Consumers shopping online are seeing personalized pricing set by AI, such as airlines, retailers, and delivery apps, deploying algorithms that mine vast amounts of data to determine what individuals dynamically and personally are willing to pay.
Consumers are using ChatGPT and other AI apps to book vacations and shop online. What many do not realize is that companies are using AI pricing software to squeeze more from their wallets.
Mining vast troves of data, AI for pricing is setting prices for everything from airline tickets to groceries, learning shopping habits and generating offers that hinge partly on what the AI thinks a customer is worth.
The AI pricing tools practice varies by industry but is becoming pervasive.
Delta Air Lines has started using AI to set fares for domestic tickets, while retailers such as Home Depot and Kroger are using AI pricing algorithms to analyze data on consumers and tailor prices accordingly.
Royal Caribbean CEO Jason Liberty said AI is managing “15 million price points” a day, adding, “our AI tools are getting smarter and smarter so that we’re able to curate what is relevant to that consumer.”
From Dynamic Pricing to “Surveillance Pricing”
Dynamic pricing and personalized pricing have existed for years, reacting to supply, demand, timing, and competitor prices. Airline tickets rise during school holidays, hotel rates jump during major events, and ride-share fares surge when demand peaks, and therefore enterprise generative AI pricing models have been here to aid.
AI for pricing systems increasingly use browsing history, purchase habits, device type, location, and timing to predict willingness to pay. Two people looking at the same product at the same time may see different prices.
A European Parliament study defines personalized pricing as “price differentiation for identical products or services at the same time based on information a trader holds about a potential customer.”
“Consumer data isn’t just fueling personalization; it’s redefining pricing,” said IDC research manager Adam Wright. “With AI tools mining billions of data points in real time, prices can now better reflect demand, loyalty, and context.”
In 2019, European researchers found AI pricing tools “consistently learn to charge supra-competitive prices.”
A more recent Carnegie Mellon study showed that personalized pricing rankings increase prices by an average of 29%.
“The way this is being pitched to investors is that, through hyperpersonalization, companies will be able to significantly raise revenue and margins,” said Samuel Levine, former director of the Federal Trade Commission’s Bureau of Consumer Protection.
Groceries, Airlines, and Regulatory Response
AI pricing software is spreading across e-commerce and grocery delivery. A study by Groundwork Collaborative and Consumer Reports found almost 75% of grocery items on Instacart were offered at different prices. The same basket of groceries varied by about 7%, a swing that could total $1,200 per year.
Instacart said a “small subset” of retailers run limited dynamic pricing tests and that prices “never change in real time,” adding the tests do not use personal or demographic data.
Lawmakers are alarmed by the idea of algorithmic pricing and the fact that this has become the new norm.
“Companies like Instacart are using artificial intelligence to rip off consumers,” said Senate Minority Leader Chuck Schumer.
New York State has enacted a law requiring companies to reveal if they use dynamic pricing algorithm. The Federal Trade Commission (FTC) has examined surveillance pricing, while similar measures stalled in California.
Delta said it is not using AI in pricing to set personalized ticket prices, after drawing backlash from Democratic senators.
“I think what’s most important is that it’s done in a noncreepy way,” Royal Caribbean’s Liberty said.
As personalized pricing AI tools grow more powerful and regulation remains uneven, one thing is increasingly clear. The next time transparent pricing changes while you browse, it may not be the market reacting.
It may be AI pricing tools deciding what you will tolerate paying.
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