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OFT to investigate fairness of personalised pricing

The Office of Fair Trading (OFT) will investigate the use of 'personalised pricing' in a bid to discover if the practice treats consumers fairly. 15 Nov 2012

The UK's consumer protection regulator has launched a "call for information" in a bid to find out whether businesses monitoring consumers' online behaviour and using the information to offer individualised prices are keeping within consumer laws.

"Some businesses monitor consumer behaviour online, collecting and recording information about individual shoppers' purchasing habits, websites they have visited and the items and services they have looked at, as well as the type of device or internet browser they use," the OFT said in a statement. "The OFT will look at how businesses use such consumer information, including whether they change the prices they offer individual shoppers as a result."   

"The OFT will  consider business and technological developments in the online shopping market, consumers' understanding of how their information is used and whether they are being treated unfairly in law as a result of any firms using this practice," it said.

Rules governing unfair business practices are set out in the Consumer Protection from Unfair Trading Regulations (CPRs).

The regulations state that a practice is unfair if it fails to meet the standard of "professional diligence", which is the standard of skill and care that would reasonably be expected of a trader in its field of activity, and it materially impairs an average consumer's ability to make an informed decision, causing him to make a decision he would not otherwise have made.

Under the CPRs 31 practices are deemed to be unfair in all circumstances. A trader carrying out any one of these will have breached the CPRs, whether or not it had any effect on the average consumer. One of those practices prohibited is where businesses rely on materially inaccurate market information to persuade the consumer to buy something on less favourable terms than normal market conditions.

The OFT said it would consult with other international regulators, including the US Federal Trade Commission, on the issue of "commercial uses of consumer data". The FTC itself has arranged a "workshop" next month to look into the consumer data collection practices that exist and the "privacy implications" associated.

"Our call for information forms part of our ongoing commitment to build trust in online shopping so that consumers can be confident that businesses are treating them fairly," Clive Maxwell, OFT chief executive, said in a statement.

"We know that businesses use information about individual consumers for marketing purposes. This has some important potential benefits to consumers and firms. But the ways in which data is collected and used is evolving rapidly. It is important we understand what control shoppers have over their profile and whether firms are using shoppers' profiles to charge different prices for goods or services. This call for information will help us understand these practices better and to decide whether or not this is an issue on which the OFT needs to take any action," he added.

The OFT said it was particularly interested on hearing from online retailers and software providers during its six month information-gathering exercise. It said it would publish its findings in the spring of next year.

The regulator has addressed the issue of online targeting of advertising and pricing previously. In a 2010 report the OFT said that UK data protection laws as well as the CPRs would be engaged where businesses charge different prices to consumers based on their browsing behaviour, previous purchases or geographic location. It said that that companies using these techniques without informing users risk breaching the CPRs.

"If consumer opposition to such practices is strong, it is highly likely that the knowledge that they were being applied would change behaviour," the OFT said in its report. "Pricing on the basis of browsing behaviour may therefore breach the CPRs if consumers are not clearly informed about the practice."

At the time the OFT acknowledged that its discussion around such price targeting was "largely hypothetical". It said that it had found no evidence of any firms increasing prices to consumers on the basis of their online behaviour at the moment. "The fear of a consumer backlash, in itself, means that firms are reluctant to engage in targeted pricing to preserve their own reputations," said the report.

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