This works in such a way that customers who buy certain high-quality products, for example, also receive discounts on these products. This is calculated individually for each customer. The reactions to this experiment were strong from all sides. And it shows what kind of understanding there is for the use of data. And what is considered socially fair and unfair.

(Reading time: 5 minutes)

Personalized discounts are not personalized prices, are they?

First of all, this case is not about personalized prices, but about personalized discounts. However, the boundaries are blurred. Because if the discount is only calculated at the checkout, so to speak, it becomes a natural price factor. I can still declare the price reduction as a discount for a long time.

It is a little unfair for Migros because they have not done this. They have merely evaluated shopping behavior and are now offering customers discounts on products that are in a certain sector. For example, if I regularly buy the expensive chocolate truffles, there is a good chance that I will receive a discount on similar products, or probably the same products.

Consumer protection for the win!

It is thanks to the Migros customer card that all this is possible in the first place. It is called “Cumulus“. A frequent flyer card, so to speak, for those on the ground. Although most people in Switzerland are superficially skeptical, practically everyone uses it. Competitor Coop, second in the Swiss retail duopoly, also has such a card. It is called, a little more aptly, “Supercard“.

I have always wondered how little these two players actually do with this data. How little they base their marketing behavior on it. It was/is probably technically not that simple to build good processes and campaigns on this amount of data. Migros used to send personalized offers and promotions to its customers by post. What is new is that these are now sent electronically.

How could it be otherwise, this first test of digital personalized discounts drew the attention of the Foundation for Consumer Protection. In an open letter, it complained that Migros was not providing transparent information and demanded that the statement “This discount/promotion was calculated for you personally using your Cumulus shopping profile” be displayed on every interaction point. As if that would change anything.

The response from Migros Group CEO was not long in coming: In a short statement, he explained that Migros had indeed provided broad and prior information about this and, moreover, that every user had to give their consent from the outset, i.e. as soon as they started using the Cumulus card.

Exposed in this way, consumer protection quickly changed the focus of its criticism and the esteemed CEO Stalder opened a new topic in which she accused Migros of not addressing “the real issue” in Bolliger’s statement. She goes on to write verbatim:

“Most of your customers know that they can benefit from Cumulus points because they provide Migros with data on their individual shopping behavior in return. Anyone who doesn’t want to do this won’t take part. But that is not the point. Customer data is not just used for targeted advertising, but deliberately to influence purchasing behavior. That’s a new dimension.”

You have to read that twice. Because, of course, the point is that you are free to choose. Nobody has to. It would be completely different, for example, if profiles were created in stores using facial recognition and you had no way of escaping this profiling. Something that is already possible and will definitely come.

The second point is even more absurd: advertising always, always, has the goal of influencing purchasing behavior. Why on earth would anyone else advertise?

To speak of it as a new methodological dimension shows very little understanding of how technology plows its way into our society. And it gives rise to the suspicion that Sara Stalder and her “consumer protection” simply had to “react”. For their self-legitimization, so to speak. As much as I am in favor of consumer protection, I am sorry to say that this institution has made a name for itself with many rather dubious campaigns and publications. This is another one.

Social pricing

The masses have obviously quickly put 1 and 1 together and have already discussed and debated personalized prices instead of discounts, so to speak, as a precautionary measure. This is indeed the logical core of the new technological possibilities: A social issue. The comments sections of articles in the media are full of it. The issue has been boiled down to the question of whether consumers with higher incomes should also pay higher prices.

A survey by “20 Minuten”, which comes very close to being representative, comes to the conclusion that around 70% do not want this.

That is quite astonishing. Because socially, we are seeing a trend towards more social compatibility, more equality. What is happening in this discussion is that consumers are confusing nominal equality with relative equality.

Because it does make a difference to price perception and personal profitability whether I earn 250k francs a year or 50k francs. The much-cited diaper probably costs the same nominal price, but the perceived relative price is fundamentally different. Anyone who has ever shared an apartment and costs with a partner with a significantly different income, for example, can tell you a thing or two about this. And rightly so, by the way.

And while, for example, in the tax system an income-based tax rate calculation, which is nothing other than a price, is considered fair, social and logical, this principle is no longer considered to be correct when pricing everyday goods.

We all live in this analogy that the same prices for everyone are a fair thing. But de facto they are not. I also maintain that we only have these uniform pricing models because nothing else was possible in the past. Today, however, it is becoming increasingly possible. And I believe that this is extremely fair, especially from a social point of view, just think about VAT.

Cost structure no longer comprehensible

I think we will move more and more in the direction of “perceived value pricing“. I believe that in the B2B sector, especially in the service sector, this has already been happening unconsciously for some time. Large and well-performing companies are generally offered higher prices than smaller companies. Although these offers are then usually negotiated down again by the purchasing departments in the toughest possible way, a higher price usually remains in the end.

I really understood the concept of “Perceived Value Pricing” when we tried to find a cost-based calculation for the pricing of our start-up Accounto. As we are implementing new technology and new paradigms, costs arise in places that the customer cannot understand. For example, while a traditional fiduciary/tax consultant is concerned with a number of documents to be processed, it is precisely this number of documents that has a relatively low cost relevance for us. The pricing model based on effective cost drivers was incomprehensible to anyone but us. And it was super-complicated.

“Perceived value pricing” is socially fair pricing

As part of this process, I looked in detail at “perceived value pricing”. The question was simple: how can we design pricing that is as simple as possible, that the customer understands immediately, that represents great value for them and that does not create any difficulties in argumentation? The simple solution for us was fair pricing. Today, we base our pricing on two simple economic indicators: turnover and the number of employees. The larger and more economically successful the customer, the higher the price. Quite simply because he can afford it and, above all, because the value of our service is higher for him than for a smaller customer.

Why we shouldn’t apply this in other areas, such as retail, is beyond me. Of course, it feels intuitively right to say that everyone has to pay the same amount. But in fact this doesn’t mean that we have to stick with it forever.

Duttweiler, the turn, the grave

Most of all, however, I doubt that Duttweiler, the visionary and social founder of Migros, would be “spinning in his grave” due to the development of personalized discounts, as described in so many reader comments. Undoubtedly a fine-sounding slogan, but it couldn’t be more wrong.

Because if Duttweiler was anything, it was socially minded and very open to new concepts. And for the most part, he didn’t give a damn about popular opinion. Otherwise Migros would not exist today. But that was all a long, long time ago.