The BigBrotherAward 2017 in the “Consumer Protection” Category goes to
Jens Scholz, CEO of Prudsys AG, Chemnitz,
for their price discrimination software, in other words, for being an accessory to profiteering and for promotion of social discord.
Science – including mathematics and computer science – is a good thing. It is about doing research, gaining insights and putting them into practice (e. g. as an academic spin-off company) for the benefit of humanity.
Our laureate, Prudsys, is a spin-off of the Chemnitz University of Technology. The company’s business is data mining. For as long as we have been issuing the Big Brother Awards (since the year 2000), Prusys has hosted the “Data Mining Cup”, an event where the best of the best compete to extract one or the other data nugget from huge buckets full of big data. With these methods – so they say – unknown diseases could be cured, and the global hunger problem could be solved.
Prudsys, however, doesn’t seem to be interested in these philanthropical concerns. Their business model offers something different: Price discrimination. In 2000, we already encountered a similar case at the BigBrotherAwards: The company Payback received one of our pretty but undesirable awards for their loyalty cards.
Prudsys develops algorithms and strategies enabling retailers to charge the highest price possible for a given product, be it apples, milk or a digital camera, be it online or offline, without losing you as a customer. It’s no longer the value of the product that determines the price, it’s you. You and me. The retailer has to gather enough information about us to determine the maximum price we are willing to pay. Translated into marketing jargon this is called “exploratively and dynamically testing the price acceptability threshold”.1 This might sound absurd, but it’s a fact.
Let’s assume that you are a single father: After work, you have to hurry to the daycare to pick up your daughter and – quickly! – do some shooping before preparing dinner. In this situation, I assume, you won’t check out three different shops to compare prices and buy at the most favourable price. Instead you will choose the shop that can be visited on the way home or with the shortest detour and throw into the trolley whatever is written on the shopping list. If the shop doesn’t happen to guarantee “permanent low prices instead of special offers”, you will surely pay more than someone having more time for shopping.
“Ha!”, you might anwser. “But I have my loyalty card. Therefore I get everything at lower prices anyway.” Double-HA! is my answer. Now you are doomed more than ever! Because now, your retailer knows what you buy habitually, when you buy it, how much you spend on average, and if you pay in cash or with your debit or credit card. The retailer can estimate how many persons belong to your household, and can use discount coupons to steer you where they want to have you. Away from the products that generate smaller profits, towards the more lucrative goods. The retailer can estimate how many customers won’t come back anymore, and whether it will pay off anyway to take the 2 kg pasta packages off the shelf and only offer 250 g packages instead. Which are, unfortunately, a little more expensive.
All these decisions, by the way, are not taken by the friendly store manager but in the head office. The head office can surely take better decisions than the local staff, because the head office amalgamates all the data, analyses it, enriches it with further information such as the weather, the season, weekday, time, as well as the fact that the competitor has just launched a special promotion (we’re not joking) – and just like that the electronic price tag on the shelf can be changed.
This is possible because the head office has competent advisors: The pricing systems are connected to the “realtime decision engine” software, or just RDE, developed by Prudsys. This is how they describe it in their own words:
“The prudsys RDE is the first dynamic pricing tool to be able to find the best possible pricing in real time. The prudsys RDE is used to completely automatically adapt thousands of product prices to customer behavior as well as to the constantly changing market and company situation.
Thanks to the combination of personalized product recommendations and personalized price advantages, customers are rewarded with discounts on products that are relevant to them. Personalized coupons created automatically in customer newsletters, mass mailings and mobile apps are particularly useful ways of implementing personalized pricing. Personalized discounts can also be generated as part of check-out couponing on the receipt, using customer loyalty cards or by way of in-store kiosk systems.”
What Prudsys describe here clearly escalates what we already know today: the same DVD is always 30 % more expensive in the Marktkauf store in Rahden (a rather poor neighboorhood) compared to the Marktkauf in Lübbecke (where the locals tend be better off).
So if this works great in the retail store on the street, shouldn’t it work even better for online shops? Here, as one of the Prudsys CEOs said in an interview, retailers just can’t do without price discrimination (which of course is not really called price discrimination but “dynamic pricing”) in the age of Amazon and the like: without “dynamic pricing”, online shops soon just won’t sell anything anymore.
So what can we do? Here’s some practical advice: When you want to book a trip, use a Windows computer instead of a Mac. Otherwise it will be more expensive. Want to book a trip with your mobile phone? A very bad idea, as that can get seriously expensive. But if you insist on taking this road, you’d better not use your iPhone but a phone that runs Android instead.
That is just a first and rough distinction. The Prudsys algorithms are much more discerning in how they amass their data – data that many people deem “insignificant anyway” and negligently give away. Every coffee you buy may be used against you! Whenever you buy online, what you see is an interface or surface created by a designer on behalf of the retailer. Your neighbour is seeing another. Your colleague yet another. The word ‘surface’ hits the nail on its head. You can just see a tiny tip of the process behind your decision-making and purchase. Under the hood, data is being shifted back and forth, calculations are carried out, the price is haggled over internally, all for the one and only purpose: To rip you off. Whenever you buy online, you have to imagine that under the surface, you could hear a faint giggling noise and the sound of merchants rubbing their hands in glee.
This is a world driven by greed. In this small universe, there are no humans, no individual products, no satisfaction, no service. Here, there’s only numbers. Ones and zeros, and in the end they are taking the shape of a massive profit in Euros and Dollars. Prudsys says that every day, one billion decisions are taken via their algorithms. The annual turnover of goods that are traded using these algorithms amounts to 8 billion Dollars. Even though you might already have learned that terms like “premium customer”, “discount” or the promise “save …” are to be avoided like the plague – there’s virtually no escape. Even if you do as a young woman who wanted to book a hotel room in Brussels did, and cancel your reservation 17 times just to save 1.38 € in the end. The world won’t turn into a funny, gigantic oriental bazaar. You as a customer are no longer dealing with the market trader woman, with whom you can bargain for the price on a par. Only one party is bargaining here, because the merchant knows everything about her customers, but the customers don’t know anything about the merchant. There is no more equal basis in this, no peace, but a constant trigger for the bad feeling of losing out. And rightly so.
With data mining, dear Prudsys, with your capabilities it would probably be possible to overcome incurable diseases and the global problem of hunger. Sadly, you have chosen the dark side of the force: greed.
You have already received a number of awards: “Top 100”, “IT innovation award”, “Top Product Commerce”, “City of Chemnitz mile stone” … and now you get a “Top BigBrotherAward 2017” on top of that. Congratulations, Jens Scholz of Prudsys.