Personalized Consumer Pricing Can Actually Backfire on Profits
- News
- Aug 27
- 1 min read
Hiding prices can hurt the bottom line.
New research from the Rotman School of Management at the University of Toronto finds that companies using personalized pricing risk lower profits when they prevent customers from seeing what others are paying.
The effect is strongest for products and services whose value grows with more users, like social networks or e-commerce platforms.
By concealing prices, firms make it harder for consumers to gauge demand, discouraging them from buying in. The result? Higher prices, but fewer customers, and ultimately weaker profits.
"We illustrate that when externalities exist in consumer purchase decisions, the price opacity associated with personalized pricing can result in coordination failures among consumers, ultimately injuring firm profits. In such scenarios, a firm's commitment to lowering prices becomes valuable in restoring profitability."
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