In Brief: The Federal Trade Commission has proposed requiring businesses to disclose when they use an individual consumer’s personal data to determine prices. For hotels, the proposal could require reviews of pricing systems, privacy disclosures and third-party contracts, while traditional demand-based dynamic pricing would remain separate from the rule.
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Proposed FTC Rule Draws Distinction Between Personalized and Dynamic Hotel Pricing – Image Credit Unsplash+
FTC Proposal Focuses on Consumer-Specific Prices
The Federal Trade Commission has proposed a rule requiring businesses to tell consumers when they use personal information to set a price specifically for them. The proposal addresses personalized pricing, also known as surveillance or algorithmic pricing.
Under the proposal, a business would need to disclose the practice before a consumer completes a purchase if its price is based on personal data about that individual and may differ from the price shown to another consumer. The proposal would not ban personalized pricing but would require disclosure.
Personalized pricing can result in two consumers receiving different prices for the same product at the same time because an algorithm determines that one is more likely to pay more.
Personalized Pricing Differs From Dynamic Pricing
Danielle Kays, a partner at law firm Fisher Phillips, said the proposed rule should be distinguished from standard dynamic pricing. Hotels commonly adjust room rates based on demand and room availability. Those changes are not based on information unique to an individual guest.
Personalized pricing, by contrast, uses data associated with a particular consumer. That information may include browsing history, location, shopping habits or other data gathered by a company. The resulting price is not necessarily related to supply-and-demand conditions.
Hotels May Need to Examine Systems and Disclosures
Kays said hotel operators should assess whether their pricing practices incorporate consumer-specific data. Hotels should also review existing disclosures about how and where they use such data to set prices and determine whether those disclosures need updating.
Contracts with third-party vendors could also be relevant. Hotels should identify whether third parties use personalized pricing and determine whether guardrails are needed regarding the data used.
Proposal Remains at Public-Comment Stage
The FTC has opened a public comment period through Sept. 18. Because the proposal is not final, any action will take time.
The agency’s action follows consumer lawsuits involving personalized pricing and broader government attention to the practice. Hotels should monitor the proposal’s progress for changes.
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