Will Customer Data Be Used to Determine Level of Service?

I PREBOARDED A FLIGHT from Boston to Los Angeles as soon as the jet-way door opened?one of the several useful perks of first class. Soon the rest of the gentry settled in around me. As we pushed back from the gate, a flight attendant stopped at my row. “Mister, uh, Barker?” she said, awkwardly consulting a computer printout attached sideways to a clipboard. The man next to me nodded. She leaned conspiratorially close to him, and said, “Just so we don’t run out of something you want, I’ll take your dinner order now.” He went with the chateaubriand and she vanished. Having been deprived of a slightly-better-than-leather steak on earlier flights, thanks to the vicissitudes of seat placement even in the first-class cabin, I stewed anew. Is the airline food selection lottery now loaded? Did she somehow know that I earned my front cabin seat thanks only to a frequent-flier upgrade, while Mr. Barker paid full price? Should I care, especially since those in coach weren’t even allowed a ticket to the decent food lottery up here?

Where the airlines are going the Internet will follow, and with it may ultimately go most of our daily transactions.

Here’s what’s happening. First, as we all know, merchants are learning lots about us as we surf the Net. We willingly part with personal information as we fill out order forms and delivery addresses for CDs or groceries, and, of course, our ZIP codes say a lot more about us than just where to find us. In addition to the stuff we type, there are the now-classic mouse droppings: How long do we linger on a page, in microseconds, before we click “buy”? What are we apparently shopping for but not yet ready to buy? These sorts of questions can be answered by our very surfing, rather than by anything we explicitly seek to tell an online vendor. And yes, thanks to cookies (or, increasingly, the tracking of IP addresses assigned to individual computers), websites can recognize us as people who have visited and developed a profile before.

This sort of data collection has those sensitive to privacy up in arms, but the nightmares they describe are usually quite tame. Most revolve around a distaste for junk mail. With a good sense of my preferences, merchants can push advertisements at me that I’m more likely to respond to, and information vendors can tailor my news to accord with my projected interests. (See Andrew L. Shapiro’s insightful lament over personalization, “Too Close for Comfort,” in the Aug. 1, 2000, issue of CIO.) Still, this is privacy Armageddon?

Soaking the Rich

I suggest a separate vision, one that may be more disturbing to most of us. It involves merchants’ use of our personal information to provide differential levels of service, or even differential prices, to different people for the same product or service. Airlines already sell their tickets to us by name, and they’re not transferable. Thus, they can offer tickets for adjoining seats on the same flight at an array of prices, making educated guesses about what a particular customer is willing to pay. Last-minute business travelers are a lot less price sensitive than students willing to be flexible about dates and times, and the respective prices reflect that. In a latter-day version of Robin Hood’s redistributive crusades, executives on expense accounts are now soaked to subsidize the travel of a sophomore on spring break.

But the airlines’ presumptions about the thickness of our wallets pale in comparison to the wealth of data available on the Web. Suppose Amazon.com quoted you a different price for a book than to your next-door neighbor? Indeed, imagine that everything on the Web were priced with just you in mind. Buying a week’s worth of groceries can suddenly involve as much price variation as buying a car, a project in which a talented salesperson can extract several thousand dollars more from the rich (or foolish) than from the poor (or frugal). What coupons only roughly hinted at (those who don’t bother to clip them pay more for the same products as those who do), the Web may force outright.

Of course, as long as customers can shop for a better price elsewhere, it will be difficult for merchants to soak not just the rich and lazy, but also the rich and frugal. Yet that may change: Even as the Web has made it easy to jump from one site to the next to compare prices, some merchants are trying to prevent so-called meta sites like MySimon.com or Pricescan.com from assembling comprehensive rosters of prices to allow for ready comparison. (Indeed, they’re claiming that the meta sites’ robots are engaged in cybertrespass as they gather pricing information.)

Price isn’t the only variable at work. There’s service too. Banks have long kept notations on customers’ records, grading them from, say, A to C on the basis of how much they’re worth to the bank. If a C demands specialized attention from an associate, she may have to wait just a bit longer than an A and be turned down on a request that would have been granted instantly to a B.

How long before brick-and-mortar stores start using their frequent-shopper cards and accounts to determine whom to rush to on the sales floor and whom to politely ignore? This happens often enough, when the well-dressed shopper is distinguished from the scruffier one, and many are not offended at the merchant’s behavior. But at some point a difference in degree can become a difference in kind, and we will find ourselves in a world in which we are instantly and pervasively graded, and treated in accordance with our finely grained economic rank. A Home Depot, online or off, can become as picky as the bouncer outside a Beverly Hills nightclub where velvet ropes lift and fall like a round of London Bridge.

Economists debate whether price discrimination, and its companion, service discrimination, are good things. Airline executives can make a persuasive case that without it there would be far fewer people who could avail themselves of a flight as prices converged to some sort of average.

To be sure, the ability to click comparatively from one site to another on the Web might keep prices down for everyone. Jumping from Amazon.com to Barnesandnoble.com is easier than clipping a coupon. But some customers really are worse than others; they return products more frequently or buy only the underpriced “loss leader” items, failing to return for the other goods in the store for which the loss leaders were intended as bait. This is a long-acknowledged drawback for business, but rarely has it been punished, until now. Anecdotal accounts?derived from the transactions of a student research assistant who is as frugal as he is sharp?suggest that at least one popular Web merchant has begun to refuse to deal with people deemed unprofitable. Their order requests are denied, even when accompanied with a valid credit card number.

As we hurtle toward a caste system in which each of us stands to be judged and treated in accordance with our tabulated station, we should consider: Is it the mere existence of a grocery store’s long line that annoys us, or the fact that another line moves faster than ours? Should we tolerate the kind of thing that is already happening to us in the air as we sort ourselves among economy, business and first?

The solution may lie in a new sort of public accommodation doctrine, through which consumers could expect roughly equal treatment when purchasing the same products or services. Alternatively, a set of full disclosure rules could require companies to disclose the range of prices for which a given product or service is offered and why, not unlike the requirement by which food manufacturers must list the ingredients on packages. At the very least, attempts to build architectures that allow ready price comparison?like Bidder’s Edge or Pricescan.com?should not be precluded through legal maneuvers.

We are in new territory here, and we’d better think hard and harmonize expectations early on. If we don’t, we could pay a hefty price?both literally and figuratively?later on.