Caveat Emptor: Front-Running in the Online Marketplace
Front-running is one of the oldest (dirty) tricks in the financial marketplace. Here is the definition of front-running offered by Investopedia:
What is Front-Running?
Front-running is when a broker enters into an equity trade with foreknowledge of a block transaction that will influence the price of equity, resulting in an economic gain for the broker. It also occurs when a broker buys shares for their account ahead of a firm's strong buy recommendation to clients. Front-running is also known as tailgating. Front-running is a prohibited practice for brokers.
Source: Investopedia
Note well, front-running is a prohibited practice for brokers. Why is it prohibited? Because it takes unfair advantage of the public to benefit operators with an informational edge.
I was contacted last month by a client of ours who had questions about how prices for various items listed for sale changed when shopping online. She had a hunch that vendors were tracking her buying habits and raising the prices on items she had previously purchased.
She felt like she was being taken advantage of.
And the way she described her experiences made them sound a lot like front-running, but a digital, online version.
Coincidentally, I had a personal experience that caused me to believe that I had been gamed too. I am a regular buyer of instant oatmeal and was offered the opportunity to “subscribe and save.” Being a tightwad at heart, I accepted the offer.
Imagine my surprise when the next order was automatically entered at a price 47% higher than all of my precious on-off orders! I was livid and immediately opened a dialogue box with a support specialist.
We chatted for at least 30 minutes, with him putting me on hold to research the specifics regarding my transactions. In the end, he offered to apply a coupon to the purchase to adjust the price to what I had been paying right along.
Case closed. I chalked it up to an aberration and thought Amazon’s customer service team did an excellent job of making a regular client happy.
But then I heard from our client and I decided to dig deeper. Here’s what I discovered.
“[Dynamic pricing]¹ is a blanket term for any shopping experience where the price of an item fluctuates based on current market conditions.”
Think of it as price manipulation in real time based on, to begin with, supply and demand. However, it doesn’t end there. Other factors, including your buying patterns, zip code and personal information, can be used to benefit the seller at your expense.
To be fair, dynamic pricing can work both ways and a savvy shopper might end up benefitting by carefully shopping for bargains and just saying “no” to jacked up prices. The Feedvisor blog by Tami Ben-David, published on December 22, 2014, provides a balanced view of the practice. Its title is “How Does Amazon Dynamic Pricing Work?”
Clearly this strategy has been around for quite some time. Think about airfares, for example, or the price of roses approaching Valentine’s Day. I think most people take it for granted that many prices vary seasonally and are all right with that notion. What I think my client and I objected to is the notion that our behaviors were being monitored and that information was being used against us.
If you are concerned about dynamic pricing taking advantage of you, you should track down an article on the financial blog, Wise Bread, titled “6 Sneaky Ways to Avoid Sneaky Online Price Changes.”² It was authored on August 5, 2015 by Kyle James and covers tactics like browsing in Incognito/Private mode, disabling third-party cookies and what they refer to as “The Amazon Factor.”
You can use online information to your advantage with numerous sites that track price changes, looking for markdowns and sales. The Wise Bread blog mentions Camel Camel Camel, but there are many others. For example, ten alternatives can be found at the ProductHunt website.
Importantly, dynamic pricing is not illegal. In fact, it is commonly employed by many sophisticated online sellers. There is what appears to be a growing army of artificial intelligence consultants who specialize in dynamic pricing optimization. The pricing battles will likely continue to escalate.
As always, caveat emptor: let the buyer beware.
Sources:
¹ https://feedvisor.com/resources/e-commerce-strategies/amazon-dynamic-pricing/
² https://www.wisebread.com/6-ways-to-avoid-sneaky-online-price-changes
