The rise of e-commerce has provided companies with rich new sources of information on their customers, based on the clickstreams that users generate as they navigate through a commerce site. This finely grained data brings with it a host of potential new ways to segment customers and tailor a product or service to their specific interests and priorities. Ross Parker has found an interesting example of one such tactic on an online travel site. The site changes the price of a hotel stay displayed to the user based on whether the user sorts the results by lowest price first, or highest price first. The logic seems to be that customers who sort the results from high to low are less price-sensitive than others, and might be willing to pay a higher price for the same hotel room.

The clever idea of travel sites seems to me not to discriminate on any information you provide but rather on information that you request and, crucially, how you request it. Specifically, they know if you have chosen to sort prices ‘lowest first’ or ‘highest first’. This information can be used to the companies’ advantage.

If you sort your search results so as to see the cheapest option first, you’re probably looking for a budget hotel and a good value break. To get your custom, the firm will have to be competitive at the lower end, with headline grabbing rates - ‘Prices from only £x!’. To get you to make them a little more margin, they’ll want to tempt you up the scale a little bit - ‘For only £10 extra you could upgrade to…’. So a pricing structure for this sort of customer would be cheaper for the same reason that student cinema tickets are cheaper: the customer is more sensitive to price.

Conversely, if you sort your search results ‘highest first’, you aren’t looking for a bargain break. You may still want a good deal, but you’ve already indicated that you’re willing to pay for a good holiday and money is not your main concern. So you’d expect prices here to be a little dearer, especially at the top end. Furthermore, you want these people to think that they wouldn’t be saving much going for a cheaper hotel, thus helping them rationalise their choice of a top hotel.

As retailers become increasingly sophisticated at leveraging the massive databases of customer information they already have, can more of these types of tactics be far behind? In many ways the internet is providing the laboratory that economists have never had–a tool for running experiments, which is giving a more thorough understanding of consumer behavior and a venue to gather empirical evidence for new and existing theories.

Read more: Price discrimination in online travel firms

via Marginal Revolution