The Dark Side of Web Tracking

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The Washington Post exposes a dark secret of online retail: The use of a customer's past purchase history—or even his or her web usage—to extract the highest price possible.

One way they fight back against picky customers is through "dynamic pricing," also called "discriminatory," "personalized," or "variable" pricing. And, for the most part, customers have no idea it is happening.

In its most brazen form, it works like this: Retailers read the cookies kept on your browser or glean information from your past purchase history when you are logged into a site. That gives them a sense of what you search for and buy, how much you paid for it, and whether you might be willing and able to spend more.

They alter their prices or offers accordingly. Consumers - in the few cases they recognize it is going on, by shopping in two browsers simultaneously, for instance - tend to go apoplectic. But the practice is perfectly legal, and increasingly common - pervasive, even, for some products.

That's via Chris Kulczycki, CEO of one of my favorite online retailers, Velo Orange, which, Kulczycki notes, does not engage in the practice.

As a customer, his Tweet made me happy. It also made me think that this could be a looming issue as Congress looks into some of the shadier Internet advertising practices.

About a year ago, when buying a plane ticket that mysteriously went up in price at the last minute, I became convinced that the airline was employing the very same tactic. "Apoplectic" was a mild description of how I felt. The customer service agent assured me up and down that my suspicions were unfounded, that the airline did not adjust prices based on web surfing. Now I'm not so sure—and I'm guessing this practice will cause a fair amount of consumer outcry, maybe even action by regulators.

Earlier this week, USA Today reported on a plan by the FTC to create a Do Not Track database that would allow people to opt out of so-called "behavioral targeting," whereby retailers customize ads based on your web surfing. (Behavioral targeting, which accounts for more than 80 percent of all ad campaigns according to the article, is the reason that handbag has been following you around the web in banner ads.)

The advertising industry insists that behavioral targeting is good for consumers—who doesn't want targeted ads, after all?—but I think it's going to be harder to make that argument if they're using it to raise prices.

Senior contributing writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin